2011 (6) TMI 330 - HC - Income Tax

Refund claim - Interest on interest - Income-tax Department however, at the time of making payment of refund, no interest was paid in terms of section 244(1A and subsequently, interest in terms of section 244(1A) - Held that - Following the principles of equity, the Supreme Court in the cases of Narendra Doshi (2001 (7) TMI 10 - SUPREME Court) and Sandvik Asia Ltd. (2006 (1) TMI 55 - SUPREME Court) passed the direction for payment of interest on interest - Therefore, set aside the order impugned and allow the writ-application by directing the Income-tax Authority to pay to the appellant interest at the rate prevailing at the relevant time for refund u/s 244(1A) for the assessment years 1962-63 to 1977-78 for the period from 21-5-1992 to 23-4-1996 and for assessment years 1978-79 to 1979-80 for the period from 24-5-1993 to 23-4-1996 within two months from today. In default, the amount will carry penal rate of interest at the rate of 18 per cent per annum.

Summary

Issues:
1. Entitlement to interest on delayed payment of interest under section 244(1A) of the Income-tax Act.
2. Prospective application of Supreme Court decisions on payment of interest on interest.

Analysis:

Issue 1: Entitlement to interest on delayed payment of interest under section 244(1A) of the Income-tax Act:
The appeal was filed against an order dismissing a writ application seeking direction for the Income-tax Department to pay interest at 15% per annum for the delay in paying interest after a refund. The Income-tax Department accepted the excess tax payment and issued refund orders for two assessment years. However, interest under section 244(1A) was not paid along with the refund initially. The writ petitioner demanded further interest on the delayed payment of interest, which was denied by the Income-tax Authority. The learned Single Judge held that as per the Income-tax Act, there is no provision for payment of interest on interest. The appellant contended that as per the Supreme Court decision in Sandvik Asia Ltd. v. CIT, the assessee is entitled to further interest if interest is not paid along with the refund. The Revenue argued against the application of this decision, stating that it was delivered after the interest was paid to the assessee. The Court referred to previous Supreme Court judgments and ruled in favor of the appellant, directing the Income-tax Authority to pay interest as per section 244(1A) for the respective periods.

Issue 2: Prospective application of Supreme Court decisions on payment of interest on interest:
The Court examined the prospective application of Supreme Court decisions on the interpretation of statutory provisions. It cited the principle that decisions of the Supreme Court enunciating a legal principle are generally applicable to all cases, assuming they represent the law from the beginning. The doctrine of prospective overruling was discussed, emphasizing its use to prevent reopening of settled issues and avoid unnecessary litigation. The Court analyzed the decision in the case of Narendra Doshi, which established the payment of interest on interest under the Income-tax Act. It concluded that the principle laid down in previous Supreme Court decisions regarding interest on interest was binding and applicable to the case at hand. The Court highlighted the equitable nature of interest and directed the Income-tax Authority to pay the appellant interest as per section 244(1A) for the specified periods.

In conclusion, the High Court of Calcutta allowed the appeal, setting aside the previous order and directing the Income-tax Authority to pay interest to the appellant as per the relevant provisions of the Income-tax Act. The judgment emphasized the binding nature of Supreme Court decisions on legal principles and the equitable considerations underlying the payment of interest on interest.