1974 (7) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to interest on excess tax collection.
2. Period for which interest is payable.
3. Rate of interest applicable.
4. Applicability of old vs. new Income-tax Act provisions.

Detailed Analysis:

1. Entitlement to Interest on Excess Tax Collection:
The petitioner contended that he is entitled to interest on the excess tax collected from the date of collection until the date of refund. The excess collection was made on March 18, 1958. The court noted that the petitioner's claim was based on the statutory provision in section 66(7) of the Indian Income-tax Act, 1922 (old Act), and not under general law. Section 66(7) provides that if the amount of tax is reduced as a result of a reference, the overpaid amount shall be refunded with such interest as the Commissioner may allow. The court concluded that the petitioner could not claim interest as compensation under general law since the amount was collected under the authority of law.

2. Period for Which Interest is Payable:
The petitioner argued that interest should be payable from the date of collection until the refund date. However, the court held that section 66(7) does not provide a general right to claim interest from the date of excess collection. It applies only to cases where the matter has been taken to the High Court on reference and as a result of the High Court's decision, a refund of excess tax is due. The court referenced the case of Ajax Products Ltd. v. Commissioner of Income-tax, which held that the Commissioner has no discretion in fixing the period for which interest is payable and that interest should be from the date of the original order of the Tribunal or the date of payment of tax if subsequent to the Tribunal's order.

3. Rate of Interest Applicable:
The petitioner claimed interest at 12 percent, but the Commissioner had allowed interest at 4 percent. The court held that the Commissioner has discretion in fixing the rate of interest under section 66(7). The fixation of the rate of interest depends on the circumstances of each case. The court found that the petitioner had not shown any specific material to prove that 4 percent was an improper exercise of discretion by the Commissioner.

4. Applicability of Old vs. New Income-tax Act Provisions:
The revenue argued that according to section 297(2)(i) of the Income-tax Act, 1961 (new Act), the provisions of the new Act relating to interest on refunds should apply since the refund fell due after the commencement of the new Act. The court agreed, stating that the assessment was completed on March 28, 1951, and the refund fell due on October 25, 1965. Therefore, sections 243 and 244 of the new Act applied, which stipulate no interest is payable if the refund is granted within six months from the date of the order granting the refund. The court referenced the case of Pandian Insurance Co. Ltd. v. Commissioner of Income-tax, which held that the provisions of the new Act apply to refunds due after its commencement.

Conclusion:
The court dismissed the writ petition, concluding that the petitioner's claim for a larger interest could not be sustained under the provisions of the new Act. The petitioner's entitlement to interest was limited to the period and rate determined by the Commissioner under section 66(7) of the old Act, and the provisions of the new Act as per section 297(2)(i) applied to the case.