High Court Of Madras
Tamilnadu Industrial Investment Corpn. Ltd. vs. DCIT
Sections 4, 214
Asst. Year 1985-86
N.V. Balasubramanian & M. Thanikachalam, JJ.
Tax Case No. 38 of 2002
15th July, 2004
Counsel Appeared
P.P.S. Janarthana Raja, for the Appellant : J. Naresh Kumar, for the Respondent
JUDGMENT
N.V. balasubramanian, J. :
This is an appeal preferred by the assessee against the order of the Income-tax Appellate Tribunal, Madras “A” Bench (hereinafter referred to as “the Tribunal”), dt. 12th April, 2001, made in ITA No. 1992/Mds/1991 under s. 260A of the IT Act, 1961.
2. The assessment year involved is 1985-86. The assessment for the asst. yr. 1985-86 was completed under s. 143(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), and after the completion of the assessment proceedings, the AO found that the appellant had received a sum of Rs. 4,09,344 by way of interest under s. 214 of the Act for the asst. yr. 1981-82 by order dt. 6th Sept., 1984. The AO was of the view that the interest received by the assessee is an income of the assessee chargeable to tax which had escaped assessment and reopened the assessment earlier made under s. 143(1) of the Act, and assessed the interest income received by the assessee and revised the assessment. The CIT(A), on appeal, held that the receipt by the assessee of interest under s. 214 of the Act would constitute income in the hands of the assessee and since it was received by the assessee during the previous year relevant to the asst. yr. 1985-86, the AO was justified in assessing the income in the assessment year in question. The assessee carried the matter in appeal before the Tribunal. A difference of opinion arose between the two learned Members of the Tribunal who heard the appeal as the learned AM of the Tribunal held that the interest received by the assessee under s. 214 of the Act was income in nature as it accrued in the previous year relevant to the asst. yr. 1985-86 and it was rightly assessed for the asst. yr. 198586, whereas the learned JM took a different view and held that though interest received under s. 214 of the Act was income in nature, the question whether it is liable to be taxed in the year 198586 would depend upon the final outcome of the appeal filed against the order of assessment for the asst. yr. 1981-82, and hence he remanded the matter with a direction to the first appellate authority to await the decision on the appeal preferred against the order of assessment for the asst. yr. 1981-82. Since there was a difference of opinion between the two learned Members of the Tribunal, the matter was referred to a Third Member. The learned Third Member held that the interest quantified and paid would retain the character of income and it was assessable as revenue receipt in the year of payment by the Department. He agreed with the view of the learned AM and held that the interest received by the assessee under s. 214 of the Act was an income for the asst. yr. 1985-86. He also gave a direction that in case the assessee repays the excess interest received, that would be allowed as a deduction under s. 37 of the Act in the year in which the assessee is called upon to repay and made such repayment. It is against the order of the Tribunal, the assessee has preferred the appeal. This Court admitted the appeal on the following substantial question of law : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest received by the appellant was income liable to be assessed to tax for the asst. yr. 1985-86 ?”
Mr. P.P.S. Janarthana Raja, learned counsel for the assessee, submitted that the assessment for the asst. yr. 1981-82 did not attain its finality as appeal against the assessment order was pending on the file of the Tribunal on the date when the refund was granted and, therefore, the interest was not income in the hands of the assessee till finality was reached in respect of the assessment for the asst. yr. 1981-82 as the question whether there was any payment of excess advance tax would depend upon the final outcome of the assessment which attained finality only in the year 1995-96. He, therefore, submitted that the interest received by the assessee was not income in nature on the date when it was granted and received as the assessment proceedings for the asst. yr. 1981-82 had not reached finality.
Mr. Nareshkumar, learned junior standing counsel for the Department, on the other hand, submitted that the interest paid under s. 214 of the Act is of income nature and there was no condition attached to the grant of refund, and the interest income accrued during the previous year relevant to the assessment year in question, and, therefore, the order of the Tribunal does not call for any interference. Sec. 214 of the Act provides for interest payable by the Central Government on the excess amount of advance tax paid during the financial year. This Court in Smt. B. Seshamma vs. CIT (1979) 119 ITR 314 (Mad) held that there is no distinction between the interest paid under s. 237 r/w s. 243 of the Act and the interest paid under s. 214 of the Act cannot be construed to be a capital receipt, and the interest was paid under a statutory obligation with reference to the amount refundable, and it is an income assessable under the head “Other sources”. This Court further held that the interest is not paid as personal compensation, but it is paid for deprivation of the use of the money. It has been held by the Patna High Court in CIT vs. Maharajadhiraj Sir Kameshwar Singh (No. 2) (1953) 23 ITR 212 (Pat) and Raja Bahadur Vishweshwara Singh vs. CIT (1954) 26 ITR 573 (Pat) that the interest on advance payment of tax is neither a capital receipt nor a casual receipt and is liable to be included in the assessee’s total income for the purpose of being taxed. The Karnataka High Court in CIT vs. Syndicate Bank (1986) 52 CTR (Kar) 117 : (1986) 159 ITR 464 (Kar) has held that the amount is a revenue receipt and it is taxable in the year in which it was granted. Following the decisions of this Court, the Patna High Court and the Karnataka High Court, we hold that the interest granted under s. 214 of the Act by the Central Government on the excess amount of advance tax paid by the assessee is liable to be taxed as income of the assessee as it is a revenue receipt and it is neither a capital receipt nor a casual receipt. We hold that the Tribunal was correct in holding that the receipt of interest is of income nature.
The next question that arises for consideration is in which year the interest is liable to be taxed ? We are of the view that though the interest was paid with reference to the excess advance tax paid during the previous year relevant to the asst. yr. 1981-82, the interest was granted only during the previous year relevant to the asst. yr. 1985-86 as the assessee was granted the interest under s. 214 of the Act by order dt. 6th Sept., 1984. Since the right to income accrued during the previous year relevant to the asst. yr. 1985-86, we hold that the interest income is assessable in the asst. yr. 1985-86.
We are fortified by the view taken by the Allahabad High Court in J.K. Spinning & Weaving Mills Co. vs. Addl CIT 1975 CTR (All) 172 : (1976) 104 ITR 695 (All), where the Allahabad High Court has taken a view that interest would be taxable in the year in which the right to receive the interest accrued though it was not actually received. The Karnataka High Court in Syndicate Bank’s case (supra) has also taken the same view. We are of the view that so far as the assessee is concerned, the right to receive the interest under s. 214 of the Act accrued on 6th Sept., 1984, when the assessee was granted interest in the previous year relevant to the asst. yr. 1985-86.
The next submission of Mr. P.P.S. Janarthana Raja, learned counsel for the assessee, is that the assessment proceedings for 1981-82 had not reached finality when the interest was received and the assessment proceedings for 1981-82 reached finality in the year 1994-95 long after the asst. yr. 1985-86, and hence the interest income is not taxable in 1985-86. Learned counsel, in his fairness, relied upon the decision of the Supreme Court in K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC).
We have carefully considered the submissions of Mr. P.P.S. Janarthana Raja, learned counsel for the assessee. We are of the view that the decision of the Supreme Court in K.C.P. Ltd.’s case (supra) really supports the case of the Revenue. The interest granted on the excess advance tax paid by the assessee was received by the assessee without any condition attached to it to refund the same, nor there was a liability to refund the same. Though the assessment proceedings for the year 1981-82 were the subject-matter of appeal, the amount of interest was quantified and was granted, and also was received by the assessee, and it is a pure revenue receipt during the previous year relevant to the asst. yr. 1985-86, and we are of the view that it does not make any difference as to the nature, quality and content of the receipt merely because the assessee had challenged the order of assessment for the asst. yr. 1981-82. We are of the view that the mere fact that the assessee challenged the order of assessment for the year 1981-82 would not have any bearing as to the nature of receipt of interest on excess advance tax paid and even if the appeal filed by the assessee for the asst. yr. 1981-82 fails, there would not be any liability on the part of the assessee to refund any part of the amount received by the assessee. We, therefore, hold that the Tribunal was correct in holding that the amount received by the assessee as interest under s. 214 of the Act is of income nature and assessable in the year in which the right to the income has accrued.
The Tribunal has also given a further direction following the decision of the Karnataka High Court in Syndicate Bank’s case (supra) to the effect that if the assessee is called upon to repay excess interest received, that would be allowed to the assessee as a deduction under s. 37 of the Act in the year in which the assessee is called upon to repay on the ground that the interest repaid by the assessee would be an allowable expenditure as revenue expenditure under s. 37 of the Act. We are of the view that to get over such difficulty, the legislature should step in and make a suitable provision in the IT Act providing for reduction of the amount of income in the year of receipt so that there may not be any difficulty in the administration of tax law, and the assessee is also not required to pay more tax than that is due by him. We find that the legislature has made a provision in s. 41(2) of the Act in the case of transfer of capital assets to recapture the depreciation granted on the transfer of assets and on the same analogy, we are of the view that it would be better to introduce a provision empowering the officer to suitably amend the order of assessment in case the assessee is required to pay back the refund amount within a specific period from the date of repayment of excess interest refunded by the assessee which will obviate the difficulty faced by the assessee, and which will bring in fairness in the administration of tax law.
We answer the question of law framed against the assessee and dismiss the tax case appeal. However, in the circumstances, there will be no order as to costs.
[Citation : 270 ITR 566]
