2014 (10) TMI 397 - HC - Income Tax

Refund of amount paid as advance tax - Payment of interest on interest - Held that - The application to refund the advance tax as well as the quantum thereof was the subject matter of the proceedings which culminated in the Supreme Court - Claiming any amount over and above what was awarded by the Supreme Court would amount to widening the purport of the order of the Supreme Court - The Tribunal did not take this aspect into account - Once amounts are paid in compliance with the directions issued by a Court, no inferior forum or Court can modify the direction thereof directly or indirectly - Revenue contended that all the claims, which the assessee was entitled to regarding the refund, have merged into the orders of the Supreme Court and unless there was a specific direction issued by the Supreme Court for payment of interest on interest also, there was no occasion for the respondent to lay a claim the Supreme Court has simply directed the authorities to extend the benefit by taking into account the principle laid down in Modi Industries Limited And Others Versus Commissioner of Income-Tax And Another 1995 (9) TMI 324 - SUPREME Court - there was no direction for payment of interest on interest - notwithstanding the fact that there are precedents which held that an assessee is entitled to be paid interest on interest also, once the refund of the amount collected towards advance tax and the correspondent interest are paid in compliance with the direction issued by a Court, an assessee cannot claim interest on interest, independent of the order on the basis of which such payments are made thus, the order of the Tribunal is set aside Decided in favour of revenue.

Issues:
1. Claim for interest on interest for the period between 1985 and 1997.
2. Entitlement to interest on interest in tax refund cases.
3. Application of precedents regarding payment of interest on interest.
4. Merger doctrine in tax refund cases.

Analysis:

1. Claim for interest on interest: The respondent claimed a sum of Rs. 38,90,824/- as interest on interest for the period between 1985 and 1997. The Income Tax Officer and the Commissioner (Appeals) did not allow this claim. However, the Tribunal, in ITA No.735/Hyd/1998, allowed the appeal and held that the respondent was entitled to be paid interest on interest. The Tribunal considered the judgment of the Supreme Court in CIT v. Narendra Doshi and ruled in favor of the respondent.

2. Entitlement to interest on interest: The High Court acknowledged that there are precedents by the Supreme Court and High Courts stating that the department is obligated to pay interest on interest if there was no valid reason for the delay in refunding the excess tax amount. The Court agreed with this principle but emphasized that relevant factors must be considered before allowing a claim for interest on interest. In this case, the respondent had already been paid the refundable amount along with interest as directed by the Supreme Court in a previous judgment.

3. Application of precedents: The Court noted that the respondent's claim for interest on interest was based on a similar case decided by the Supreme Court. The Court compared the circumstances of the present case with the case referred to by the respondent and highlighted that the Supreme Court had not issued a specific direction for payment of interest on interest in the previous judgment. The Court emphasized that once the refund and interest are paid in compliance with a court's direction, the assessee cannot claim interest on interest independently.

4. Merger doctrine: The department argued that all claims regarding the refund had merged into the orders of the Supreme Court, and unless there was a specific direction for payment of interest on interest, the respondent had no basis to claim it. The Court agreed with this contention, stating that in the absence of a clear direction from the Supreme Court, the respondent could not claim interest on interest. The Court highlighted the importance of following the directives of the higher court without seeking additional benefits not explicitly granted.

In conclusion, the High Court allowed the appeal by the Revenue, setting aside the Tribunal's order that granted interest on interest to the respondent. The Court emphasized the need to adhere to the directives of the Supreme Court and clarified that once payments are made in compliance with a court's order, additional claims for interest on interest cannot be entertained.

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