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© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
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Taxpayer is entitled to receive interest on self assessment tax from the date of assessment order, however, no interest on the interest due on refund is granted

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Recently, the Bombay High Court (High Court) in the case of Merck Limited (the taxpayer) held that the taxpayer is entitled to receive interest on self assessment tax paid. However, the same is payable from the date of assessment order and not from the date of payment of self assessment tax. The High Court also held that the taxpayer is not entitled to receive interest on the interest due on refund.

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Transcript of "Taxpayer is entitled to receive interest on self assessment tax from the date of assessment order, however, no interest on the interest due on refund is granted"

  1. 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA Taxpayer is entitled to receive interest on self assessment tax from the date of assessment order, however, no interest on the interest due on refund is granted 30 July 2014 Background Recently, the Bombay High Court (High Court) in the case of Merck Limited 1 (the taxpayer) held that the taxpayer is entitled to receive interest on self assessment tax paid. However, the same is payable from the date of assessment order and not from the date of payment of self assessment tax (SAT). The High Court also held that the taxpayer is not entitled to receive interest on the interest due on refund. Facts of the case  For the Assessment Year (AY) 1986-87, the taxpayer had paid tax amounting to INR6 million. The taxpayer filed its return of income declaring its total income at INR12 million.  The Assessing Officer (AO) assessed the taxpayer to an income of INR16 million. The tax payable was determined at INR8 million. The AO demanded the balance tax along with interest. ______________ 1 Merck Limited v. CIT (W. P. No. 2529 of 2004) (Bom)  The Income-tax Appellate Tribunal directed the AO to grant refund of INR2.32 million including interest.  The taxpayer by rectification application pointed out to the AO that there was a shortfall in payment of interest to the extent of INR0.6 million in view of interest payable on SAT.  The AO rejected the application on the ground that interest claimed was attributable to SAT paid and the same was inadmissible under Section 244(1A) 2 of the Income-tax Act (the Act).  Before the High Court the taxpayer also contended that interest is payable not from the date of assessment order under Section 244(1A) of the Act but from the date when the taxpayer paid the SAT under Section 140A of the Act. It was also contended that the taxpayer is liable to receive interest on interest. _____________ 2 Section 244(1A) provides that the taxpayer is entitled to receive interest on refund due in pursuance of any order of assessment or penalty
  2. 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. High Court’s ruling Whether interest is payable on SAT  As per Section 140A of the Act any amount which is paid as SAT would be deemed to have been paid towards regular assessment under the provisions of the Act.  Section 244(1A) of the Act provides for interest consequent to the order passed in an appeal or other proceedings under Section 240 3 of the Act in case the AO does not grant such refund within three months from the date of the order in appeal.  Relying on the decision in the case of Modi Industries Ltd. 4 , the High Court held that like payment of Advance Tax, the SAT under Section 140A of the Act would be treated as ‘pursuant to the order of assessment’. The principle laid down in Modi Industries is that any amounts paid even before the assessment order would be construed to have been paid in pursuance of an assessment order on the reasoning that the amounts paid as tax prior to assessment order were set off against the demand raised in the assessment order.  The ratio of decision in Modi Industries Ltd. and in particular the interpretation and meaning given to the words 'in pursuance of order of assessment' is binding upon the High Court to mean not only the amounts paid consequent to a notice of demand issued under Section 156 of the Act consequent to the order of assessment but would also include payments made as tax prior to the order of assessment, either in terms of Advance Tax or SAT. Therefore, taxpayer is entitled to interest on SAT. Date from which interest is payable  Contention of the taxpayer that the interest should be paid from the date when SAT was tendered under Section 140A of the Act and not from the date of assessment order, would negate the interpretation put by the Supreme Court in Modi Industries Ltd. to the words 'in pursuance of the order of assessment'.  Section 140A of the Act does not provide for payment of interest from date of payment till the date of passing of the assessment order. Contrast this with Advance Tax where the Act has specifically provided under Section 214 that the interest is payable on the Advance Tax paid from the 1 April of the assessment year upto the date of the assessment order. _______________ 3 Section 240 provides that the taxpayer is entitled to receive refund consequent to the order passed in appeal or other proceeding 4 Modi Industries v. CIT [1995] 216 ITR 759 (SC)  No such provision has been made in respect of SAT paid by the taxpayer. Therefore, the statute itself does not provide for any interest to be paid on the amount attributable to the SAT till such time as the assessment order is passed unlike in a case where the amount refunded is attributable to the payment of advance tax.  Accordingly, it was held that the interest on amount of SAT is payable from the date of assessment order. Interest on interest  The Larger Bench of Supreme Court in the case of Gujarat Fluoro Chemicals 5 held that in the case of Sandvik Asia Ltd 6 , no interest on interest was granted but compensation for the inordinate delay in refunding the amount of interest was granted. It is clear that this compensation was granted by Supreme Court to do complete justice between the parties in exercise of its power under Section 142 of the Constitution of India.  In exercise of our powers under Article 226 of the Constitution we would be within our jurisdiction to direct the statutory authorities to grant interest as permissible under the statute and accordingly enforce the statutory rights of the petitioner but not what is outside the statute. The taxpayer's claim for compensation is undisputedly outside the statutory provisions.  The decision of larger bench of Supreme Court in the case of H.E.G. Ltd. 7 also would not assist the taxpayer as in that case interest was paid only on the delay in refunding the principal amount for 57 months. However, in the case on hand, the principal amount has been paid.  The demand for interest on delayed payment of the principal amount is justified as granted by the Supreme Court in the decision of H.E.G Ltd. It was not a case of interest on interest.  The taxpayer’s reliance on the decision in the case of Tata Chemicals 8 was not accepted as factual situation is completely different. Interest in that case was being demanded only on the delayed amount of refund and not interest on interest. The amount of interest therein was granted on the refund in terms of the Act. In this case, the taxpayer’s contention was to grant interest on interest for which the High Court found no sanction in the Act. The High Court was bound by the decision of the Supreme Court in Gujarat Fluoro Chemicals. _______________ 5 CIT v. Gujarat Fluoro Chemicals [2013] 358 ITR 291 (SC) 6 Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643 (SC) 7 CIT v. H.E.G Ltd. [2010] 324 ITR 332 (SC) 8 UOI v. Tata Chemicals [2014] 363 ITR 658 (SC)
  3. 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.  The High Court held that decision of the Andhra Pradesh High Court in the case of Sirpur Paper Mills Ltd. 9 was rendered per incuriam 10 as the decision of the Supreme Court in the case of Gujarat Fluoro Chemicals was not brought to the notice of the Andhra Pradesh High Court.  Decisions 11 relied upon by the taxpayer is of no avail to the taxpayer. Even if the principle of moulding of relief is to be applied by the High Court in exercise of its jurisdiction under Article 226 of the Constitution, the same can be done only within the statutory framework and not otherwise. Therefore, the taxpayer's contention that the reliefs be moulded to award compensation cannot be countenanced.  The High Court relied on the decision of the Supreme Court in Kirloskar Pneumatic Co. Ltd. 12 wherein it has been held that the High Court in exercise of its powers under Article 226/227 of the Constitution, cannot direct the authority under the Customs Act to ignore or act contrary to its Parent Act.  Accordingly, it was held that the taxpayer is not entitled to interest on interest due on refund. Our comments The Bombay High Court while relying on the decision of the Supreme Court in the case of Modi Industries Ltd. held that interpretation and meaning given to the words 'in pursuance of order of assessment' means not only the amounts paid consequent to a notice of demand consequent to the order of assessment but would also include payments made as tax prior to the order of assessment, either in terms of Advance Tax or SAT. The High Court has not allowed such interest from the date of payment of self assessment tax but only from the date of the assessment order. On the issue of interest on interest, the High Court considered all the decisions on hand including the decision of the larger bench of the Supreme Court in this case of H.E.G. and held that in the said decision the Supreme Court had granted interest on principal amount of refund and not interest on interest. The High Court held that it is bound by the decision of the larger bench in the case of Gujarat Fluoro Chemicals where it was held that interest on interest due on refund is not allowed. ________________ 9 Sirpur Paper Mills Ltd. v. JCIT (W. P. No. 5807 of 1999) (AP) 10 literally translated as "through lack of care", refers to a judgment of a court which has been decided without reference to a statutory provision or earlier judgment which would have been relevant. 11 ABL International Ltd. & Another v. Export Credit Guarantee Corporation Ltd. 2004 (3)SCC 553, Shree Baidyanath Ayurved Bhavan (P) Ltd. v. State of Bihar 1996 (6) SCC 553, S. K. Ray v. State of Orissa & Others 2003 (4) SCC 21 9 12 UOI v. Kirloskar Pneumatic Co. Ltd.1996 (4) SCC 453
  4. 4. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

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