Holding

Interest on the refund is payable under Section 244(IA) for the assessment year 1988-89 and under Section 244A for subsequent years, as the DDA is a deemed assessee and the refund resulted from an appellate order.

Summary

The Delhi Development Authority (DDA) failed to deduct tax at source on interest paid to flat buyers, leading to a tax demand for assessment years 1987-88, 1988-89 and 1989-90. The Income Tax Appellate Tribunal set aside the assessments, held the payments were not "interest" within Section 2(28A), and ordered a refund. The Revenue Department refunded the amount with interest calculated under Section 244(1). DDA filed a writ petition seeking interest under Section 244(IA) for 1987-88 and under Section 244A for 1988-89 and 1989-90; the Delhi High Court allowed the petition and directed the Revenue to compute interest accordingly. On appeal, the Supreme Court held that DDA is a "deemed assessee" under Section 201 and Section 2(7), and that a refund arising from an appellate order triggers the interest provisions of Section 244(IA) and Section 244A, not the generic Section 244(1). Consequently, the High Court’s direction was affirmed and the appeal dismissed.

Issues considered

What is the appropriate provision for calculating interest on a tax refund when the refund arises from an appellate order and the taxpayer is a deemed assessee without a formal assessment proceeding?

Legislation cited

Income Tax Acts. 194A, s. 201, s. 240, s. 244(1), s. 244(3), s. 244A, s. 244(IA), s. 256(1), s. 2(7)

Subjects

Income TaxTDSRefundInterestAssesseeDeemed assesseeSection 244Section 244ASection 244(IA)Section 201Delhi Development AuthorityITATHigh CourtAppeal

Judgment

THE INCOME TAX OFFICER, NEW DELHI A
v.
DELHI DEVELOPMENT AUTHORITY

NOVEMBER 29, 2001

[S.P. BHARUCHA, C.J., Y.K. SABH!}{WAL AND BRIJESH KUMAR, JJ.] B

Income Tax Act :

Section 194-A-Deduction o.f Incon1e Tax at source on interest-Revenue
raised demand of tax-Assessee's appeal to Revenue.failed-On appeal, !TAT
held, the arnount assessed was not in the nature o,f interest and directed to c
r~fund the ammmt-Assessee filed Writ Petition-Allowing the Writ Petition,
High Court directed Revenue, to dispose of the claim of assess·ec as per
provisions under Section 244 (IA) and Section 244(A) ~{the Act-On appeal,
held, it cannot be said that the r~fundee will not be an assessee only for the
reason that no assessnzent proceeding had taken place. D
Section 2(7)-Assessee-Meaning of-Assessee means a person whom
uny tax or any other siun of 1none_v is payable and includes deen1ed assessee-
Section 201-Deenzed assessee discussed.

Section 240 and Section 244-Distinction between-Whereas as per E
provision in Section 240 cunount becon1es refundable to the assessee by virtue
ofanyorder passed in appeal/proceeding under the Act, Section 244 deals with
refund as a result o.f an order pa.'>~.•ed in appeal or proceeding under the Act-
High Court has _rightly provided for applyin11 sub-section ( 1A) qf Section 244
qf the Act.for determining interest. F

Assessee, the Delhi Development Authority could not construct and
allot flats to the buyers within the stipulated time as per agreements with
the buyers, and was thus, liable to pay interest to buyers. Accordingly, it
paid interest but failed to deduct Income Tax at source. Demand was
raised by the Income Tax Department for the assessment years 1987-88, G
1988-89 and 1989-90. Assessee's appeal to Revenue failed and it preferred
an appeal before the Income Tax Appellate Tribunal. The appeal was
allowed by the Tribunal holding that amounts credited to the allottees
were not in the nature of interest within the meaning of Section 2(28A) of
the Act. The order passed by t!le Revenue was quashed and the Income H
383
384 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A Tax Department was directed to refund the amount, if recovered from the
assessee.

In compliance with the Tribunal's order, Revenue refunded the.
amount with interest calculated under Section 244(I) of the Act. D.D.A.
'
filed a Writ Petition before the High Court praying that interest should
B have been for the year I987-88 as per provision under Section 244 (IA)
and under Section 244A for th~ years I988-89 and I989-90. High Court
allowed the Writ Petition. Hence this appeal. In the meantime, Revenue
had refunded the amount with interest calculated in accordance with
Section 244(1) of the Act. Therefore, the issue before the Court was as to
r
C whether interest was payable under Section 244(I) or under Section 244(IA)
and 244(A) of the Act.

It was contended for the appellant that interest had rightly been
calculated under Section 244(I) of the Act; and that sub-section (IA) of
Section 244 would not be applicable since the payment of tax was not made
D in pursuance of any order on assessment.

Dismissing the appeal, the Court

HELD : I.I. It would not be necessary that in all cases before pay-
ment is made, there nmst always be an actual order of assessment. Tax is
E payable in advance as well; it is deducted at source also. What is important
under Section 244 of the Income Tax Act is that the amount becomes
refundable to the assessee by virtue of an order passed in appeal or any
proceeding under the Act. [387-B]

1.2. It cannot be said that 'refundee' will not be an assessee only for
F the reason that actually no assessment proceeding had taken place; Section
20I clearly provides that if the principal officer or the company liable to
deduct the Income Tax at source fails to do so, he shall be deemed to be
assessee in default in respect of the tax. Further, it is clear as per definition
of the word assessee as contained under sub-section (7) of Section 2 that
term 'assessee' includes actual assessee as well as deemed assessee.
G [388-D; E; HJ

I.3. High Court has rightly directed that sub-section (IA) of Section
244 of the Act be applied for determining interest for period covered by
the assessment year I988-89. It is also for the reason that the amount was
H paid by way of deduction after 31.3.I975 as provided under sub-section
l.T.0. v. D.D.A. [BRIJESH KUMAR, J.] 385
(lA) of Section 244 of the Act. [389-C-DJ A

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3544 of 1998.

From the Judgment and Order dated 31.7. 97 of the Delhi High Court
in C.M. No. 4990/95 in C.W.P. No. 2996 of 1995.
B
M.L. Verma P.S. Narasimha, P. Sridhar, B.V.B. Das for Ms. Sushma Suri
for the Appellant.

G.C. Sharma, V.B. Saharya, Anoop Sharma and R.K. Raghavan, for
Mis. Saharya & Co. for the Respondent. C
The Judgment of the Court was delivered by

BRIJESH KUMAR, J. This civil appeal arises out of judgment and
order passed by the Delhi High Court dated July 31, 1997 directing the appel-
lant namely the Revenue to dispose of the claim of interest preferred by the D
respondent viz. D.D.A., on the amount of refund and to release the amount
thereof, in their favour.

The facts which admit of no dispute are ,hat the Delhi Development
Authority (for short 'DDA' ) was to construct and allot flats to the buyers
E
within the time stipulated in their agreements. On failure to do so, the D.D.A.
was liable to pay interest to the buyers on the amount paid by them, for the
period of delay. The D.D.A., defaulted as a consequence whereof it made
payment of interest to the buyers. The concerned ITO (TDS) found that the
D.D.A. failed to deduct income-tax at source on the payment of interest made
to the buyers as provided under Section l 94A of the Income-tax Act. Accord- F
ingly, a demand was raised for the Assessment Years 1987-88, 1988-89 and
1989-1990. An appeal to C.I.T. failed and it was found that the Assessing
Officer had rightly levied tax under Section 201 (I) of the Act and the interest
under sub-section (IA) of Section 201 of the Act. The D.D.A. preferred an
appeal before the Income-tax Appellate Tribunal. The appeal was allowed by G
order dated 24.1.95 passed by the !TAT holding that amounts credited to the
accounts of the allottees were not in the nature of interest within the meaning
of Section 2(28A) of the Act. The orders passed by the income-tax authorities
were quashed. It was further provided that amounts, if recovered from the
D.D.A., be refunded immediately. H
386 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A It also transpires that the Department moved !TAT under Section 256(1)
of the Income-tax Act for making reference to the High Court and by order
dated 13.12.1995 !TAT referred the questions. In the meantime the order of the
Appellate Tribunal was given effect to by the concerned authorities refunding
the amount with interest calculated under Section 244 (1) of the Act.

B The D.D.A. filed a writ petition before the Delhi High Court raising a
grievance that the interest as calculated by the Income-tax Department was not
correct. According to the D.D.A. interest under Section 244 (IA) of the Act
should have been paid for the year 1987-88 and under provisions of Section
244A for the year 1988-89 and 1989-90. The Income-tax Department resisted
c the claim on the ground that the amount refunded to the D.D.A. was not the
amount taxed nor involved any advance tax or the tax paid by the D.D.A. so
as to attract Section 244A. The High Court negatived the plea of the Income-
tax Department. While allowing the writ petition the High Court gave direction
to the Income-tax Department to dispose of the claim of the D.D.A. for interest
in the light of Para 12 of the Judgment and to release the amount of interest
D to the D.D.A. Paragraph 12 of the judgment is quoted below:

"Looking at the provisions of sub-section (3) of Section 244 and sub-
section (4) if Section 244A, it is clear that the entitlement of the
petitioner to interest for the period covered by the assessment year
E 1988-89 shall be determined by reference to sub-section (IA) of
Section 244 and for the period thereafter shall be determined under
Section 244A."

As indicated earlier the Revenue had refunded the amount with interest
calculating it in accordance with Section 244 (I) of the Act. It is only to be
F seen as to whether the interest was rightly calculated or it is to be paid under
Section 244 (IA) and 244A of the Act. In this connection reference to Section
244 (3) may be made which reads as under:

"244 (3) The provisions of this Section shall not apply in respect of
any assessment for the assessment year commencing on the !st day of
G April 1989, or any subsequent assessment years."

On the basis of the above provision it has not been disputed before us
that up to 1.4.1989 the interest shall be payable in accordance with Section 244
of the Income Tax Act and for the period beyond that, according to Section
H 244A of the Income Tax Act. So far the period prior to 1.4.1989 is concerned,
l.T.O. v. D.D.A. [BRIJESH KUMAR, J.] 387
the appellant's case is that interest has been rightly calculated under Section A
244(1) of the Act. It is submitted that sub Section (IA) of Section 244 will not
be applicable since the payment of tax was not made in pursuance of any order
or assessment. This contention in our view has no force. It would not be
necessary that in all cases, before payment is made, there must always be an
actual order of assessment. Tax is payable in advance as well. It is deducted
B
at source also, as in the present case. On perusal of Section 244 what seems
to be important is that the amount becomes refundable to the assessee by virtue
,
of an order passed in appeal or any proceedings under the Act. Section 240 of
the Income Tax Act deals with refund as a result of any order passed in appeal
or proceedings under the Act. It reads as under:
c
240. Where, as a result of any order passed in appeal or other proceed-
ing under this Act, refund of any amount becomes due to the assessee,
the Assessing Officer shall, except as otherwise provided in this Act,
refund the amount to the assessee without his having to make any claim
in that behalf:
D
Provided that where, by the order aforesaid,-

(a) an assessment is set aside or cancelled and an order of fresh
assessment is directed to be made, the refund, if any, shall
become due only on the making of such fresh assessment;
E
(b) the assessment is annulled, the refund shall become due
only of the amount, if any, of the tax paid in excess of the
tax chargeable on the total income returned by the assessee.

F
It will also be beneficial to peruse Section 244 of the Income Tax Act. It is as
follows:

"244 ( 1) Where a refund is due to the assessee in pursuance of an order
referred to in Section 240 and the {Assessing) Officer does not grant
the refund within a period of {three months from the end of the month G
in which such order is passed), the Central Government shall pay to
the assessee simple interest at {fifteen) per cent per annum on the
amount of refund due from the date immecijately following the expiry
of the period of {three) months aforesaid to the date on which the
refund is granted. H
388 SUPREME COURT REPORTS (2001] SUPP. 5 S.C.R.

A (IA) Where the whole or any part of the refund referred to in sub-
section ( 1) is due to the assessee, as a result of any amount having been
1
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 proceedings under this Act to be
in excess of the amount which such assessee is liable to pay as tax or
B
penalty, as the case may be, under this Act, the Central Government
shall pay to such assessee simple interest at the rate specified in sub-
section(!) 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:

c Provided t h a t - - - - - -

In the case in hand, as indicated earlier, the direction to refund the
amount has been made in appellate proceedings before the Tribunal. The
amount is to be refunded t0 the assessee. It cannot be said that the 'refundee'
will not be an assessee only for the reason that actually no assessment proceed-
D ing had taken place. It would be pertinent to refer to the provision contained
under Section 201 of the Income Tax Act which clearly provides that if the
principal officer or the company liable to deduct the income-tax at source fails
to do so, he shall be deemed to be assessee in default in re;pect ~f the tax. The
definition of the word 'assessee' as contained under sub-s.(7) of Section 2 of
the Act reads as under:
E
"Sec.2 (7)'Assessee' means a person by whom [any tax] or any other
sum of money is payable under this Act, and includes-

(a) every person in respect of whom any proceeding under this Act has
been taken for the assessment of his income or of the income of any
F
other person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount of refund
due to him or to such other person;

(b) every person who is dee1ued to be an assessee under any provision
G of this Act'

(c) every person who is deemed to be an assessee in default under any
provision of this Act'"
•
From the above provision, it is clear that term 'asscsee' includes actual
H assessees as well as deemed assessees under the provision of the Act. It is
I.T.O. v. D.D.A. [BRIJESH KUMAR, J.] 389
therefore not correct to contend that unless there are actual assessment proceed- A
ings pertaining to any person, he cannot be considered to be an assessee. In the
present case D.D.A. was considered to be liable to deduct the tax at source. It
failed to do so. Hence, order under Section 201(1) and 20l(IA) was passed
J
raising the demand and amount of tax was paid. The order of refund was passed
in appellate proceedings under the Act attracting Sec.240 of the Act. Certain
B
decisions were cited at the Bar to show the meaning of the words 'assessee'
and 'assessment' and different stages of the assessment proceedings need not
be dealt with in view of clear definition of the word 'assessee' under the Act
as quoted above.

The High Court has rightly provided in para 12 of its judgment quoted C
earlier for applying sub-section (IA) of Section 244 of the Act for determining
interest for period covered by the assessment year 1988-89. It is so also for the
reason that the amount was paid by way of deductions after 31.3.1975, as
provided under Sub-sec.(IA) of Sec.244 of the Act.

For the discussion held above, we find no force in the appeal. It is D
accordingly dismissed. No order as to costs.

S.K.S. Appeal dismissed.