1989 (9) TMI 1 - SC - Income Tax

Lliability of the appellant, the Life Insurance Corporation, to pay interest for the period after date of maturity of insurance policy, in case of delay in payment - mere intimation to ITO and assignee did not amount to discharge of statutory obligation u/s 226(3)(vi). The award of interest to the assignee was justified on the delay arose on account of the failure of the LIC to perform its statutory obligation u/s 226(3)(vi) - contention of the appellant is rejected

Issues Involved:
1. Liability of Life Insurance Corporation (LIC) to pay interest for delay in payment after the maturity of insurance policies.
2. Whether the Income-tax Officer was a necessary party in the writ petition.
3. Construction and application of Section 226(3) of the Income-tax Act, 1961.
4. Principle of res judicata or constructive res judicata barring the claim for interest.
5. Maintainability of the writ petition after withdrawal of an earlier writ petition.
6. Reasonableness of the rate of interest awarded.
7. Alleged double payment of Rs. 3,415.70 by LIC.

Detailed Analysis:

1. Liability of LIC to Pay Interest:
The primary issue was whether LIC was liable to pay interest for the delay in payment after the maturity of the insurance policies. The High Court held that LIC was liable to pay interest for the period from the date of maturity of the first two policies until LIC made the requisite statement on oath under Section 226(3)(vi) of the Income-tax Act, 1961, on December 5, 1975. The Supreme Court upheld this view, stating that LIC failed to perform its statutory obligation within a reasonable time, resulting in the delay.

2. Necessity of Income-tax Officer as a Party:
LIC contended that the Income-tax Officer was a necessary party in the writ petition. The Supreme Court rejected this argument, stating that the claim in the writ petition was solely against LIC for payment of interest, and no relief was sought against the Income-tax Officer. Therefore, the presence of the Income-tax Officer was not necessary for the effective adjudication of LIC's liability towards the respondent.

3. Construction and Application of Section 226(3) of the Income-tax Act, 1961:
The main argument revolved around the construction of Section 226(3). LIC argued that it was restrained from making the payment due to the Income-tax Officer's notice under Section 226(3) and the potential risk of personal liability. The Supreme Court held that LIC was obligated to make the requisite statement on oath under Section 226(3)(vi) objecting to the demand, which it did only on December 5, 1975. The Court emphasized that the statutory obligation had to be performed in the manner prescribed by the statute, and LIC's delay in making the statement on oath resulted in its liability to pay interest.

4. Principle of Res Judicata or Constructive Res Judicata:
LIC argued that the principle of res judicata or constructive res judicata barred the claim for interest due to earlier writ petitions filed by the respondent. The Supreme Court rejected this argument, stating that the earlier writ petitions did not preclude the respondent from raising the question of LIC's liability to pay interest. The Court noted that the earlier writ petitions were concerned with different reliefs, and the issue of interest arose only at a subsequent stage.

5. Maintainability of the Writ Petition:
LIC contended that the writ petition was not maintainable due to the withdrawal of an earlier writ petition without liberty to file a fresh petition. The Supreme Court rejected this contention, stating that the withdrawal of the earlier writ petition did not preclude the respondent from raising the question of LIC's liability to pay interest in the subsequent writ petition.

6. Reasonableness of the Rate of Interest:
LIC argued that the rate of 15% per annum awarded by the High Court was excessive. The Supreme Court upheld the High Court's decision, stating that there was no material to suggest that the rate of 15% per annum was excessive. The Court noted that LIC itself charged interest at that rate, and the High Court had concluded that it was reasonable in the circumstances.

7. Alleged Double Payment of Rs. 3,415.70:
LIC claimed that it had made a double payment of Rs. 3,415.70 due to the policy maturing on September 14, 1972. The respondent's counsel conceded that the respondent did not lay any claim to this amount from the Income-tax Officer. The Supreme Court observed that LIC could obtain a refund of the amount from the Income-tax Officer together with any interest payable on the refund.

Conclusion:
The Supreme Court dismissed the appeal, holding that LIC was liable to pay interest for the delay in payment after the maturity of the insurance policies due to its failure to perform its statutory obligation under Section 226(3)(vi) of the Income-tax Act, 1961. The Court also upheld the rate of interest at 15% per annum and allowed LIC to seek a refund of the double payment from the Income-tax Officer. The appeal was dismissed with costs quantified at Rs. 2,000.

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