Bombay H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee- company was entitled to interest under s. 244(1) r/w s. 297(2)(i) of the IT Act, 1961, even though the assessments were made under the provisions of the Indian IT Act, 1922 ?

Counsel Appeared

Jetley, Mrs. Manjula Singh & K.C. Sidhwa, for the Applicant : Sunil Mandloi & S.S. Shetty, for the Respondent

D. SUGLA, J.:

The only question of law raised in this reference at the instance of the Revenue is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee- company was entitled to interest under s. 244(1) r/w s. 297(2)(i) of the IT Act, 1961, even though the assessments were made under the provisions of the Indian IT Act, 1922 ?”

2. Briefly stated, the relevant facts are that the assessee is a company. The assessment years involved are 1958-59 and 1959-60. The assessments for both the years were completed under s. 23(3) of the Indian IT Act, 1922, before the commencement of the IT Act, 1961. However, on account of appeals and reference, the assessments became final only with the decision rendered by this Court in 1971. A copy of the judgment was received by the assessee on 13th April, 1971. But the ITO gave effect to the above order by her orders dt. 20th July, 1973, determining refund of Rs. 4,63,774 for the asst. yr. 1958-59 and of Rs. 5,793 for the asst. yr. 1959-60. The amounts of refund were received by the assessee on 24th Sept., 1973. Thereafter, by a letter dt. 25th Oct., 1973, the assessee requested the ITO for granting of interest due to it on the refunded amounts. The request was rejected by the ITO, vide letter dt. 17th Nov., 1973, in which it was observed that as the assessments for both the years under appeal were completed originally under s. 23(3) of the 1922 Act and as there was no provision in the said Act for granting interest on delayed refund, the assessee’s request for grant of interest for delayed refund under s. 244(1) of the IT Act, 1961, could not be acceded to.

The assessee preferred appeals and the AAC accepted the assessee’s contention that the provisions of s. 297(2)(i) of the IT Act, 1961, were applicable; that the ITO had given effect to the High Court order very late and that the assessee was, therefore, entitled to interest on delayed issue of refund under s. 244 of the Act. The AAC relied on the decisions in Pandyan Insurance Co. Ltd. vs. CIT (1969) 73 ITR 12 (Mad) : TC43R.783 and Hira Lal Jagarnath Prasad vs. CIT (1969) 74 ITR 732 (All) : TC43R.784, in his support. The Department filed appeals against the order of the AAC only on the ground that the provisions of s. 244(1) were not attracted in this case. The fact that, assuming that the assessee was entitled to interest on delayed granting of refund, it would still not be entitled to interest, was not taken before the Tribunal. For the reasons given in its order, the Tribunal held that the provisions of s. 244(1) were applicable and the assessee was entitled to interest on delayed refunds.

Shri Jetley, learned counsel for the Revenue, strongly relied on the Supreme Court decision in the case of O. RM. M. SP. SV. P. Panchanatham Chettiar vs. CIT (1975) 99 ITR 579 (SC) : TC43R.782, to show that the assessee was not entitled to interest on delayed refunds in the case before us. Shri Jetley also relied on the judgments of this Court in A. J. D’Souza, CIT vs. Bombay Burmah Trading Corporation Ltd. (1987) 165 ITR 460 (Bom) : TC43R.792 and in Shyam Sunder Kabra vs. S. M. Nadkarni (1984) 43 CTR (Bom) 26 : (1985) 155 ITR 500 (Bom) : TC43R.797.

We have carefully gone through the decision relied upon by Shri Jetley in Panchanatham Chettiar’s case (supra). The judgment in that case is very short. On identical facts, the Supreme Court held that the case clearly fell within the scope of s. 297(2)(i) of the IT Act, 1961. In that case, interest could be allowed under s. 243 of the 1961, Act, if that was applicable. But that was not the assessee’s case. That is why the decision went against the assessee. To this extent, the facts in the case before us are materially different. The assessee has claimed interest under s. 244 r/w s. 297(2)(i) and what needs to be examined is whether s. 244 provides for payment of interest and whether that section is applicable in the case of the assessee. The facts in the Bombay decision are materially different. The assessee in that case claimed that it was entitled to interest under the 1922 Act even though references were disposed of by the High Court in favour of the assessee in April, 1970, and pursuant thereto, the ITO had passed orders of refund in February, 1971, in view of the provisions of s. 297(2)(i) of the 1961 Act. It was contended that the provisions of s. 297(2) (i) were not applicable. The claim was rejected holding that the provisions of s. 297(2)(i) were attracted and that the question regarding interest on the refund payable had to be determined according to the provisions of the Act of 1961. In the Supreme Court decision in Raja Ram Kumar Bhargava vs. Union of India (1988) 68 CTR (SC) 174 : (1988) 171 ITR 254 (SC) : TC43R.786 also, a claim was made for interest on delayed refund under the old Act. It was held that the assessee was not entitled to interest on delayed refund under the old Act. As regards interest on delayed refund under the new Act, the Supreme Court noted :

“It is not disputed that, in the present case, if the matter fell under s. 297(2)(i), the claim for interest on the refund of income-tax becomes wholly insupportable.”

In Shyam Sunder Kabra’s case (supra), which is a judgment of a single judge of this Court, again the observations relied upon by Shri Jetley do not advance the Department’s case further. Rejecting the argument of counsel for the assessee that the assessments were completed before the commencement of the 1961 Act and, therefore, the provisions of s. 297(2)(i) were attracted and the petitioner would be entitled to claim interest, the Court held that it was not possible to accept that submission because the refund was sought on the strength of the assessment order dt. 12th June, 1969, and that being subsequent to the passing of the 1961 Act, s. 297(2)(i) would not be attracted.

5. Apart from these decisions, Shri Jetley stated that s. 244 requires to be r/w s. 240 of the Act inasmuch as the condition precedent for the application of s. 244 is : “Where a refund is due to the assessee in pursuance of an order referred to in s. 240…” Sec. 240, according to Shri Jetley, is applicable in a case where the refund becomes due as a result of any order passed in appeal or other proceedings under this Act which means the new Act. As, according to Shri Jetley, the refund in this case has fallen due as a result of the High Court’s order in the proceeding under the old Act, s. 240 was not applicable. Here again, in our judgment, Shri Jetley’s argument is fallacious. If his interpretation of s. 240 is accepted, s. 297(2)(i) would become redundant. Shri Jetley has not seriously disputed that the assessee’s case herein falls within the provisions of s. 297(2)(i). In fact, he could not do so in view of the Supreme Court decision in Panchanatham Chettiar’s case (supra). The question, therefore, is when a case falls under s. 297(2)(i), whether s. 240 should be read in the manner in which Shri Jetley wants us to read it or whether the two sections should be read together harmoniously. In this context, it may be desirable to mention that a similar situation had arisen before the Supreme Court in the case of Jain Bros. vs. Union of India (1970) 77 ITR 107 (SC). Proceedings in that case related to the asst. yr. 1960- 61. While notice under s. 22(2) of the 1922 Act for filing the return was served on the assessee on 26th May, 1960, return of income was filed on 18th Nov., 1961, and the assessment was completed on 23rd Nov., 1964, under s. 23(3) of the 1922 Act. Being satisfied that the penal provisions of s. 271 were attracted, the ITO issued notice under s. 271 r/w s. 274 of the IT Act, 1961. The question that arose for consideration was whether penalty proceedings under the 1961 Act could be initiated in the case of an assessment completed under the 1922 Act. There was no dispute that the provisions of s. 297(2)(g) were attracted. However, referring to the expression “if the ITO or the AAC, in the course of any proceedings under this Act, is satisfied…” used in s. 271 (1), it was argued that assessment having been completed under the 1922 Act, the ITO could not have been satisfied under s. 271(1) because the satisfaction had to be in the course of any proceedings under the 1961 Act. The Supreme Court observed :

“We are further unable to agree that the language of s. 271 does not warrant the taking of proceedings under that section when a default has been committed by failure to comply with a notice issued under s. 22(2) of the Act of 1922. It is true that cl. (a) of sub- s. (1) of s. 271 mentions the corresponding provisions of the Act of 1961 but that will not make the part relating to payment of penalty inapplicable once it is held that s. 297(2)(g) governs the case. Both ss. 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on 31st March, 1962, or any earlier year which is completed after the first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of s. 271 of the Act of 1961. Thus, the assessee would be liable to a penalty as provided by s. 271(1) for the default mentioned in s. 28(1) of the Act of 1922 if his case falls within the terms of s. 297 (2)(g).”

6. In the above view of the matter, we are in agreement with the Tribunal that the provisions of s. 297(2)(i) r/w ss. 244 and 240 are applicable in this case. The question of law is, accordingly, answered in the affirmative and in favour of the assessee. No order as to costs.

[Citation :181 ITR 363]