Union Of India Tr.dir.of I.t. V. M/s Tata Chemicals Ltd.

Union Of India Tr.dir.of I.t. V. M/s Tata Chemicals Ltd. [2014] Insc 172 (26 February 2014)

Court Judgment Information

• Year: 2014
• Date: 26 February 2014
• Court: Supreme Court of India
• INSC: [2014] INSC 172

Text of the Court Opinion

(Refortable) IN THE SUPREME COURT OF INDIA

Civil Appelate Jurisdiction

CIVIL APPEAL No. 6301 OF 2011 |Union of India Through Director of Income Tax |. Appellant(s) | Versus |M/s Tata Chemicals Ltd. |. Respondent(s) | W i t h CIVIL APPEAL No. 2534 of 2012 CIVIL APPEAL No. 2535 of 2012 CIVIL APPEAL No. 2536 of 2012 CIVIL APPEAL No. 2537 of 2012 CIVIL APPEAL No. 2539 of 2012 CIVIL APPEAL No. 2540 of 2012 CIVIL APPEAL No. 2541 of 2012 CIVIL APPEAL No. 2542 of 2012 CIVIL APPEAL No. 2543 of 2012 CIVIL APPEAL No. 2944 of 2012 CIVIL APPEAL No. 2945 of 2012 CIVIL APPEAL No. 3445 of 2012 CIVIL APPEAL No. 3446 of 2012 CIVIL APPEAL No.3508 of 2014 @SLP(C) No.14048/2012 CIVIL APPEAL No.3509 of 2014 @SLP(C) No.14050/2012 CIVIL APPEAL No.3510 of 2014 @SLP(C) No.14051/2012 CIVIL APPEAL No.3511 of 2014 @SLP(C) No.14049/2012 CIVIL APPEAL No.3512 of 2014 @SLP(C) No.20154/2012 CIVIL APPEAL No. 5408 OF 2012 CIVIL APPEAL No.3513 of 2014 @SLP(C) No.27453/2012 CIVIL APPEAL No.3514 of 2014 @SLP(C) No.27454/2012 CIVIL APPEAL No.3515 of 2014 @SLP(C) No.27455/2012 CIVIL APPEAL No.3516 of 2014 @SLP(C) No.27456/2012 CIVIL APPEAL No.3517 of 2014 @SLP(C) No.27457/2012 CIVIL APPEAL No.3518 of 2014 @SLP(C) No.27458/2012 CIVIL APPEAL No.3519 of 2014 @SLP(C) No.27459/2012 CIVIL APPEAL No.3520 of 2014 @SLP(C) No.27460/2012 CIVIL APPEAL No.3521 of 2014 @SLP(C) No.27461/2012 CIVIL APPEAL No.3522 of 2014 @SLP(C) No.27462/2012 CIVIL APPEAL No.3523 of 2014 @SLP(C) No.27463/2012 CIVIL APPEAL No.3524 of 2014 @SLP(C) No.27677/2012 CIVIL APPEAL No. 7596 of 2012 CIVIL APPEAL No. 2589 of 2013 CIVIL APPEAL No.3525 of 2014 @SLP(C) No.25727/2012 CIVIL APPEAL No.3526 of 2014 @SLP(C) No.14768/2012 CIVIL APPEAL No.3527 of 2014 @SLP(C) No.5730/2013 CIVIL APPEAL No. 7772 of 2012 CIVIL APPEAL No. 3436 of 2012 CIVIL APPEAL No. 3427 of 2012 O R D E R 1. Leave granted.

2. The issue that arise for our consideration and decision in this batch of appeals is, whether the revenue is legally responsible under Section 244A of the Income Tax Act, 1961 (for short, “the Act”) for payment of interest on the refund of tax made to the resident/deductor under Section 240 of the Act.

3. At the outset, it is relevant to notice that the assessment years in all these appeals are on and after 01.04.1989, that is after the admittance of Section 244A of the Act by Direct Tax Laws (Amendment) Act, 1987 (4 of 1988) with effect from 01.04.1989, whereby provision for interest on refunds on any amount due to the assessee under the Act was introduced.

FACTS:

4. We would refer to the facts in Civil Appeal No. 6301 of 2011. The respondent is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the manufacture of nitrogenous fertilizer.

During the assessment year 1997-98, the respondent-company had commissioned its naptha desulphurization plant and to oversee the operation of the said plant it had sought the assistance of two technicians from M/s. Haldor Topsoe, Denmark. M/s. Haldor Topsoe had raised an invoice aggregating to US$ 43,290,06/- as service charges for services of the technicians (US$ 38,500/-) and reimbursements of expenses (US$ 4,790/-).

5. The resident/deductor had approached the Income Tax Officer under Section 195 (2) of the Act inter alia requesting him to provide information/ determination as to what percentage of tax should be withheld from the amounts payable to the foreign company, namely, M/s. Haldor Topsoe, Denmark. On the request so made, the Assessing Officer/ Income Tax Officer had determined and passed Special order under Section 195 (2) of the Act directing the resident/ deductor to deduct/ withhold tax at the rate of 20% before remitting aforesaid amounts to M/s.Haldor Topsoe.

Accordingly, the resident/ deductor had deducted tax of Rs.1,98,878/- on the entire amount of US$ 43,290.00/- and credited the same in favour of the Revenue.

6. After such deposit, the resident/ deductor had preferred an appeal before the Commissioner of Income Tax (Appeals) against the aforesaid order passed by the Assessing Officer/ Income Tax Officer under Section 195 (2) of the Act. The appellate authority while allowing the appeal so filed by the resident/ deductor, had concluded, that, the reimbursement of expenses is not a part of the income for deduction of tax at source under Section 195 of the Act and accordingly, directed the refund of the tax that was deducted and paid over to the Revenue on the amount of US$ 4790.06/- representing reimbursement of expenses by order dated 12.07.2002.

7. After disposal of the appeal, the resident/ deductor had claimed the refund of tax on US$ 4790/- (amounting to Rs.22,005/-) with the interest thereon as provided under Section 244A(1) of the Act by its letter dated 09.12.2002.

8. The Assessing Officer/ Income Tax Officer while declining the claim made, has observed, that, Section 244A provides for interest only on refunds due to the assessee under the Act and not to the deductor and since the refund in the instant case is in view of the circulars viz. Circular No. 769 and 790 issued by the Central Board of Direct Taxes (for short “the Board”) and not under the statutory provisions of the Act, no interest would accrue on the refunds under Section 244A of the Act. Therefore, the Assessing Officer/Income Tax Officer while granting refund of the tax paid on the aforesaid amount has refused to entertain the claim for interest on the amount so refunded by order dated 29.07.2003.

9. Since the Assessing Officer/Income Tax Officer had declined to grant the interest on the amount so refunded, the resident/ deductor had carried the matter by way of an appeal before the Commissioner of Income Tax (Appeals). The First Appellate Authority by its order dated 28.03.2005 has approved the orders passed by the Assessing Officer/ Income Tax Officer and declined the claim of the deductor/resident on two counts : (a) that the refund in the instant case would fall under two circulars viz. Circular No. 769 and 790 issued by the Board which specifically provide that the benefit of interest under Section 244A of the Act on such refunds would not be available to the deductor/ resident and (b) that a conjoint reading of Section 156 and the explanation appended to Section 244A (1)(b) of the Act would indicate that the amount refunded to the deductor/resident cannot be equated to the refund of the amount(s) envisaged under Section 244A(1)(b) of the Act, wherein only the interest on refund of excess payment made under Section 156 of the Act pursuant to a notice of demand issued on account of post-assessment tax is contemplated and not the interest on refund of tax deposited under self-assessment as in the instant case.

10. The deductor/resident, aggrieved by the aforesaid order, had carried the matter before the Income Tax Appellate Tribunal (for short, “the Tribunal”). The Tribunal while reversing the judgment and order passed by the Commissioner of Income Tax (Appeals) has opined, that, the tax was paid by the deductor/ resident pursuant to an order passed under Section 195 (2) of the Act and the refund was ordered under Section 240 of the Act, therefore, the provisions of Section 244A(1)(b) are clearly attracted and the revenue is accountable for payment of interest on the aforesaid refund amount. Accordingly, the Tribunal has allowed the appeal of the deductor/ resident and directed the Assessing Officer/ Income Tax Officer to acknowledge the claim and allow the interest as provided under Section 244A(1)(b) of the Act on the aforesaid amount of refund, by order dated 28.06.2008.

11. The Revenue being of the view that they are treated unfairly by the Tribunal had carried the matter by way of Income Tax Appeal before the High Court. The High Court has refused to accept the appeal filed by the Revenue by the impugned judgment and order, dated 18.06.2009. That is how the Revenue is before us in these appeals.

12. We have heard the learned counsel appearing for the Revenue and the respondent-assessee in these appeals and also carefully perused the orders passed by the forums below.

RELEVANT PROVISIONS:

13. To appreciate the view point of the learned counsel for the Revenue, we require to notice certain provisions of the Act prior to the insertion of Section 244A of the Act. The sections that require to be noticed are; Sections 156, 195(2), 240 and 244 of the Act. A perusal of these sections essentially would indicate the procedure whereby the tax amount is paid and the refund of excess amount is claimed by the assessee.

The relevant part of the said sections is sequentially reproduced:

“Section 156. Notice of demand When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.

*** *** *** Section 195. Other sums (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head ‘Salaries’) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force:

Provided that in the case of interest payable by the Government or a public section bank within the meaning of clause (23D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of chaque or draft or by any other mode:

Provided further that no such deduction shall be made in respect of any dividends referred to in Section 115-O.

Explanation.- For the purpose of this section, where any interest or other sum as aforesaid is credited to any account, whether called ‘Interest payable account’ or ‘Suspense account’ or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(2) Where the person responsible for paying any such sum chargeable under this Act other than salary to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

*** *** *** Section 240. Refund on appeal, etc.

Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.

*** *** *** Section 244. Interest on refund where no claim is needed (1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed the Central Government shall pay to the assessee simple interest at fifteen per cent per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.

(1A) Where the whole or any part of the refund referred to in sub section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:

Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted:

Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee under this subsection, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess.

(2) * * * (3) The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989, or any subsequent assessment years.

14. Section 156 of the Act talks about payment of tax, interest, penalty, fine or any other sum payable in consequence of any order passed under the Act on service of notice of demand issued by the assessing officer to the assessee specifying the said amounts.

15. Section 195(1) casts an obligation upon every person in this Country to deduct tax at the prevailing rates from out of any sum which is remitted to a non resident/Foreign Company. Sub Section (2) of Section 195 provides that where a person responsible for paying any such sum chargeable under the Act to a non resident/Foreign Company considers that the whole of such sum would not be the income chargeable in the case of recipient, he may make an application to the assessing officer/income tax officer to determine, by general or special order, the appropriate proportion of such sum so chargeable. The assessing officer is expected to determine such sum/tax which are deductible out of remittance to be sent to the recipient and only after deduction and payment of such sum/tax, the balance amount is to be remitted to the non-resident. We clarify here that it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment, if such application is not filed.

16. Section 240 of the Act provides for refund on appeal etc. The Section envisages that if an amount becomes due to the assessee by virtue of an order passed in appeal, reference, revision, rectification or amendment proceedings, the assessing officer is bound to refund the amount to the assessee without the assessee being required to make any claim in that behalf. The expression ‘other proceedings under the Act’ used in Section 240 of the Act, are wide enough to include any order passed in proceedings other than the appeals under the Act.

17. Section 244 of the Act provides for interest on refunds where no claim is made or required to be made by the assessee. The said section envisages that where a refund is due to the assessee in pursuance of an order passed under Section 240 of the Act, and the assessing officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee a simple interest of 15% per annum on the amount of refund due from the date immediately following the expiry of the period of three months as aforesaid to the date on which the refund is granted.

18. Since there was disconcert in the minds of both the assessee and the Revenue regarding the cases where payment of interest was required to be made to the assessee by the Revenue, the Parliament has thought it fit to insert a new Section 244A in the place of Sections 214, 243 and 244 in respect of assessments for the assessment year 1989-90 and onwards. The Section is extracted:

“244A. Interest on refunds.

(1)Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely: (a) Where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted.

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment;

(b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of tax or penalty to the date on which the refund is granted.

EXPLANATION.- For the purpose of this clause, “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

(2) * * * (3) * * * (4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment year” (emphasis supplied)

19. The objects and reasons for introduction of the aforesaid Section is clarified by the Board in its Circular No. 549, dated 31.10.1989. Relevant paragraphs of which are as under:

“11.2 Insertion of a new section 244A in lieu of sections 214, 243 and 244,- Under the provisions of section 214, interest was payable to the assessess on any excess advance tax paid by him in a financial year from the 1st day of April next following the said financial year to the date of regular assessment. In case the refund was not granted within three months from the date of the month in which the regular assessment was completed, section 243 provided for further payment of interest. Under section 244, interest was payable to the assessee for delay in payment of refund as a result of an order passed in appeal, etc., from the date following after the expiry of three months from the end of the month in which such order was passed to the date on which refund was granted. The rate of interest under all the three sections was 15 per cent annum.

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