Section 234D

Section 234D — the law in short

What the courts have decided on section 234D, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT-II v Gujarat State Financial Services Ltd High CourtHelps department
  My Tribunal order cancelling s.234D interest relied on Ekta Promoters. Is that still worth anything after the 2012 amendment?
  No. The Gujarat High Court held that the Special Bench view in Ekta Promoters — that s.234D operates only from AY 2004-05 — is incorrect, and followed the Bombay High Court in Indian Oil Corporation that Explanation 2 is declaratory. Where excess refund has been granted, s.234D applies even for earlier assessment years if the assessment was framed after 1 June 2003.
• CIT v Indian Oil Corporation Ltd High CourtHelps department
  My assessment for an early year was completed after 1 June 2003 but the s.143(1) refund was issued before that date. Can they charge me s.234D interest on it?
  Yes. Explanation 2 to s.234D, inserted by the Finance Act 2012 with retrospective effect from 1 June 2003, is declaratory, so s.234D reaches an assessment year commencing before 1 June 2003 provided the assessment proceeding was completed after that date. The date on which the s.143(1) refund was actually granted is irrelevant; what fixes liability is the date the assessment was completed.
• Fidelity Rutland Square Trust II — an FPI may choose the set-off order between its section 115AD and section 111A short-term gains ITATHelps taxpayerNo later treatment found
  My foreign portfolio investor client has non-STT short-term gains taxed under section 115AD and STT-paid short-term gains taxed at the section 111A rate, plus an STT-paid short-term loss. The officer re-sequenced the set-off. Can he?
  No. The Tribunal held that section 70 prescribes no chronology for set-off of losses and that the provisions do not compel an assessee to set the STT-paid short-term loss off against the STT-paid short-term gain first, so the assessee was entitled to exercise the option most beneficial to it. The Assessing Officer was directed to accept the net short-term capital gains as offered in the return and to delete the additional demand.
• Statutory position — s.234D: interest on a refund granted under s.143(1) that regular assessment shows should not have been granted — the rate, the period, the reduction under sub-section (2), and Explanation 2 for assessment years commencing before 1 June 2003 CBDT Circulars & InstructionsCuts both ways
  We were given a refund when the return was processed under s.143(1). On scrutiny the Assessing Officer has now raised a demand and has also charged interest under s.234D on the refund. Is that right, for how long does the interest run, and can he do it for an assessment year that is older than the section itself?
  Yes, on the conditions in sub-section (1). Section 234D charges simple interest where a refund is granted to the assessee under s.143(1) and either (a) no refund is due on regular assessment, or (b) the amount refunded under s.143(1) exceeds the amount refundable on regular assessment. The rate is one-half per cent, on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. The section was inserted by the Finance Act, 2003 with effect from 1 June 2003, and the words "one-half per cent" were substituted for "two-third" by the Taxation Laws (Amendment) Act, 2003 with effect from 8 September 2003 — both recorded in footnotes printed against the section. Sub-section (2) provides that where, as a result of an order under s.154, s.155, s.250, s.254, s.260, s.262, s.263 or s.264, or an order of the Settlement Commission under s.245D(4), the refund granted under s.143(1) is held to be correctly allowed either in whole or in part, the interest chargeable under sub-section (1) shall be reduced accordingly. Explanation 1 makes a first-time assessment under s.147 or s.153A a regular assessment for the purposes of the section. Explanation 2, which the later editions of the section print and the earlier ones do not, reads: "For the removal of doubts, it is hereby declared that the provisions of this section shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date." Which amending Act inserted Explanation 2, and from what date, is not established here — the editions of the section that print it carry no footnotes, and the editions that carry footnotes do not print it.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.