Refund More Than 10% Of Tax As Determined On Regular Assessment, CEAT Entitled To Interest On Refund Of Rs. 5.24 Cr.: Bombay High Court

The Bombay High Court has held that Ceat Limited is entitled to interest on a refund of Rs. 5.24 crore as the refund is more than 10% of tax as determined on regular assessment.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that the words “amount of refund” must mean the whole of the refund of Rs. 5,24,29,950 and not an artificial split as canvassed by the Department. Therefore, irrespective of what the words “regular assessment” mean, the proviso would not be attractive.

The appellant/assessee challenged the order passed by the Income Tax Appellate Tribunal, Mumbai Bench (ITAT), dismissing the appellant's appeal and refusing a grant of interest under Section 244A(1)(a) on the refund admissible to the appellant. The ITAT refused to grant interest on the ground that the refund arising on regular assessment after allowing TDS and advance tax is less than 10% of the tax as determined on regular assessment.

The assessee contended that the ITAT has completely misdirected itself in adjudicating the controversy involved. Inasmuch as the facts and circumstances of the case, it is wholly academic whether the words “regular assessment” appearing in the proviso to Section 244A(1)(a) mean the original assessment order or the assessment order passed giving effect to the CIT(A) order. The real controversy is whether the words “amount of refund” in the proviso must be given their natural meaning and, therefore, the actual amount of refund ought to be considered, or whether it contemplates an artificial split of the amount of refund into various components of advance tax, TDS, SA Tax, and taxes paid pursuant to the demand raised. The words “amount of refund” must be given their natural or neutral meaning and must, therefore, mean the whole of the refund, i.e., Rs. 5,24,29,950. These words must not be read as permitting an artificial split of the amount into various components of advance tax, TDS, SA tax, and tax paid pursuant to demand.

The department argued that the provision of Section 244(1)(a) of the Act that applies to the Advance Tax and TDS component of the refund amount is incorrect. Since, out of the refund, the Advance Tax/TDS component is only Rs. 1,45,14,457, and that is less than Rs. 1.89 crore, which is 10% of the tax liability, whether pre or post CIT (A) order, it will be hit by the proviso.

The court, while rejecting the submission of the department, noted that if the proviso were read as per the department, it would have said, “Provided that no interest shall be payable if the amount is less than 10% of the advance tax or TDS component or treated as paid under Section 199 of the Act." Whereas, the proviso says, “provided that no interest shall be payable if the amount of refund is less than 10% of tax as determined under sub-Section (1) of Section 143 of the Act or on regular assessment.”.

The court held that the ratio of the Supreme Court's judgement in Tata Chemicals, which was rendered in the context of the amended law, is relevant, and the Supreme Court held that “refund becomes due when tax deducted at source, advance tax paid, self-assessment tax paid, and tax paid on regular assessment exceeds tax chargeable for the year as a result of an order passed in appeal or other proceedings under the Act. When a refund is of any advance tax (including tax deducted or collected at source), interest is payable for the period starting from the first day of the assessment year to the date of the grant of the refund”.

Counsel For Petitioner: Nishant Thakkar

Counsel For Respondent: Shilpa Goel

Case Title: Ceat Limited Versus Commissioner of Income Tax

Case No.: Income Tax Appeal No.320 Of 2003

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