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When Sec 234B was inserted to address mischief of missing interest on excess refund granted after processing return, it cannot be argued that such interest always existed within I-T Act: HC

By TIOL News Service

AHMEDABAD, MAY 16, 2018: THE issue is - Whether when a new section 234B was inserted to address the mischief of missing levy of interest on excess refund granted after processing return u/s 143(1)(a), it can still be argued that such an interest always existed within the provisions of the I-T Act. NO is the verdict.

Facts of the case

The assessee company had filed the return for relevant AY. The return was processed by the AO u/s 143(1)(a) of the Act. This gave rise to refund of a sum of Rs. 59,38,056/- in favour of the assessee. Such refund was adjusted against the assessee's tax dues of the earlier years. The AO later on issued notice u/s 143(2) of the Act and undertook the scrutiny assessment of the assessee's return. He passed order of assessment u/s 143(3) of the Act. After giving credit of tax deducted at source and advance tax paid by the assessee as well as self assessed tax, the AO found that the assessee was in arrear of tax of Rs. 2,38,65,643/-. In this figure, the refund of Rs.59,38,056/- was not accounted for. The AO therefore while withdrawing the refund already paid to the assessee, computed a net of Rs. 2,98,03,699/- by way of tax payable by the assessee as on the date of the order of assessment. He thereafter proceeded to calculate the interest on such outstanding tax liability of the assessee. The AO also charged interest u/s 234B of Act from March, 1995 to January, 1997. The assessee contended that neither section 234B of the Act nor any other provision envisages levy of interest on the amount of refund paid after processing return u/s 143(1) of the Act even though later on it was found that the refund was eventually to be withdrawn upon the assessee's finally assessed tax liability. On appeal, CIT(A), passed the order in favour of assessee. However Tribunal allowed the Revenue's appeal.

After hearing parties, the High Court held that,

++ the legislature was of the opinion that in a case where refund is already granted upon processing return under section 143(1) of the Act but in eventual assessment it is found that the refund granted is in excess or that return does not give rise to any refund claim at all, the existing statute does not provide for levying interest. The legislature was of the opinion that even with the aid of the provisions of sub-section (4) of section 143 of the Act, the existing provisions cannot be so interpreted as to levy interest in such a case. It is well settled that interpreting a statutory provision, one of the useful external aids is to ascertain what was the position prior to enactment of the statute and what mischief the statute seeks to address;

++ in case of Commissioner of Income-Tax, Madhya Pradesh and Bhopal v. Sm. Sodra Devi, the Supreme Court considered the question whether the word 'individual' used in section section 16(3)(a)(ii) of the Income Tax Act, 1922, would include a female. In this context, while holding that the words 'any individual' used in the said section are restricted in their connotation to mean only and do not include the word female observed as under " Though it is not legitimate to refer to the statement of objects and reasons as an aid to the construction or for ascertaining the meaning of any particular word used in the Act or Statute (See Aswani Kumar Ghose v. Arabinda Bose,1953 S C R 1: (A I R 1952 S C 369) (1), nevertheless, this Court in The State of West Bengal v. Subodh Gopal Bose, 1954 S C R 587 at p 628 : (A I R 1954 SC 92 at pp. 104-105) (J), referred to the same "for the limited purpose of ascertaining the conditions prevailing at the time which actuated the sponsor of the Bill to introduce the same and the extent and urgency of evil which he sought to remedy." There is no reason why the same principle cannot be applied by interpolation in order to interpret the existing provision in the background of the need for enacting a new provision. If the very object of inserting section 234D to the Act was to address a situation which was inadequate to levy interest in a case like the present one, interpretation advanced by the Revenue must be rejected. If we accept the contention of the Revenue that existing section 234B of the Act already covered such a situation, insertion of section 234B of the Act would be rendered meaningless and the provisions of section 234D superfluous;

++ the legislature added two explanations to section 234D by Finance Act, 2012 but with retrospective effect of 01.06.2003. The second explanation provides that for removal of doubt, it is declared that the provisions of the said section shall apply to an assessment year commencing before first day of June, 2003, if the proceedings in respect of such assessment year is completed after the said date. At best, therefore, this explanation could apply to pending assessments even though the assessment year concerned may be prior to 01.06.2003. As held by the Supreme Court in case of Reliance Energy Ltd. this provision would have no further retrospectivity. In the result, Tax Appeal is allowed. The judgment of the Tribunal is set aside.

(See 2018-TIOL-922-HC-AHM-IT)