Section 172: Interest u/s 244A Allowable on Refund

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The assessees were non-resident shippers in whose case , the amound become refundable due to assessment under normal provision as per the option u/s 172(7) of teh Income tax Act. After refunds the assessees claimed interest on excess amounts . This was turned down by the revenue on the ground that assessment under section 172(4) could not be said to be payment of ‘advance income-tax’. The Tribunal, however, reversed the order of the revenue and allowed the claim of the assessees. On reference, the High Court set aside the order of the Tribunal and answered in favour of the revenue.


The Supreme court in case of A.S. Glittre vs CIT held vide its order dt:4/3/1997 as under :

A right is given to the assessee under section 172(7) to opt for a regular assessment although a ‘rough and ready’ or a ‘summary assessment’ has already been made under section 172(4). It is a valuable right. If he exercises the right conferred on him under section 172(7) the ITO is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof ‘should be determined in accordance with the other provisions of the Act’ and any payment made under the section earlier ‘shall be treated as a payment in advance of the tax’ leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid to the assessee or refunded to him. The ad hoc ‘assessment made under section 172(4) is superseded and a ‘regular assessment’ is made as per the provisions. In such a case, it is only proper and appropriate to hold that all ‘the provisions’ in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are necessarily attracted.

Section 172(7) provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would be treated as advance of the tax leviable. Such payments are treated as on par with advance income-tax payments. It is implicit from the tenor and phraseology employed in section 172(7) to the effect, ‘payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year that in substance, a legal fiction is created by which the payments have been treated as advance tax. That is the purpose for which the legal fiction is created. In construing the said legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate.

Section 172(7) provides for a regular assessment, wherein all the provisions of the Act will apply. It is not a mere provision for adjustment nor it contains such a heading of ‘adjustment’.

The Tribunal was justified in holding that since the payment made under section 172(4) was by fiction, treated as advance tax; all the provisions in respect of the advance tax would apply and if on regular assessment made under section 172(7) there was any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under section 214.


Reference 225 ITR 739