2006 (1) TMI 55 - SC - Income Tax

Interest on Refund - that the Department is solely responsible for the delayed payment, we feel that the interest of justice would be amply met if we order payment of simple interest at 9 per cent, per annum from the date it became payable till the date it is actually paid - Already the matter was pending for more than two decades. We, therefore, direct the respondents herein to pay the simple interest at 9 per cent, per annum from March 31, 1986 to March 27, 1998 within one month from today

Issues Involved:
1. Whether an assessee is entitled to compensation for delays in refunds from the Income-tax Department.
2. Whether interest is payable on interest under the Income-tax Act, 1961.
3. Interpretation of sections 214, 244, and 240 of the Income-tax Act, 1961.
4. The applicability of the doctrine of estoppel against the Revenue.
5. Whether the High Court erred in its interpretation of the provisions of the Income-tax Act.

Detailed Analysis:

Issue 1: Compensation for Delays in Refunds
The main issue raised was whether an assessee is entitled to compensation for delays in refunds from the Income-tax Department. The Supreme Court held that the assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to it, which were wrongfully withheld by the Department for an inordinate period of up to 17 years. The Court observed that the High Court failed to consider the express provisions of the Act and the principle that the government is liable to pay interest on amounts wrongfully retained.

Issue 2: Interest on Interest
The Court examined whether interest on interest is payable under the Income-tax Act, 1961. The Court referred to the Gujarat High Court's decision in D.J. Works v. Deputy CIT, which held that interest on the excess amount is payable and that the same principle should apply to interest wrongfully withheld. The Supreme Court affirmed this principle, stating that once interest becomes due, it takes the same color as the excess amount of tax refundable and should carry simple interest at the rate applicable to the excess amount.

Issue 3: Interpretation of Sections 214, 244, and 240
The Supreme Court analyzed sections 214, 244, and 240 of the Income-tax Act. It held that the phrase "any amount" in section 240 includes interest due to the assessee. The Court disagreed with the High Court's interpretation that interest under sections 214 and 244 is not a refund under section 240. The Court clarified that the provisions of the Act recognize the liability to pay interest on amounts wrongfully withheld and that the phrase "any amount" encompasses interest as well.

Issue 4: Doctrine of Estoppel
The Court discussed the applicability of the doctrine of estoppel against the Revenue. It cited the case of Berger Paints India Ltd. v. CIT, which held that if the Revenue has accepted a principle in one case, it cannot challenge it in another case without just cause. The Supreme Court found no just cause for the Revenue to challenge the principle that interest on interest is payable, as it had accepted this principle in previous cases.

Issue 5: High Court's Interpretation
The Supreme Court found that the High Court erred in its interpretation of the provisions of the Income-tax Act. The High Court's reliance on the proviso to section 240 was misplaced, as it was not part of the Act during the relevant period. The Court also noted that the High Court's judgment was unnecessarily bulky and relied on numerous judgments not cited by the parties. The Supreme Court concluded that the High Court failed to appreciate the express provisions of the Act and the principles laid down in previous judgments.

Conclusion:
The Supreme Court allowed the appeals, set aside the impugned judgment of the Bombay High Court, and directed the Income-tax Department to pay simple interest at 9% per annum on the amount of Rs. 40,84,900 from March 31, 1986, to March 27, 1998. The Court further directed that if the payment is not made within one month, the Department shall pay penal interest at 15% per annum for the said period. The Court emphasized that the Department's actions were contrary to law and caused undue hardship to the assessee.

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