2013 (5) TMI 419 - HC - Income Tax

Interest on sum seized from the business premises during the search and seizure - application was rejected stating that the petitioner was not eligible to interest for the AY 1986-87 u/s 240, 244A or 132B(4) - appeal filed by the petitioner against the assessment order dated 30.3.1989 was also dismissed as having become infructuous in view of the petitioner invoking the Kar Vivad Samadhan Scheme, 1998 - Held that - The question of payment of interest retained u/s 132 is covered by the provisions of sub-section (4) of Section 132B, which has two parts (a) and (b). If sub-section (1) of sub-section 132B and clause (ii) are read it is apparent that where the assets consists solely of money and or partly of other assets the assessing officer may apply such money in the discharge of liabilities referred to in clause (i) and the assessee would be discharged of the said liability to the extent of money so applied. Thus noticing above that the assets available for such application were not in excess of the liabilities which were sought to be discharged. Therefore, there was no question of any interest running under Section 132B(4)(a) - the question of determining the rate of interest under Section 132B(4) or the date from which the interest was to run, does not arise. Because all issues stood closed in February, 1999 as the petitioner made the payment of Rs. 3,29,670/- under the Kar Vivad Samadhan Scheme, 1998 the entire amount of Rs. 5,35,000/- became immediately returnable to the petitioner. However, that amount was returned a little later on 17.2.2000. Therefore, the said amount of Rs. 5,35,000/- was retained by the department to the detriment of the petitioner from February, 1999 to February, 2000 which is approximately one year. Therefore, petitioner is entitled to interest on the said amount. The rate of interest that should be applied would be 10% simple interest which was close to the rate of interest which was being provided by banks on fixed deposits. Thus amount of interest payable by the department will be Rs. 53,500/- to be paid within four weeks. The writ petition is partly allowed.

Summary

Issues Involved:
1. Entitlement to interest on the seized amount of Rs. 5,35,000/-.
2. Applicability of Sections 240, 244A, and 132B(4) of the Income Tax Act, 1961.
3. Adjustment of the seized amount against the tax demand.
4. Impact of the Kar Vivad Samadhan Scheme, 1998 on the claim for interest.

Detailed Analysis:

Issue 1: Entitlement to Interest on Seized Amount
The petitioner sought a writ of mandamus for the release of interest on Rs. 5,35,000/- seized during a search and seizure operation on 17.03.1985. This amount was returned on 17.02.2000 without interest. The petitioner argued that interest should be paid under Sections 240 or 244A of the Income Tax Act, 1961.

Issue 2: Applicability of Sections 240, 244A, and 132B(4) of the Income Tax Act, 1961
The application for interest was rejected on 23.06.2006, stating ineligibility under Sections 240, 244A, or 132B(4). The court agreed with the respondent that Sections 240 and 244A were inapplicable. Section 240 pertains to refunds on appeal, which was not the case here as the petitioner had opted for the Kar Vivad Samadhan Scheme, 1998. Section 244A was also inapplicable since it applies to assessments commencing from 1.4.1989, while the relevant assessment year was 1986-87.

Issue 3: Adjustment of the Seized Amount Against the Tax Demand
The petitioner requested the adjustment of the seized amount against the tax demand on 31.3.1989. The court noted that the demand of Rs. 5,92,980/- exceeded the seized cash of Rs. 5,35,000/-. Even if the adjustment had been made immediately, Rs. 57,980/- would still have been due, negating any claim for interest at that time.

Issue 4: Impact of the Kar Vivad Samadhan Scheme, 1998 on the Claim for Interest
The petitioner paid Rs. 3,29,670/- under the Kar Vivad Samadhan Scheme in February 1999, resolving all issues for the assessment year 1986-87. Consequently, the seized amount became returnable from that date but was returned only on 17.2.2000. The court determined that the petitioner was entitled to interest for the period from February 1999 to February 2000. The court awarded 10% simple interest, amounting to Rs. 53,500/-, to be paid within four weeks.

Conclusion:
The court concluded that the petitioner was not entitled to interest under Sections 240, 244A, or 132B(4) for the period before February 1999. However, the petitioner was entitled to interest at 10% per annum for the period from February 1999 to February 2000, amounting to Rs. 53,500/-. The writ petition was partly allowed.