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2014 (6) TMI 673 - HC - Income TaxClaim of interest u/s 214 - scope of the term 'compensation' - the claim of the assessee is for payment of compensation on account of the delay in payment of the interest amount - Held that - the meaning that is required to be given to the word compensation has been considered extensively and finally the department was directed to pay interest @ 9% per annum within a period of one month from the date of receipt of copy of the order, failing which the department shall pay a penal interest @ 15% per annum for the period mentioned in the said judgment. - Following the decision in Sandvik Asia Ltd 2006 (1) TMI 55 - SUPREME Court decided in favor of assessee.
Issues Involved:
Claim for interest under Section 214 of the Income Tax Act for the period from 31.03.1987 to 22.12.1998. Analysis: The petitioner sought a declaration that the 1st respondent's failure to pay interest for the period from 1.4.1987 to 22.12.1998 under Section 214 of the Income Tax Act for the assessment year 1984-85 was unconstitutional and illegal. The petitioner claimed a refund of Rs.19,77,149/- along with interest, which was determined to be Rs.8,35,325/-. The Deputy Commissioner rejected the claim for interest beyond the date of assessment, citing the absence of provision for interest on interest. The 1st respondent contended that the petitioner was not entitled to interest, invoking Order II Rule 2 of C.P.C. and relying on the Supreme Court's decision in Modi Industries Limited v. C.I.T, which allowed interest only from the start of the assessment year to the assessment order date. A detailed counter-affidavit by the 1st respondent raised various contentions, including the argument that the petitioner was not entitled to interest due to the application of Order II Rule 2 of C.P.C. The respondent also argued that interest could not exceed what was allowed in the Modi Industries case. The respondent further claimed that the cause of action for the refund arose only upon the Assessing Officer's consequential order, not before. The department rejected the Gujarat High Court's judgment in D.J. Works v. Deputy Commissioner of Income Tax, asserting it contradicted statutory provisions. The court referred to the Supreme Court's ruling in Sandvik Asia Ltd. v. Commissioner of Income Tax I, Pune, which held that taxpayers were entitled to compensation for any amount wrongfully withheld beyond the statutory period. In light of the Supreme Court's decision in Sandvik Asia Ltd., the court allowed the writ petition, directing the respondents to pay simple interest at 9% per annum for the period from 31.03.1987 to 22.12.1998 within two months. Failure to comply would result in the payment of penal interest at 15% per annum for the same period. No costs were awarded, and any pending miscellaneous petitions in the matter were closed.
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