The Delhi High Court concluded that the Punjab & Sind Bank is entitled to a refund of the sums it deposited after recalculation by the Ministry and that interest is liable to be paid under Section 244A (1) (b) of the Income Tax Act.
The division bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora found that an amount was declared refundable to the assessed as a result of a reduction in taxable income. The sum ordered to be repaid to the assessee is a debt in the hands of the Department, and it is misleading for the Department to refer to the “payment of that debt” as “interest”. In fact, it is on the payment of this debt that the assessee is asking that the department be required to pay interest for the period that the department withheld the money.
Initially, the income of the assessee/defendant was assessed at Rs.73,17,35,961 by an order dated 19th January 2010. Therefore, a claim for payment of interest under Section 234D(2) and section 220(2) of the Income Tax Act 1961 was raised by the Ministry against the respondent. However, in the subsequent recalculation of income, the assessee’s income was assessed at Rs.40,88,00,550 after offsetting carried forward losses for AY 1996-1997. Therefore, as a result of the reduction in taxable income, the respondent was entitled to reimbursement of the amount deposited as interest under Section 234D and Section 220(2).
The assessee was, however, aggrieved by the failure to award “interest” on the refund order under Sections 234D and 220(2) of the Act. The assessee appealed to the CIT(A) against the order on the ground that the AO erred in not awarding interest under Section 244A of the Reimbursement Act. The CTI(A) rejected the appraisee’s appeal. The CIT(A) concluded that the defendant’s claim for “interest” for reimbursement amounted to “interest on interest” and held that it fell outside the scope of Section 244A.
The assessee was aggrieved by the CIT(A) order and appealed to the ITAT, which allowed the appeal. The ITA held that the assessee is entitled to interest under Section 244A(1)(b) on the sum refunded to the assessee upon recalculation following the reduction in his taxable income.
The department argued that the ITA erred in awarding interest on the refund because the amount of the award of “interest on interest” is beyond the scope of Section 244A of the Act. ‘income tax. Since the refund relates to the legal interest deposited by the assessee, the sum to be reimbursed by AO consists of interest. Since the refunded amount was deposited by the assessee for “interest” owed to the ministry, any award of interest on the refund would amount to “interest on interest”, which is factually incorrect.
The assessee argued that the department is required under section 244A(1)(b) to pay interest on a tax refund filed by the assessee during the self-assessment.
The court noted that the amount which was ordered by the AO to be reimbursed to the assessee under Section 234D and Section 220(2) is not “interest” in the hands of the assessed, that is to say the beneficiary. The amount of reimbursement does not have the character of “interest” neither in the hands of the person assessed, i.e. the beneficiary, nor in the hands of the ministry, i.e. the payer . In accordance with the definition of “interest” in Article 2(28)A, “interest” means interest payable in any manner whatsoever on any money borrowed or indebtedness incurred and includes any service or other charge in respect of borrowed money or indebtedness. incurred or in respect of any unused credit facility.
The court noted that the reimbursement payment made by the department is a return of money to the assessee and does not bear any character of interest. Therefore, the assertion that the award of interest by the ITA on a refund amounts to “interest on interest” is untenable.
Deal Title: PCIT Versus Punjab & Sind Bank
Quote: 2022 LiveLaw (Delete) 776
Counsel for the Appellant: Kunal Sharma Permanent Superior Council
Counsel for the Respondent: Attorneys Sumit Lalchandani and Tarun Chanana