1998 (10) TMI 19 - HC - Income Tax

Summary

Issues:
1. Refund of seized draft amount and interest claim by petitioner.
2. Interpretation of relevant sections of the Income-tax Act.
3. Liability of the Income-tax Department for delayed refund and interest payment.

Analysis:
1. The petitioner's draft of Rs. 46,300 was seized post the original assessment, but the demand was later canceled. Despite repeated reminders, the refund was delayed until May 18, 1988, when only a partial amount was refunded without interest. The petitioner claimed interest from the date of seizure till refund, citing negligence by the Income-tax Department. The Department argued that the draft was impounded and no interest was due. The court noted that two out of three drafts were encashed, while the third remained with the Department, causing the petitioner to suffer. The court held that the Department erred in law by delaying the refund and should have released the amount immediately upon cancellation of the demand.

2. The court referred to Sections 237, 240, and 244 of the Income-tax Act. Section 240 mandates immediate refund upon appeal orders, with interest if not refunded within three months. Section 244 provides for interest on excess amounts found in appeal proceedings. The court emphasized that the Department's delay in refunding the seized draft entitled the petitioner to interest from the date of seizure to the refund date, as per the Act's provisions. The court highlighted that a bank draft is equivalent to cash, and the Department cannot avoid interest payment by delaying encashment.

3. The court allowed the writ petition, quashing the orders denying interest to the petitioner. It directed the Department to pay the petitioner interest as per Section 244 of the Income-tax Act at a rate of 15% per annum from the date of recovery till the payment date. Non-compliance within three months would result in further interest liability on the arrears. The judgment emphasized the Department's liability for the delayed refund and the petitioner's entitlement to interest under the statutory provisions.