2004 (1) TMI 45 - HC - Income Tax

Claim for interest on interest - Interest under section 214(1) - Whether the assesses are entitled to be paid with the interest at the rate of 15 per cent. per annum on the total amount of refund, including the interest accrued thereon from the day such refund amount became due and payable till the date of actual payment, in terms of sections 214(1), 214(1A), and 244(1A) read with section 240 and section 244(1) - there is no scope for arriving at any conclusion about illegal or wrongful detention of the money of the petitioners by the Revenue Department Thus question is answerd in negative petition dismissed

Issues Involved:
1. Entitlement to interest on interest under the Income-tax Act, 1961.
2. Interpretation of "refund of any amount" in Section 240.
3. Applicability and interpretation of the Supreme Court's decision in Narendra Doshi's case.
4. Legality of withholding interest by the Revenue Department and entitlement to interest on interest in the absence of statutory provisions.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Interest:
The petitioners challenged the rejection of their claim for interest on interest, arguing that they were entitled to 15% per annum on the total refund amount, including accrued interest, from the date it became due until actual payment, as per Sections 214(1), 214(1A), and 244(1A) read with Sections 240 and 244(1) of the Income-tax Act, 1961. Alternatively, they sought interest on interest through writ jurisdiction, claiming wrongful withholding by the respondents.

2. Interpretation of "Refund of Any Amount" in Section 240:
The court examined whether the phrase "refund of any amount" in Section 240 included interest on the refund. It was determined that Section 240 obligates the Revenue to refund excess tax paid by the assessee without a claim. The term "refund" in Sections 237 and 240 refers to the excess amount paid by the assessee, not including interest payable by the Department. The court held that "refund of any amount" pertains to the amount paid by the assessee in excess of the chargeable tax or interest, not to interest on such excess amount.

3. Applicability and Interpretation of Narendra Doshi's Case:
The petitioners relied on the Supreme Court's decision in Narendra Doshi's case, which upheld the Gujarat High Court's rulings that the Revenue must pay interest on interest unjustifiably withheld. However, the court noted that the Supreme Court's decision in Narendra Doshi was based on the specific facts and the principle that the Revenue did not challenge the Gujarat High Court's decisions, making them binding. The Supreme Court did not explicitly address the general liability of the Revenue to pay interest on interest under the Income-tax Act.

4. Legality of Withholding Interest and Entitlement to Interest on Interest:
The petitioners contended that the Revenue wrongfully withheld interest for a long period and should be directed to pay interest on interest. The court found that the Revenue had contested the petitioners' claims from the beginning, and the matter went through various stages, including the Supreme Court. The interest amount was paid within a few months of the Supreme Court's directive. The court concluded that there was no wrongful or illegal detention of the petitioners' money by the Revenue, and no statutory provision entitled the petitioners to interest on interest. The court also noted that the power under Article 226 of the Constitution could not be invoked to direct authorities to act contrary to statutory provisions.

Conclusion:
The court held that the term "refund" and the expression "any amount" in Section 240 refer to the amount paid by the assessee in excess of the chargeable tax or interest, not including interest payable by the Department. The interest payable under Section 244(1) is simple interest, not compound interest or interest on interest. There is no provision in the Income-tax Act for payment of interest on interest. The court dismissed the petitions, discharged the rule, and awarded costs against the petitioners.

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