1985 (4) TMI 7 - HC - Income Tax

1988 (8) TMI 77 - HC

Issues Involved:

1. Entitlement to interest on tax refund.
2. Applicability of section 66(7) of the Indian Income-tax Act, 1922.
3. Applicability of section 243 of the Income-tax Act, 1961.
4. Applicability of section 297(2)(i) of the Income-tax Act, 1961.
5. Applicability of section 297(2)(c) of the Income-tax Act, 1961.
6. Relevance of the Supreme Court decision in 0. RM. M. SP. SV. P. Panchanatham Chettiar v. CIT.

Issue-wise Detailed Analysis:

1. Entitlement to interest on tax refund:
The petitioner sought interest on the tax refund from November 17, 1962, to February 26, 1971, at 6% per annum. The Income-tax Department initially refused to pay interest, but the learned trial judge ruled in favor of the petitioner, directing the department to pay interest from the dates specified by the petitioner.

2. Applicability of section 66(7) of the Indian Income-tax Act, 1922:
The learned trial judge upheld the claim of the petitioner based on section 66(7) of the Indian Income-tax Act, 1922, which mandates the payment of interest on refunds. The judge concluded that the Commissioner of Income-tax had discretion only regarding the rate of interest and not the period for which interest was to be paid. This conclusion was based on the Madras High Court decision in Ajax Products Ltd. v. CIT.

3. Applicability of section 243 of the Income-tax Act, 1961:
The Department argued that the question of interest should be decided under section 243 of the Income-tax Act, 1961, which came into force on April 1, 1962. According to section 243, interest is payable only if the refund is not granted within three months from the end of the month in which the claim for refund is made. If section 243 applies, the petitioner would not be entitled to any interest.

4. Applicability of section 297(2)(i) of the Income-tax Act, 1961:
The Department further argued that section 297(2)(i) of the Income-tax Act, 1961, applied to the case. This section states that for assessments completed before the commencement of the Act, the provisions of the new Act regarding interest on refunds would apply. The Supreme Court in 0. RM. M. SP. SV. P. Panchanatham Chettiar v. CIT ruled that section 297(2)(i) governed the question of interest on refunds due after the new Act came into force.

5. Applicability of section 297(2)(c) of the Income-tax Act, 1961:
The petitioner's counsel argued that section 297(2)(c) applied, which states that any pending proceeding by way of appeal, reference, or revision should be continued as if the new Act had not been passed. The counsel contended that the right to interest was governed by section 66(7) of the old Act due to this provision. However, the court rejected this argument, stating that the claim for interest was not a proceeding by way of appeal, reference, or revision pending on April 1, 1962.

6. Relevance of the Supreme Court decision in 0. RM. M. SP. SV. P. Panchanatham Chettiar v. CIT:
The court found that the Supreme Court decision in 0. RM. M. SP. SV. P. Panchanatham Chettiar v. CIT practically concluded the matter against the petitioner. The Supreme Court held that the question of interest on refunds due after the new Act came into force was governed by section 297(2)(i) of the Income-tax Act, 1961, and not by section 66(7) of the old Act.

Conclusion:
The appeal was allowed, and the writ petition filed by the petitioner was dismissed. The court ruled that the learned trial judge erred in applying section 66(7) of the old Act, as the matter was governed by the provisions of the Income-tax Act, 1961, specifically section 297(2)(i). The rule was discharged with no order as to costs throughout.

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