Madras H.C : Whether, on the facts and in the circumstances of the case, and having regard to the second proviso to s. 244(1A), the Tribunal was right in law in holding that the order of the ITO granting interest under s. 18 of the Surtax Act r/w s. 244(1A) of the IT Act are not prejudicial to the interest of the Revenue and on that ground setting aside the order of the CIT ?

Sections : 256(2), 244(1A)

Asst. Year : 1971-72

Counsel Appeared

J. Jayaraman & N.V. Balasubramanian, for the Petitioner : P.P.S. Janarathana Raja, for the Respondent

S. RATNAVEL PANDIAN, OFFG. C.J.:

The Revenue having failed to obtain a stated case under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the “Act”), has filed these petitions under s. 18 of the Companies (Profits) Surtax Act, 1964, r/w s. 256 (2) of the IT Act, seeking a direction from this Court for reference on the following question of law :

“Whether, on the facts and in the circumstances of the case, and having regard to the second proviso to s. 244(1A), the Tribunal was right in law in holding that the order of the ITO granting interest under s. 18 of the Surtax Act r/w s. 244(1A) of the IT Act are not prejudicial to the interest of the Revenue and on that ground setting aside the order of the CIT ?”

2. The facts of the case are as follows : The assessee (respondent) is assessed under the provisions of the Companies (Profits) Surtax Act, 1964. For the asst. yrs. 1971-72, 1972-73 and 1973-74, the assessee became entitled to refund of tax as a result of revision of assessments consequent to the reliefs obtained in the computation of income under the IT Act. The Surtax Officer granted the refund with interest worked out from the date of payment of tax to the date of refund. Subsequently, however, the CIT acting under s. 263 of the Act considered that payment of interest to the assessee was erroneous in law and hence prejudicial to the interests of the Revenue. The CIT considered the provisions of s. 244(1) and 244 (1A) of the Act and held that in the light of the proviso to s. 244 (1A), the assessee will not get any interest if the refunds were made within one month from the date of the order giving rise to the refund. According to the CIT, the provisions of s. 244(1) and 244(1A) should be given a harmonious construction and if so construed, it should be taken that any refund made within a period of one month will not carry any interest. In this view, the CIT directed the Surtax Officer to withdraw the interest paid for the asst. yrs. 1971-72 and 1972-73 and reduced the interest payable in respect of the asst. yr. 1973-74.

On appeal by the assessee, the Tribunal took the view that s. 244(1A) is an independent provision which has to be construed on its own language. The Tribunal held that the refund was not under the provisions of the Companies (Profits) Surtax Act as a consequence of which the revision of the income-tax assessments would fall within the term “other proceedings” in s. 244(1A) and under the proviso, what is excluded from payment of interest is one month period and it cannot be construed as to provide for payment of interest only when the refunds are belated, beyond one month from the date of the order giving rise to the refund. In other words, according to the Tribunal, the assessee would be entitled to interest from the date of the payment of tax to the date of refund and from that period, one month will be deducted. In this view, the Tribunal set aside the order of the CIT and restored the order of the Surtax Officer for all the three years. It is as against this, the Revenue has filed these petitions for a reference on the question of law set out above.

3. The Tribunal while dismissing the applications under s. 256(1) has referred to Circular No. 209, dt. 11th Jan., 1977, issued by the CBDT (1977) 108 ITR (St.) 1, which has also expressed the view that the non-payment of interest is restricted to one month and the assessee would be entitled to interest with refund whether it is made within one month or beyond the date of the order giving rise to the refund. According to the Tribunal, in view of this circular, no referable question of law arose from its order.

4. There was some discussion before this Court as to whether the circular is binding on the revisional authority or not on the analogy of the appellate authorities on whom the circular is not binding. We are not expressing any view on this aspect as we are inclined to accept the construction placed by the Tribunal on s. 244 (1A). Learned counsel for the Revenue laid great stress on the second proviso to s. 244(1A) reading : “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 proceedings” which, according to it, indicates that the liability for payment of interest would arise only when the refund is delayed beyond the period of one month from the date of the order giving rise to the refund. We are not inclined to accept this construction of the proviso placed by learned counsel for the Revenue. A comparison of s. 244(1) and s. 244(1A) would clearly bring out the difference between the two sections. Under s. 244(1), the interest is to be paid on the amount of refund due from the date immediately following the expiry of the period of three months, whereas, under s. 244(1A), proviso, no interest shall be payable for a period of one month from the date of the passing of the order. This later provision clearly indicates that Parliament in its wisdom intended to give the benefit of interest to the assessee from the date of payment of tax except for a period of one month. Even accepting for a moment that the provisions can be read either way, it is well-settled that a construction which is favorable to the taxpayer will have to be taken. Only in this context, the circular of the Board is relevant.

5. We are of the view that the construction placed by the Tribunal on s. 244(1A) is correct on the clear language of the provision. Hence, we are not inclined to direct the Tribunal to state a case on the question of law raised by the Revenue. These tax case petitions are, accordingly, dismissed with costs. Counsel’s fee Rs. 250 (one set).

[Citation : 179 ITR 593]