2005 (4) TMI 583 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to interest on delayed payment of interest (interest on interest).
2. Applicability of Sections 214, 244(1A), and 220 of the Income Tax Act.
3. Equity in taxation matters.
4. Precedent and binding nature of Supreme Court judgments.
5. Applicability of judgments from other High Courts.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Delayed Payment of Interest (Interest on Interest):
The petitioner sought a writ of mandamus to compel the respondents to cancel the order denying interest on delayed payment of interest and to direct the respondents to grant interest for the period of delay. The petitioner argued that under Sections 214 and 244(1A) of the Income Tax Act, interest is payable if a refund is delayed beyond three months. The petitioner emphasized that the revenue's delay in refunding interest, which amounted to lakhs of rupees, should attract further interest. The petitioner relied on judgments from the Gujarat High Court (D.J. Works v. DCIT) and the Supreme Court (Commissioner of Income Tax v. Narendra Doshi) to support the claim. The revenue countered that neither Section 214 nor Section 244 provided for payment of interest on interest and that a writ of mandamus could not be issued in the absence of a statutory provision.

2. Applicability of Sections 214, 244(1A), and 220 of the Income Tax Act:
The petitioner argued that Sections 214 and 244(1A) recognized the right to recover interest on excess payments and that the revenue's failure to refund interest promptly should attract further interest. The petitioner also pointed out that under Section 156, any amount due to the revenue, including interest, must be paid within 30 days, failing which interest is payable under Section 220. The revenue argued that the Income Tax Act did not provide for payment of interest on interest and that a writ of mandamus could not be issued to compel the revenue to act contrary to the law.

3. Equity in Taxation Matters:
The petitioner contended that it would be violative of Article 14 to allow the revenue to recover interest on interest but deny the same right to the assessee. The revenue argued that equity had no application in taxation matters and that the principle of unjust enrichment should not be invoked to grant relief. The court noted that the principle of preventing unjust enrichment had been recognized in Indian Contract Act and applied in taxation matters, emphasizing that the cause of justice should prevail.

4. Precedent and Binding Nature of Supreme Court Judgments:
The court emphasized the binding nature of Supreme Court judgments under Article 141 of the Constitution. The Supreme Court in Commissioner of Income Tax v. Narendra Doshi had affirmed that the revenue could be made liable to pay interest on interest. The court rejected the revenue's argument that the Supreme Court's decision was based on estoppel, noting that the Supreme Court had also endorsed the principle that the question was rightly answered in favor of the assessee.

5. Applicability of Judgments from Other High Courts:
The petitioner relied on judgments from the Gujarat High Court and the Delhi High Court (Commissioner of Income Tax v. Goodyear India Ltd.) to support the claim for interest on interest. The revenue cited a contrary judgment from the Bombay High Court (Sandvik Asia Ltd. v. Commissioner of Income Tax). The court preferred the view expressed by the Delhi High Court, which had held that interest was payable on the total amount due to the assessee, including interest, if the refund was delayed.

Conclusion:
The court concluded that the petitioner was entitled to interest on delayed payment of interest based on the binding precedent set by the Supreme Court in Commissioner of Income Tax v. Narendra Doshi. The court set aside the order dated 09.09.97 and directed the department to reconsider the matter in light of the Supreme Court's judgment. The court also highlighted the principle that the revenue could not challenge a decision it had accepted in one case in another case without just cause, reinforcing the principle of consistency in legal interpretation. The writ petition was allowed, and the department was directed to comply with the law as laid down by the Supreme Court. The court granted a stay of the order's operation for three weeks.