Tuesday, May 26, 2015

Even refund of excess self-assessment tax paid by assessee would be entitled to interest


Assessee would be entitled to interest under section 244A(1)(b) on amount of refund which was deposited by it by way of self-assessment tax under section 140A

The issue that arose before the High Court was as under:


Whether assessee was entitled to interest on the amount of refund arising due to excess self-assessment tax paid by it?

The Punjab and Haryana High Court held in favour of assessee as under-

1)Section 244A deals with the grant of interest on refund of any amount of tax which becomes due to the assessee in terms of the provisions of Act.

2)Clauses (a) and (b) of sub-section (1) of section 244A deal with two different situations. Clause (a) deals with refund of taxes which have been 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. Clause (b) deals with refund of taxes in any other case.

3)It was clear that assessee’s case would not fall under clause (a) of section 244. However, revenue contends that cause (b) is confined to situations where the tax refund has been paid in terms of a notice of demand issued by the Assessing Officer under section 156.

4)It was held that once self-assessment tax so paid gets adjusted against the tax determined by the Assessing Officer upon assessment, it takes the imprint of a tax paid in pursuance notice of demand issued under section 156.

5)Section 244A was inserted in the statute as a measure of rationalization to ensure that the assessee is duly compensated by the Government, by way of payment of interest for monies legitimately belonging to the assessee and wrongfully retained by the Government.

6)The tax deducted at source, advance tax and also tax paid by way of self-assessment, after its adjustment in the tax liability of the assessee loses its original character and becomes tax paid in pursuance of the liability. Therefore, assessee was entitled to interest under section 244A(1)(b) on excess self-assessment tax paid by it- CIT V. PUNJAB CHEMICAL & CROP PROTECTION LTD. [2015] 57 taxmann.com 283 (Punjab & Haryana)

Editor’s Note:

Even after this verdict this issue is not resolved as judiciary differs on this issue. The Delhi High Court in the case of CIT v. Engineers India Ltd.[2015] 55 taxmann.com 1 (Delhi)denied to grant interest on excess self-assessment tax paid by assessee.
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