KPMG FLASH NEWS
KPMG IN INDIA
No interest on refund, on the amount of excess self-assessment tax paid by
the taxpayer
11 March 2015
Background
Recently, the Delhi High Court (High Court) in the case
1
of Engineers India Ltd (the taxpayer) held that the
taxpayer is not entitled to receive interest on refund
under Section 244A of the Income-tax Act, 1961 (the
Act) on the amount paid as self-assessment tax. There
cannot be a general rule, that whenever a refund of
income tax paid in excess is to be made, the tax
department must necessarily pay interest on the
refunded amount. If the excess amount is paid due to
erroneous assessment by the tax department, the
reimbursement must be accompanied by payment of
interest at the statutorily prescribed rate. However, if
any error is made on account of the taxpayer’s
miscalculation, the tax department is not liable to pay
any interest even if the excess payment of tax is liable
to be refunded.

During the assessment year 2006-07, the taxpayer
filed a return of income which was later on revised.
In the return of income, the taxpayer claimed
dividend income as exempt under Section 10(33)
of the Act.

In the course of assessment proceedings, the
Assessing Officer (AO) disallowed the payment on
pro rata basis under Section 14A read with Rule
8D of Income-tax Rules, 1962 (the Rules).
However, the Commissioner of Income-tax
(Appeals) [CIT(A)] partly allowed the appeal.

During the course of hearing before the CIT(A), the
taxpayer raised the issue that the AO has not
allowed interest under Section 244A of the Act on
the amount in excess deposited as selfassessment tax. The CIT(A) held that the taxpayer
is entitled to interest on the excess selfassessment tax paid under Section 140A of the
Act.

The Income-tax Appellate Tribunal (the Tribunal)
upheld the order of the CIT(A)
Facts of the case

The taxpayer is a Government of India undertaking
established under the Ministry of Petroleum and
Natural Gases. The taxpayer is engaged in
providing engineering and technical consultancy
services and execution of contracts on turn-key
basis, predominantly in the oil/gas/hydrocarbon
sectors.
______________
1
CIT v. Engineers India Ltd (ITA No. 300/2012) – Taxsutra.com
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
High Court’s ruling

2
In the case of Sandvik Asia Limited the Supreme Court
has held that the taxpayer was entitled to be
compensated by way of interest for the delay in
payment of the amount ‘lawfully due to the taxpayer
which was withheld wrongly and contrary to the law’.
Subsequently, the Madras High Court in the case of
3
Cholamandalam Investment and Finance Co. Ltd. has
decided the issue in favour of grant of interest to the
taxpayer.

In terms of the procedure for assessment as provided in
4
Chapter XIV of the Act, a person in receipt of income
in respect of which he is assessable under the law is
required to furnish a return of income under Section
139 of the Act.

When tax is payable where the return is furnished
under Section 139 of the Act, the taxpayer is liable to
pay such tax after taking into account the amount of
tax, if any already paid, the tax deducted or collected at
source and relief of tax or deduction of tax if any
claimed, etc. Accordingly, at the time of furnishing the
return of income, the taxpayer is required to engage in
an exercise of ‘self-assessment’ under Section 140A of
the Act and pay the balance liability on such
computation.


The tax department expects proper declaration on the
basis of which the liability would be eventually
determined since the necessary information or data is
available first to the taxpayer. Since the advance tax is
paid on a quarterly basis, the taxpayer is in a position to
revise the calculations as the financial year progresses.
He may increase or decrease the amount to be paid as
the quarterly installment of advance tax corresponding
to the increase or reduction of the income generated.
Unlike the liability towards advance tax, there is no
specific provision in the Act for guiding the taxpayer in
computing his liability towards ‘self-assessment’. The
liability towards ‘advance tax’ would be computed when
the taxpayer is required to compute the tax payable
with the return. The taxpayer would be in a better
position to compute the tax liability while submitting the
return and calculating the self-assessment tax under
Section 140A of the Act.
_______________________
2
Sandvik Asia Limited v. CIT & Ors. [2006] 280 ITR 643 (SC)
CIT v. Cholamandalam Investment and Finance Co. Ltd. [2007] 294 ITR 438 (Mad)
4
Procedure of assessment
3

Section 244A(1)(a) of the Act would not apply to
refund of the amount paid as self-assessment tax.
6
Section 244A(1)(b) of the Act, is a residuary
provision and it opens with the expression ‘in any
other case’. Therefore, the liability of the tax
department towards interest on refund from out of
amount paid as self-assessment tax would fall
under this clause.

There is no liability to pay tax on refund beyond
the liability created by the statutory provisions. In
7
the case of Tata Chemicals , the collection of tax
(through deductor) was found to be illegal, thus
giving rise to the liability to pay interest on the
refunded amount. Accordingly, it has been held
that there cannot be a general rule that whenever
a refund of income tax paid in excess is to be
made, the tax department must necessarily pay
interest on the refunded amount.

If excess amount is paid due to erroneous
assessment by the tax department, the
reimbursement must be accompanied by payment
of interest at the statutorily prescribed rate.
However, if the taxpayer has committed an error
in calculation (or for delay or, for that matter, want
of claim of refund), the tax department does not
owe any interest even if the excess payment of
tax is liable to be refunded.

In the case of Sutlej Industries Ltd. , the Delhi
High Court has held that where self-assessment
tax paid by the taxpayer under Section 140A of
the Act is refunded, the taxpayer would be entitled
to interest thereon. Similarly, the Bombay High
Court in the case of Stock Holding Corporation of
9
India Ltd. held that the taxpayer was entitled to
the interest on refund from self-assessment tax
even when paid voluntarily, and not on account of
deduction at a higher rate in terms of the order
passed by the tax authority.
5
8
____________
5
Where refund of any amount becomes due to the taxpayer under the Act, he
shall be entitled to receive, in addition to the said amount, simple interest
where the refund is out of tax paid by way of advance tax or treated as paid
under Section 199, during the financial year immediately preceding the
assessment year, such interest shall be calculated at the rate of one per cent
for every month or part of the month comprised in the period from 1 April of
the assessment year to the date on which the refund is granted Provided that
no interest shall be payable if the amount of refund is less than ten per cent of
the tax as determined on regular assessment
6
In any other case such interest shall be calculated at the rate one per cent
for every month or part of a month comprised in the period or periods from the
date or, as the case may be, dates of payment of the tax or penalty to the
date on which the refund is granted.
7
Union of India v. Tata Chemicals [2014] 363 ITR 658 (SC)
8
CIT v. Sutlej Industries Ltd [2010] 325 ITR 331 (Del)
9
Stock Holding Corporation of India Ltd. v. N.C. Tewari [2014] 274 CTR 16
(Bom)
© 2015 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

The decision in the case of Sutlej Industries Ltd. is
distinguishable on the facts of the present case. In the
case of Sutlej Industries Ltd., refund of the selfassessment tax resulted from a claim being made by
the taxpayer in the return. However, in the present case
the tax department had not made the excessive
assessment so as to impel the deposit of selfassessment tax in excess. The taxpayer did not make a
claim for refund in the return. Such claims appear to
have come later on.

For the very same reasons as set out above, the High
Court was not inclined to endorse the view taken by the
Madras High Court in the case of Cholamandalam
Investment & Finance Co. Ltd. wherein, the proposition
of law on the subject was expounded in too broad
terms.

As clarified by the Supreme Court in the case of Gujarat
10
Fluoro Chemicals , there is no general principle
obliging the tax department to pay interest on all sums
wrongfully retained. The claim of interest on refund of
income tax has to be pegged on the statutory clauses
only.
Our comments
The eligibility of interest on refund of excess selfassessment tax has been a subject matter of litigation. The
11
Bombay High Court in the case of Merck Limited and the
12
Rajasthan High Court in the case of Mangalam Arts held
that, where a taxpayer paid self-assessment tax under
Section 140A of the Act , the taxpayer is eligible to get an
interest under Section 244A on refund arising on account of
such payment.
In the present case, the Delhi High Court has held that
there cannot be a general rule, that whenever a refund of
income tax paid in excess is to be made, the tax
department must necessarily pay interest on the refunded
amount. If any error is made on account of the taxpayer’s
miscalculation, the tax department is not liable to pay any
interest even if the excess payment of tax is liable to be
refunded.
_____________
10
CIT v. Gujarat Fluoro Chemicals [2014] 358 ITR 291 (SC)
Merck Limited v. CIT (W.P.No.2529 of 2014) (Bom)
12
CIT v. Mangalam Arts [2013] 37 taxmann.com 157 (Rajasthan)
11
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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