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Issues Involved:
1. Whether a claim for grant of interest to a non-assessee-third party can be rejected for want of specific provision in the Income-tax Act, 1961. 2. Whether interest is payable under common law, section 73 of the Contract Act, equity, or section 4(1) of the Interest Act, 1978. Detailed Analysis: Issue 1: Specific Provision in the Income-tax Act, 1961 The petitioner sought interest on a sum of Rs. 1,00,000 seized by the Income-tax Department and later refunded. The primary issue was whether the absence of a specific provision in the Income-tax Act, 1961, for payment of interest on refunds to non-assessees is a valid defense to the claim for interest. The court noted that no defense was raised based on the seizure being a sovereign act. The statutory provisions of section 132 of the Income-tax Act outline the powers and procedures for search and seizure, including the retention and release of seized assets. Section 132B(4) provides for interest on retained assets exceeding liabilities, but this applies only to cases where the amount is retained for clearing liabilities, not for refunds directed under section 132(11). The court emphasized that the Income-tax Act is a complete code in itself, as held by the Supreme Court in Ravulu Subba Rao v. CIT [1956] 30 ITR 163. Therefore, no interest is payable unless provision is made in the Act. The court rejected the petitioner's reliance on the Gauhati High Court's decision in Jwala Prasad Sikaria v. CIT [1989] 175 ITR 535, which allowed interest based on general law and equity. The court also distinguished the Delhi High Court's decision in Sardar Parduman Singh v. Union of India [1987] 166 ITR 115, which involved mala fide action and did not serve as a precedent for the present case. Conclusion on Issue 1: The court held that the absence of a specific provision in the Income-tax Act, 1961, for payment of interest on refunds to non-assessees is a valid defense, and no interest can be awarded unless provision is made in the Act. Issue 2: Interest under Common Law, Contract Act, Equity, or Interest Act, 1978 The petitioner alternatively claimed interest under common law, section 73 of the Contract Act, equity, or section 4(1) of the Interest Act, 1978. The court examined the historical context and legal developments regarding the award of interest. The Interest Act, 1978, which replaced the Interest Act, 1839, is broader but still does not allow for interest as damages for mere retention of debt under common law. The court referred to the Privy Council's decision in Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji, AIR 1938 PC 67, which held that interest could not be awarded as damages for wrongful detention of debt. This view was reiterated by the Supreme Court in Executive-Engineer, Department of Irrigation, Galimala v. Abnaduta Jena, AIR 1988 SC 1520. The court acknowledged recent changes in Australia and Canada, where interest can be awarded as damages under common law, but noted that Indian law remains unchanged. The court also distinguished the petitioner's reliance on various cases, including Inglewood Pulp and Paper Co. Ltd. v. New Brunswick Electric Power Commission, AIR 1928 PC 287, and Abhay Singh Surana v. Secretary, Ministry of Communications, AIR 1987 SC 2177, as these did not apply to the Income-tax Act. Conclusion on Issue 2: The court held that interest is not payable under common law, section 73 of the Contract Act, equity, or section 4(1) of the Interest Act, 1978. Final Judgment: The writ petition was dismissed without costs, and the petitioner was not entitled to any compensatory interest.
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