2015 (5) TMI 687 - HC - Income Tax

Payment of interest on the money seized - assessee has prayed for a direction for renewal of seized investments in shape of Indira Vikash Patras and Kishan Vikash Patras and deposits with the banks with interest on the prevailing rates on the maturity value till the assets were appropriated/released - Held that - The Kishan Vikash Patras, Indira Vikash Patras, Fixed Deposit Receipts etc. would have earned interest in normal course of things, if they had been revalidated/encashed as per the option available to the Revenue. If the Revenue has failed to do so and the money all along continued to remain deposited with the Union of India and the available for utilization by the Revenue itself, we see absolutely no reason in the facts of the case as to why the Revenue may not be asked to pay interest on the aforesaid Kishan Vikash Patras, Indira Vikash Patras, Fixed Deposit Receipts etc., at part with the interest, which money would have earned, on the face value of the aforesaid documents, under the provisions of the Income Tax Act had the investments revalidated/renewed been encashed by the department. In the facts and circumstances of the case on record we are satisfied that the order of the Assistant Commissioner of Income Tax insofar as it refuses to make payment of interest under Section 132B of the Act, 1961 on the ground that Kishan Vikash Patras, Indira Vikash Patras, Fixed Deposit Receipts etc. had not been encashed, cannot be legally sustained and is hereby quashed. The Assistant Commissioner of Income Tax is directed to redetermine the interest as per the representation dated 28th September, 2010, in light of what has been recorded above and in light of the judgment of the Apex Court in the cases of Chironjilal Sharma Huf, Sandvik Asia Ltd. (2013 (12) TMI 71 - SUPREME COURT ) strictly in accordance with the provisions of the Income Tax Act. Let necessary calculation of interest be done within four weeks from the date a certified copy of this order is filed before him. All consequential action shall be taken immediately thereafter. So far as the refund of the interest paid under Section 220 of Act, 1961 is concerned, we find no reason to interfere with the order of the Commissioner of Income Tax dated 21st May, 2007. - Decided partly in favour of assesse.

Issues Involved:
1. Legality of retention and utilization of seized assets beyond the assessment period.
2. Entitlement to interest on seized assets not encashed or renewed.
3. Compensation for pecuniary loss due to non-renewal of investments.
4. Refund of interest charged under Section 220(2) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of Retention and Utilization of Seized Assets Beyond the Assessment Period:
The petitioner-assessee's assets, including cash and investment certificates, were seized during searches conducted in November 1994 under Section 132(1) of the Income Tax Act, 1961. The Assessing Officer retained these assets under Section 132(5) of the Act. Despite the completion of the assessment in 1996, the seized assets were not released or renewed, leading to their prolonged retention by the Income Tax Department. The court found that the retention of these assets beyond the regular assessment period was without authority of law, as the liability mentioned in the summary order ceased once the regular assessment was completed. The court noted that the department failed to provide any explanation for the prolonged retention and non-renewal of the assets.

2. Entitlement to Interest on Seized Assets Not Encashed or Renewed:
The court addressed whether the petitioner was entitled to interest on the seized assets, specifically Kishan Vikash Patras, Indira Vikash Patras, and Fixed Deposit Receipts, which were not encashed or renewed. The court referred to the judgments in Chironjilal Sharma Huf vs. Union of India and Sandvik Asia Ltd. vs. Commissioner of Income Tax, which established that the Revenue must compensate the assessee for wrongful withholding of assets. The court concluded that the money invested in these instruments continued to be available to the Union of India and utilized by the government, thus entitling the petitioner to interest on these assets.

3. Compensation for Pecuniary Loss Due to Non-Renewal of Investments:
The petitioner claimed compensation for the pecuniary loss suffered due to the non-renewal of the seized investments. The court acknowledged that the investments would have earned interest if they had been revalidated or encashed. The court held that the Revenue's failure to renew or encash the investments resulted in an uncalled-for loss of interest to the petitioner. Consequently, the court directed the Assistant Commissioner of Income Tax to redetermine the interest payable to the petitioner in light of the judgments in Chironjilal Sharma Huf and Sandvik Asia Ltd.

4. Refund of Interest Charged Under Section 220(2) of the Income Tax Act, 1961:
The petitioner sought a refund of the interest charged under Section 220(2) of the Act. However, the court found no reason to interfere with the order of the Commissioner of Income Tax dated 21st May, 2007, regarding this matter. Therefore, the court did not grant the petitioner's request for a refund of the interest charged under Section 220(2).

Conclusion:
The court quashed the order of the Assistant Commissioner of Income Tax dated 8th February, 2011, which refused to pay interest on the seized assets. The court directed the Assistant Commissioner to redetermine the interest payable to the petitioner and complete the necessary calculations within four weeks. The court upheld the order of the Commissioner of Income Tax regarding the interest charged under Section 220(2) and partly allowed the writ petition subject to the observations made.

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