Holding

The Supreme Court held that the matter involves a question of law requiring fresh consideration by the High Court, set aside its order and remitted the case for formulation of the appropriate question regarding the applicability of section 244(1A).

Summary

R.R. Holding Ltd filed its return for AY 1986-87 claiming a loss and later disclosed a commission income of Rs 1.61 crore, prompting a notice under section 148. The assessee sought interest on a tax refund under section 244(1A) and appealed to the Delhi High Court, which held that the matter was covered by the precedent in Modi Industries Ltd. v. CIT and that no reference was required. The Income Tax Appellate Tribunal, in a subsequent assessment year, took a contrary view, leading the Revenue to appeal the Tribunal’s order. The Supreme Court held that the issue involves a question of law concerning the applicability of section 244(1A) and the relevance of the Modi Industries decision, and therefore set aside the High Court order, remitting the case for fresh consideration and formulation of the appropriate legal question. The appeal was disposed of with no costs.

Issues considered

Whether the facts of the case fall within the scope of the decision in Modi Industries Ltd. v. CIT with respect to section 244(1A) on interest on refund.
Whether the Delhi High Court was correct in holding that no reference to the Tribunal was required.
What is the appropriate date for the grant of interest under section 244(1A).
Whether all the conditions stipulated in section 244(1A) are satisfied in the present case.

Legislation cited

Income Tax Act, 1961s. 143(1), s. 148, s. 244(1A), s. 260A

Subjects

Income TaxSection 244(1A)Interest on RefundAssessment YearHigh CourtSupreme CourtModi Industries caseTax RefundLegal QuestionRemand

Judgment

A
MIS. R.R. HOLDING P. LTD.
v.
COMMISSIONER OF INCOME TAX, DELHI AND ANR.

JULY 21, 2006
B
[ARIJITPASAYAT ANDLOKESHWAR SINGH PANTA,JJ.]

Income tax Act, 1961:

Sections 244(/A), 260A-Jssue relating to interest on refund-High
c
Court held that assessee 's case was covered by Modi Industries case and no
reference was necessary-In subsequent assessment order in respect of the
same assessee, Tribunal took different view and appeal filed by Revenue
against the tribunal's order was admitted by High Court-Appeal to Supreme
Court-Held: Undisputedly a question of law is involved which is required D
to be adjudicated more particularly when for the subsequent year an appeal
has been admitted and the basic question to be considered has been
formulated-Hence, matter remitted to High Court for formulating appropriate
question in respect of the assessment year in question and to hear the matter
afr~h E
Appellant tiled return for Assessment Year 1986-87 on 20.6.1986
claiming carry forward loss of Rs.15,326/-. On 23.6.1987 again it showed
carry forward loss less by 10,100/- due to deduction of tax at source. It was
accepted on 29.7.1987. Meanwhile Government learnt that a Japanese Co. is
paying a coml!lission of Rs.1.61 crores on some purchases made by F
Government through appellant. By letter dated 17.8.1987, assessee admitted
this. Since assessment had been completed earlier, assessee was issued notice
dt. 31.8.1987 u/s. 148 of the Income Tax Act. On that very day, assessee
offered for assessment, an income ofRs.1.61 crores and stated that requisite
tax had been deposited on 19.8.1987 and 27.8.1987. On the question of grant G
of interest on refund u/s.244(1A), Assessee preferred an appeal to the High
Court u/s. 260A. High Court held that no reference was required as the case
was covered by decision in Modi Ind~stries v. CIT. Hence the present appeal.

787
H
788 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A In another similar case of the assessee for the subsequent assessment
year, Tribunal had held that Modi Industries Case was not applicable. Revenue
has questioned the correctness of the judgment and the appeal has been
admitted by the High Court.

Disposing of the appeal and remitting the matter to High Court, the
B Court
HELD: 1. Section 244(1) of the Income Tax Act, 1961 covers a case
where 4 ingredients are present. They are: (a) there is a refund due, (b) The
whole or part of the refund referred to in Section 244(1) is due as a result of
C any amount having been made after 31st March, 1975, (c) The payment must
be made pursuant to any order of assessment or penalty, (d) Such amount or
any part thereof as paid is found in appeal or other proceedings under the
Act to be in excess of the amount which such assessee is liable to pay as tax
or penalty. The assessee has to establish that he fulfils all the above conditions.
(791-F, G(
D
2. In view of the aforesaid position it is but appropriate that the High
Court should hear the matter afresh. Undisputedly a question oflaw is involved
which is required to be adjudicated more particularly when for the subsequent
year an appeal has been admitted and the basic question to be considered has
E been formulated. In the instant case, appropriate question relevant to the
assessment year in question shall be formulated. (791-G-H(

Modi Industries Limited & Ors. v. CIT & Anr., (1995) 216 ITR 759 SC,
referred to.

F CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3088 of2006.

From the Judgment and Order dated 19.2.2004 of the High Court of Delhi
at New Delhi, in Income Tax Appeal No. 259/2002.

C.S. Agarwal, Rahul Gupta, Nupur Kanungo and Bhargava V. Desai for
G the Appellant.
Mohan Parasaran, A.S.G., Anuvrat Sharma, Rajshekhar Rao, Sanjay
Kumar Singh and B.V. Balaram Das for the Respondents.

The Judgment of the Court was delivered by •
H
R.R. HOLDING P. LTD. v. COMMR.OFINCOMETAX, DELHI [PASAYAT,J] 789

ARIJIT PA.SAY AT, J. Leave granted. A
Appellant calls in question legality of the order passed by a Division
Bench of the Delhi High Court dismissing the appeal filed under Section
260(A) of the Income Tax Act, 1961 (in short the 'Act'), holding that no
reference was necessary.
B
The High Court held that the Income Tax Appellate Tribunal (in short
the 'Tribunal') examined the matter in detail and came to hold as to what was
the date of assessment. This was a question of fact which was not required
to be examined in an appeal under Section 260(A) of the Act. The High Court
also noticed that the decision of this Court in Modi Industries Limited & Ors. C
v. CIT & Anr., (1995) 216 ITR 759 (SC) was clearly applicable to the facts of
the case.

According to learned counsel for the appellant, High Court failed to
notice that the decision in Modi Industries' case (supra) has no application
to the facts of the present case. The true ambit of Section 244( I A) of the Act D
has not been kept in view by the High Court. It is pointed out that in the
assessee Appellant's own case for immediately succeeding assessment order
i.e. 1987-88 Tribunal held that Modi Industries' case (supra) was not applicable
to almost identical factual scenario. The department has questioned correctness
of the judgment and the High Court has admitted the appeal in ITA 88 of 2004. E
In response, Mr. M1han Prasaran, learned Additional Solicitor General
submitted that the issue is clearly covered by the decision of this Court in
Modi Industries' case (supra) and the High Court was, therefore, justified in
its view.
F
We consider it unnecessary to examine whether in the factual
background, Section 244(\A) of the Act has any appliCation. It may be noted
that the assessee had filed its return for the assessment year in question on
20.6.1986 declaring a loss of Rs.4151/-. It was mentioned in the return that
there was a brought forward loss of Rs.11,175/- from the Assessment year G
1985-86 and a total loss of Rs.15,326/-was claimed to be carried forward.
Subsequently, on 23.6.1987, the assessee filed a revised return showing the
same figure of loss of Rs.4, 151/- and the carried forward loss of Rs. I I, 175/-
But it claimed tax refund of Rs. I 0, I 00/-, because of the tax deduction at
source on a sum of Rs. I0,00,000/- advanced to Mis. Blitz Publication Pvt. Ltd.
H
790 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A The order in terms of Section 143(1) on the facts passed on 29. 7.1987 accepted
the returned loss. While the assessment proceedings were in progress it came
to the notice of the Department that for the relevant assessment year a
Japanese Company is paying a sum ofRs.1,61,52,472/- plus Rs.21,71, 121/-by
way of commission in respect of purchases made by the Department of
B Electronics, Government of India, from Mis Sumitomo Corporation, the aforesaid
Japanese Company. The amount was paid at London in the account of M/s
Allied Petro Agencies. The _information was passed on by the Government of
India to the Income Tax Department.

Jn the meantime i.e. on 17.8.1987 a letter was written by the assessee
C to the Commissioner of Income Tax, Delhi-III wherein it admitted the commission
income ofRs.1.61 crores and odd and offered to pay tax thereon. The assessing
officer, however, had already completed the assessment and since commission
income had not been included in the returned income, notice under Section
148 of the Act was issued on 31.8.1987. On that very day the assessee filed
D an application with reference to the order made in terms of Section 143( I),
submitting that total income assessed on the basis of profit and loss account,
Balance Sheet and return filed was not correct as it did not take note of
income disclosed subsequently to the Commissioner wherein it offered an
amount of Rs.1.61 crores for taxation. It was also submitted in the said
communication that taxes on the amount of Rs. I crore and odd have been
E deposited on 19.8.1987 and a further sum ofRs.17,144/-on 27.8.1987.
The question that arises for consideration is what is the date which is
to be reckoned for the purpose of grant of interest in terms of Section 244(1A)
of the Act. We need not examine this question because undisputedly for the
F subsequent assessment order the Tribunal took a different view and an
appeal filed by Revenue against the Tribunal's order is under consideration
of the High Court.

The basic issue is whether Modi Industries' case (supra) has any
application to the facts of the case.
G
Section 244(1A) of the Act reads as follows:

Interest on refund where no claim is needed.

"244. xxx xxx xxx

H (I A) Where the whole or any part of the refund referred to in sub-
R.R HOLDING P. LTD. v. COMMR. OF INCOME TAX, DELHI [PASA YAT, J.] 791
"'" ...., section ( 1) is due to the assessee, as a result of any amount having A
been paid by him after the 31st day of March, 1975, in pursuance of
any order of assessment or penalty and such amount or any part

- thereof having been found in appeal or other proceeding under this
Act to be in excess of the amount which such assessee is liable to
pay as tax or penalty, as the case may be, under this Act, the Central
Government shall pay to such assessee simple interest at the rate
B
specified in sub-section ( 1) on the amount so found to be in excess
from the date on which such amount was paid to the date on which
the refund is granted :
;; '
Provided that where the amount so found to be in excess was paid c
in instalments, such interest shall be payable on the amount of each
such instalment or any part of such instalment, which was in excess,
from the date on which such instalment was paid to the date on which
the refund is granted:

Provided further that no interest under this sub-section shall be payable D
for a period of one month from the date of the passing of the order
in appeal or other proceeding:

Provided also that where any interest is payable to an assessee under
this sub-section, no interest under sub-section (I) shall be payable to
him in respect of the amount so found to be in excess." E

The basic requirements are that: (a) there is a refund due, (b) The whole
or part of the refund referred to in Section 244( 1) is due as a result of any
amount having been made after 31st March, 1975, (c) The payment must be
paid pursuance to any order of assessment or penalty, (d) Such amount or F
any part thereof as paid is found in appeal or other proceedings under the
Act to be in excess of amount which such assessee is liable to pay as tax
or penalty.

The assessee has to establish that he fulfils all the above conditions.
G
In view of the aforesaid position it is but appropriate that the High
Court should hear the matter afresh. Undisputedly a question of law is
involved which is required to be adjudicated more particularly when for the
subsequent year an appeal has been admitted and the basic question to be

.... ,.
considered has been formulated. In the instant case, appropriate question
H
792 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A relevant to the assessment year in question shall be formulated.
Above being the position the impugned order of the High Court is set
aside and the matter is remitted to it for a fresh consideration alongwith !TA
No. 188 of2004.

B The appeal is disposed of. No costs.

D.G. Appeal disposed of.