2002 (6) TMI 36 - HC - Income Tax

Refund Interest On Refund - whether the amount kept in simpliciter deposit with the Revenue authorities without being appropriated towards the tax due of an assessee would be liable to attract interest for the period it was lying in deposit? - we are of the view that the learned single judge was right in his conclusion that no interest was payable on the excess amount held in the hands of the Revenue as deposit for the period from July 6 1987 to February 17 1989. We see no error in the judgment. There is no substance in the appeal. The appeal is dismissed.

Summary

Issues involved:
1. Liability of interest on amount kept in deposit with Revenue authorities without appropriation towards tax due.
2. Nature of amount retained by Income-tax Department from a specific period.
3. Applicability of interest payment by Revenue authorities on excess money held in deposit.

Analysis of the judgment:
1. The primary issue in this case was whether the amount kept in deposit with the Revenue authorities, without being appropriated towards the tax due of an assessee, would attract interest for the period it was held in deposit. The court examined the circumstances under which the amount was deposited and the subsequent actions taken by the Income-tax Department regarding the appropriation of the deposit towards tax liabilities. The court emphasized that interest under the Income-tax Act is payable only in specific situations, such as refund of excess tax or penalty, and there is no provision requiring the Revenue to pay interest on amounts held as security deposits. The court concluded that the amount held in deposit was not liable to attract interest until it was appropriated towards the tax liability of the assessee.

2. The court delved into the nature of the amount retained by the Income-tax Department from a specific period and analyzed the correspondence between the appellant firm and the Department regarding the deposit made as security for meeting the tax liabilities of a deceased partner. The court highlighted that the amount was held as a non-interest bearing deposit until it was appropriated towards the tax liability on the advice of the Central Board of Direct Taxes. The court clarified that the Income-tax Department retained the amount as a security deposit, which was not to be utilized by the bank and did not bear any interest. The court explained that the liability to pay interest under the Income-tax Act arises only in specific refund scenarios, and there was no provision for interest on amounts held in such deposits.

3. The court addressed the argument raised by the appellant regarding the applicability of interest payment by the Revenue authorities on the excess money held in deposit from a specific period. The appellant contended that equity demanded the Revenue to pay interest on the excess amount held in deposit, but the court emphasized that tax laws do not operate on equity principles. The court cited precedents and highlighted that there was no provision in the Income-tax Act requiring the Revenue to pay interest on amounts held as security deposits. The court dismissed the appeal, affirming the judgment of the single judge that no interest was payable on the excess amount held in deposit by the Revenue authorities.

Overall, the judgment analyzed the legal provisions, factual circumstances, and precedents to determine the liability of interest on amounts kept in deposit with Revenue authorities, ultimately concluding that no interest was payable on the amount held in deposit for the specified period.