2005 (11) TMI 65 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to interest under Section 214 of the Income-tax Act, 1961.
2. Entitlement to interest under Section 244(1A) of the Income-tax Act, 1961.
3. Entitlement to interest on interest in accordance with judicial precedents.

Detailed Analysis:

1. Entitlement to Interest under Section 214 of the Income-tax Act, 1961:

The petitioner sought interest on Rs. 54,00,000 paid on June 23, 1988, under Section 214(1) of the Act. The court referenced the decision in *Life Bond Fabric P. Ltd. v. CIT [1995] 216 ITR 529 (Guj)*, which held that payments made after the close of the relevant financial year could not be regarded as advance tax. According to Section 214(1), interest is payable on advance tax paid during the financial year, which exceeds the assessed tax. Since the payment of Rs. 54,00,000 was made after the relevant financial year, it was not considered advance tax. Therefore, the petitioner was not entitled to interest under Section 214(1).

2. Entitlement to Interest under Section 244(1A) of the Income-tax Act, 1961:

The petitioner alternatively claimed interest under Section 244(1A) from February 1, 1991, to September 25, 1992. The court cited the Supreme Court's decision in *Modi Industries Ltd. v. CIT [1995] 216 ITR 759*, which stated that if any tax paid pursuant to an assessment order becomes refundable as a result of any appellate or other order, the Central Government must pay interest on the refundable amount under Section 244(1A). Applying this principle, the court held that the petitioner was entitled to interest on Rs. 54,00,000 from February 1, 1991, to September 25, 1992.

3. Entitlement to Interest on Interest:

The petitioner also claimed interest on the interest amount based on the decisions in *D.J. Works v. Deputy CIT [1992] 195 ITR 227* and *CIT v. Narendra Doshi [2002] 254 ITR 606*. In *D.J. Works*, it was held that once interest becomes due, it takes the same nature as the excess tax refundable and should also accrue interest. The Supreme Court in *Narendra Doshi* upheld this principle, stating that the Revenue must follow the precedent set in *D.J. Works* as it had not been challenged. Consequently, the court ruled that the petitioner was entitled to simple interest on the interest payable on Rs. 54,00,000 from the date it became payable until the actual payment.

Conclusion:

The court partially allowed the petition, ruling that:

(a) The petitioner is entitled to interest on Rs. 54,00,000 under Section 244(1A) from February 1, 1991, to September 25, 1992.
(b) The petitioner is entitled to simple interest on the interest amount payable on Rs. 54,00,000 at the rate specified under Section 244(1A) from the date it became payable until the actual payment.

The rule was made absolute to this extent, with no order as to costs.