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TMI Blog2006 (1) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of law and facts arise in all these appeals, they were heard together and are being disposed of by this common judgment. The impugned common judgment was passed by the High Court of Bombay (see [2004] 267 ITR 78) rejecting the appellant's claim to interest holding that no such interest on interest is payable under any of the provisions of the Income-tax Act, 1961 (for short "the Act"). The main issue raised in these appeals is whether an assessee is entitled to be compensated by the Income-tax Department for the delay in paying to the assessee amounts admittedly due to it? The delay in the instant case was for various periods ranging from 12 to 17 years. The following facts are not in dispute: Assessment year 1977-78: Notice of demand was issued to the appellant by respondent No. 2 for advance tax payable of Rs. 2,74,31,250. The appellant paid a sum of Rs. 1,86,04,450. The assessment order was passed by respondent No. 2 determining income of Rs. 3,88,37,630. Respondent No. 2, after rectifying his assessment order, determined the income at Rs. 3,45,91,830 and tax thereon at Rs. 1,99,76,781 and raised a demand for further tax payable of Rs. 13,72,331. The appellant paid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er determining the income at Rs. 89,02,070 and tax payable thereon at Rs. 52,63,348. The appellant received a refund of Rs. 53,69,809 and became entitled to receive interest on the refund. The appellant requested to grant interest on refund under sections 214 and 244 of the Act for the period from April 1, 1981 to March 31, 1986. Respondent No. 2 rectified its order and granted further interest of Rs. 1,87,203 under section 214 of the Act but refused to grant interest under sections 214(1A) and 244(1A) of the Act. Assessment year 1982-83: The appellant submitted its estimate of advance tax and paid instalments thereon of Rs. 1,45,48,006. A provisional assessment order determining the tax payable at Rs. 1,28,46,079 was passed and, therefore, granted a refund of Rs. 17,01,927. He passed an assessment order determining the total income at Rs. 2,43,41,780 and tax payable thereon at Rs. 1,37,22,678 and raised demand for further tax of Rs. 8,76,600 which was paid by the appellant on March 30, 1985. The Commissioner of Income-tax (Appeals) disposed of the appellant's appeal substantially allowing the same. Respondent No. 2 gave effect to the appellate order determining the income at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. D.P. Wadhwa New Delhi, April 30, 1997". March 27, 1998: Pursuant to the first respondent's direction, the second respondent passed an order paying amounts under sections 214 and 244(1A) of the Act up to the date of refund of tax. The refund order has been marked as annexure P-16 (Colly). For the sake of brevity, the working of interest under sections 214 and 244(1A) is reproduced hereunder: "Working of interest under section 214/244(1A) (i) Interest under section 214(1) of the Act at 12 per cent, on Rs. 22,78,400 for the period 1-4-1978 to 28-2-1981 7,97,440 (ii) Interest under section 214(1) of the Act at 12 per cent. per annum on Rs. 34,78,800 for the period 1-4-1978 to 27-3-1981 (under section 143(3)) 12,17,580 (iii) Interest under section 244(1A) on Rs. 34,78,800 (R.O. issued on 23/4/1986) From 1-4-1981 to 30-9-1984 at 12 per cent. From 1-10-1984 to 31-3-1986 at 15 per cent. 14,61,096 7,82,730 42,38,8464 Interest granted on 28-11-1986 1,73,940 Interest payable to the assessee March 27, 1998 40,84,906 (Sd.).......... Surinder Jit Singh Deputy Commissioner of Income-tax Spl. Rg. 2, Pune". September 25, 2000: The appellant's revision petition date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing been admittedly delayed by the respondents contrary to law, the appellant was entitled to receive interest on the said amount; (3) The High Court is not right in holding that interest under sections 214 and 244 of the Act is not a refund under section 240 and hence the Department is not liable to pay interest under section 244 in respect of delay in payment of the aforesaid interest; (4) Admittedly there was a delay on the part of the Department in paying the interest under sections 214 and 244 of the Act. The High Court has failed to appreciate that during the intervening period, the Department had enjoyed the benefit of these funds while the appellant was deprived of the same; (5) The High Court failed to appreciate that the appellant's monies had been withheld by the Department contrary to law, that interest on delayed payment of refund was not paid to the appellant on March 27, 1981, and April 30, 1986 due to the erroneous view that had been taken by the respondents, that this court in the appellant's own case had passed order dated April 30, 1997, which finally resulted in the respondents granting interest on the delayed payment of refund, that the said order of this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sake of convenience: "240. Refund on appeal, etc.-Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Income-tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf." "240. Refund on appeal, etc.-Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf: '[Provided that where, by the order aforesaid,- (a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment; (b) the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee.]" (11) The High Court erred in purporting to distinguish this court's decision in Narendra Doshi's case [2002] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 370 (Mad); and 10. Suresh B, Jain v. P.K.P. Nair [1992] 194 ITR 148 (Bom). Mr. Mohan Parasaran, learned Additional Solicitor-General appearing for the respondents, on the other hand, submitted that the Commissioner had decided the matter in terms of the directions issued by the apex court and the direction was to decide the claim in relation to the interest payable to the appellant in the light of the law laid down in Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC). According to him, none of the provisions of law contained in the said Act provide for payment of interest on interest and certainly not section 244(1). He would further submit that in the matter of interpretation of a taxing statute and the provisions of law contained therein, there can be no scope for considerations of equity or intendment and what is expected is strict interpretation. He has further argued that when the statute does not permit grant of interest, it would be inappropriate to grant interest in exercise of writ jurisdiction. Arguing further and placing strong reliance on Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC), Mr. Parasaran submitted that this court in Modi Industries Ltd.'s case [199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed analysis and study of relevant case law correctly rejected the alternative claim of the appellant by following the decision of this court in the case of Modi Industries [1995] 216 ITR 759 (SC), wherein the scope of section 214 of the Act was discussed and it was held that there is no right to get interest on refund except as provided by the statute. This court was pleased to pass the order of remand on April 30, 1997, directing the Commissioner of Income-tax, Pune, to consider the revision petition in the light of the decision in the case of Modi Industries [1995] 216 ITR 759 (SC). By order dated September 29, 1997, the Commissioner of Income-tax, Pune, directed the payment of interest according to the decision in Modi Industries' case [1995] 216 ITR 759 (SC) and in pursuance thereof the Deputy Commissioner of Income-tax (SR-2), Pune, passed order dated March 27, 1998, giving effect to the order of the Commissioner of Income-tax dated September 29,1997, and granted interest to the tune of Rs. 40,84,906 in addition to Rs. 1,73,940 which had already been paid on November 28, 1986, thereby totalling the interest amount to Rs. 42,38,846. This interest was calculated strictly as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in basing its interpretation of the provisions of the Act very largely upon other statutory provisions which were not even enacted during the relevant time, and which contentions were never urged or put to counsel appearing in the matter? H. Whether the High Court is right in considering the doctrine of merger which contentions were never urged by counsel for both the sides. Before considering the rival claims, it would be beneficial to reproduce the section as it stood then (at the relevant point of time) sections 237, 240, 243 and 244. "237. Refunds.-If any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess. 243. Interest on delayed refunds.-(1) If the Income-tax Officer does not grant the refund,- (a) in any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three months from the end of the month in which the total income is determined under this Act, and (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is granted: Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding: Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess. (2) Where a refund is withheld under the provisions of section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of three months from the end of the month in which the order referred to in section 241 is passed to the date the refund is granted." We have given our anxious and thoughtful consideration to the elaborate submissions made by counsel appearing on either side. In our opinion, the High Court has failed to notice that in view of the express provisions of the Act an assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for payment of interest on the interest amount for which no order is passed at the time of passing the order of refund of the excess amount and which has been wrongfully retained, interest would be payable at the same rate at which the excess amount carries interest. In other words, the amount payable by way of interest would carry simple interest at the rate of 15 per cent, per annum from the date it became payable to the date it is actually paid. The decisions, which were cited at the Bar do not have a direct bearing on the above question and therefore, we do not propose to refer to or deal with them. On general principles, we are of the opinion that the Government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee, on the interest amount which had become due under section 214(1) of the Act. In the light of the above discussion, this petition must succeed." (2) CIT v. Narendra Doshi [2002] 254 ITR 606 (SC) (S.P. Bharucha, Y.K. Sabharwal and Brijesh Kumar, JJ.). In this case, this court has affirmed the decision of the Madhya Pradesh High Court (Indore Bench) in I.T.R. No. 5 of 1996. In that case, the High Court was called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly followed by the judgment of the Bombay High Court in CIT v. Bharat Petroleum Corporation Ltd. [2001] 252 ITR 43 and by the Madras High Court in Chemicals and Plastics India Ltd. v. CIT [2003] 260 ITR 193. These two judgments also appear to have been accepted by the Revenue and have not been challenged before this court at all. This fact asserted before us by the petitioner-assessee has not been disputed in the counter affidavit of the Department ... In view of the judgments of this court in Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra Doshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate [2002] 257 ITR 59, the principle established is that if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause ... The decision in Lakhanpal National Ltd.'s case [1986] 162 ITR 240 (Guj), which clearly laid down the interpretation of section 43B was followed by the judgments of the Madras High Court and Bombay High Court and was again followed by the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to costs." (5) CIT v. Shivsagar Estate [2002] 257 ITR 59 (SC) (S.P. Bharucha, R.C. Lahoti and N. Santosh Hegde JJ.) In this case, following its decision for an earlier year, the High Court held for certain subsequent years that the income from property held by co-owners had to be assessed separately in the hands of the individual co-owners and not in the hands of an association of persons. The Department preferred appeals and special leave petitions to this court. This court dismissed the appeals and petitions on the ground that no appeal had been taken to this court for the earlier year. (6) Chimanlal S. Patel v. CIT [1994] 210 ITR 419 (Guj). In this case, the Division Bench of the Gujarat High Court held as follows: "The Government is liable to pay interest on the interest amount at the same rate at which interest is payable on the excess amount refundable to the assessee. Excess tax cannot be retained without payment of interest: so also, interest which is payable thereon cannot be retained without payment of interest. There is no specific provision for payment of interest on the interest amount. Interest would be payable at the same rate at which the excess amount carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Requisitioning and Acquisition of Immovable Property Act, 1952, was upheld in Abhay Singh Surana v. Secretary, Ministry of Communication AIR 1987 SC 2177, and Deputy CIT v. Mamat Kaibarta, AIR 1984 Gauhati 25. The High Court held that where an assessment is made under the Act of 1922 after the commencement of the 1961 Act and refund is granted to the assessee, interest is payable on such refund. The High Court has further held (head-note): "The interest would, however, be deemed to have accrued after expiry of three months from the end of the month in which refund had become payable. The rate applicable would be that applicable to grant of refund under the Act of 1961 at the relevant time." The above decision was cited before the Bombay High Court. The High Court very conveniently omitted to consider the decision holding that the decision in Jwala Prasad Sikaria v. CIT [1989] 175 ITR 535 (Gauhati) was in the peculiar facts of that case. (8) CIT v. Goodyear India Ltd. [2001] 249 ITR 527 (Delhi). In the above case, the dispute relates to the assessment year 1967-68. At the instance of the Revenue, the following question had been referred for the opinion of the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar view has been taken by the Gujarat High Court in D.J. Works v. Deputy CIT [1992] 195 ITR 227 and Oilman Lal S. Patel v. CIT [1994] 210 ITR 419 (Guj) though with different conclusions. Above being the position, we answer the question in the affirmative, in favour of the assessee and against the Revenue." (9) CIT v. Needle Industries Pvt. Ltd. [1998] 233 ITR 370 (Mad). Mr. Parasaran argued that the High Court was right in law in rejecting 46 the appellant's claim on the sole ground that as the amount due to the appellant was of interest, no compensation could be paid to it even when gross delay in payment was admittedly made by the Department contrary to law. The Division Bench of the Madras High Court in CIT v. Needle Industries Pvt. Ltd. [1998] 233 ITR 370 succinctly interpreted the expression "amount" in section 244(1A). In that case, the original assessment for the assessment year 1974-75 was completed on August 29, 1977 and the order of assessment was the subject-matter of appeal before the appellate authority and the Tribunal. The Tribunal ordered refund. The Income-tax Officer allowed interest under section 244(1A). The assessee filed an appeal against the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed in the light of the expression 'amount' found in the earlier part of section 244(1A) of the Act to include the amount of interest paid by the assessee. Therefore, in the context of section 244 (1A) of the Act, the expression 'tax', in our opinion, would include interest also and the definition of tax in section 2(43) meaning 'income-tax' cannot be applied in the context of section 244(1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income-tax or an adjunct to income-tax. The result would be that the assessee is entitled to interest on the interest refunded also. As a matter of fact in the subsequent order of rectification, the Income-tax Officer has granted interest on the refunded interest which clearly shows the right thinking of the Department in accepting the position that the assessee would be entitled to interest on the interest refunded. The view of the Appellate Tribunal that the assessee would be entitled to interest on the refunded amount of interest levied under sections 139(8) and 215 of the Act is legally sustainable in law." In the above judgment, the Madras High Court has followe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t absurd, if not ridiculous, results may ensue inasmuch as the Income-tax Department would be required to pay a certain sum of money to an assessee on account of interest with one hand and take back the same amount as tax liability with the other. This may not only be an inconvenient and cumbersome procedure for the Income-tax Department but may also put an assessee to unnecessary inconvenience and harassment in that one has to take the amount of interest with one hand and pay back the same amount to the Income-tax Department as tax liability with the other. Therefore, if a restricted and technical meaning is given to the word 'refund' while implementing the provisions of section 245, no useful purpose would be served either of the Income-tax Department or of an assessee. There is, therefore, nothing wrong if interest payable to an assessee under section 244(1A) of the said Act is set off and adjusted against the tax liability of an assessee under section 245 as if the said amount was a refund due to an assessee." We have already considered the judgments cited by learned counsel appearing on either side. We shall now further analyse and discuss about the various judgments cited by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt specifically held that following the principle laid down by the Gujarat High Court, viz., that "... the Revenue is liable to pay interest on the amount of interest which it should have paid to the assessee but has unjustifiably failed to do ... the question has, as we find, been rightly answered in the affirmative and in favour of the assessee". This is clearly a decision of this court on the merits of the matter, albeit proceeding on the assumption that there was no provision in the Act granting interest on unpaid interest, in favour of the appellant's contentions. In the impugned order, the Bombay High Court has held that the Madhya Pradesh High Court was not on the point of payment of interest on interest, a view which is ex facie erroneous and clearly impossible to sustain as a plain reading of the question before the Madhya Pradesh High Court will show. The Gauhati High Court in Jwala Prasad Sikaria's case [1989] 175 ITR 535, had also taken a similar view that an assessee is entitled to payment of interest due to delay even if there is no statutory provision in this regard. In the impugned order, the Bombay High Court has held that the decision was in the peculiar facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of the delay being "justifiable" as is argued and in any event if the Revenue takes an erroneous view of the law, that cannot mean that the withholding of monies is "justifiable" or "not wrongful". There is no exception to the principle laid down for an allegedly "justifiable" withholding, and even if there was, 17 (or 12) years delay has not been and cannot in the circumstances be justified. Does the Act provide for payment of compensation for delayed payment of amounts due to an assessee in a case where these amounts include interest? In our view, the Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the Revenue must compensate the assessee. At the initial stage of any proceedings under the Act any refund will depend on whether any tax has been paid by an assessee in excess of tax actually payable by him and it is for this reason that section 237 of the Act is phrased in terms of tax paid in excess of amounts properly chargeable. It is, however, of importance to appreciate that se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant's contention mainly on the ground that the word "refund" must mean an amount previously paid by an assessee and does not relate to an amount payable by the Revenue by way of interest on such sums. The High Court's conclusion is based mainly on the wording of the proviso to section 240 of the Act. As already discussed by us in paragraph supra the proviso can have no relevance whatsoever as it was not part of the Act during the relevant period. The said proviso was inserted with effect from April 1, 1989. The High Court in its judgment has referred to the provisions of section 244(1A) and the decision of this court in Modi Industries Ltd. [1995] 216 ITR 759 extracted two paragraphs from this court's judgment holding that there can be no question of paying interest under both sections 214 (1A) and 244(1A) of the Act simultaneously, and further that there is no right to receive interest except as provided by the statute. The decision in Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC), has no bearing whatsoever on the issue in hand as the issue in that case was the correct meaning of the phrase "regular assessment" and as a consequence under which provision an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, and further the phrase any amount will also encompass interest. This view has been accepted by various High Courts such as the Delhi, Madras, Kerala High Court, etc. Whether on general principles the assessee ought to have been compensated for the inordinate delay in receiving monies properly due to it? Learned counsel for the appellant says that it cannot be denied that it has been deprived of the use of its monies for periods ranging from 12 to 17 years. It also cannot be denied that such deprivation is solely due to the actions of the Revenue which have been held by this court to be contrary to the provisions of the Act, on general principles it ought to be compensated for such deprivation. In the impugned order, the Bombay High Court has held that no compensation is required to be paid since "... there was a serious dispute between the parties, which was ultimately ordered to be paid pursuant to the order passed by this court on April 30,1997. Undisputedly, the amount pursuant thereto was paid on March 27, 1998 ...". The court further held that since the amount was paid once the controversy was resolved there was no wrongful retention of monies. No authority can ever ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not spell out the reasons for dismissal, it can well be construed in the light of its earlier judgment in the case of Suvidhe Ltd. and Mahavir Aluminium that the law relating to refund of pre-deposit has become final. 3. In order to attain uniformity and to regulate such refunds it is clarified that refund applications under section 11B(1) of the Central Excise Act, 1944 or under section 27(1) of the Customs Act, 1962 need not be insisted upon. A simple letter from the person who has made such deposit, requesting the return of the amount, along with an attested xerox copy of the order-in-appeal or the CEGAT order consequent to which the deposit made becomes returnable and an attested xerox copy of the challan in Form TR6 evidencing the payment of the amount of such deposit, addressed to the concerned Assistant/Deputy Commissioner of Central Excise or Customs, as the case may be, will suffice for the purpose. All pending refund applications already made under the relevant provisions of the indirect tax enactments for return of such deposits and which are pending with the authorities will also be treated as simple letters asking for return of the deposits, and will be processed as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any rhyme or reason. The interest was paid only at the instance and the intervention of this court in Civil Appeal No. 1887 of 1992 dated April 30, 1997. Interest on delayed payment of refund was not paid to the appellant on March 27, 1981, and April 30, 1986, due to the erroneous view that had been taken by the officials of the respondents. Interest on refund was granted to the appellant after a substantial lapse of time and hence it should be entitled to compensation for this period of delay. The High Court has failed to appreciate that while charging interest from the assessees, the Department first adjusts the amount paid towards interest so that the principal amount of tax payable remains outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting of interest on refund of taxes, the refunds are first adjusted towards the taxes and then the balance towards interest. Hence as per the stand that the Department takes they are liable to pay interest only up to the date of refund of tax while they take the benefit of the assessees funds by delaying the payment of interest on refunds without incurring any further liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto consideration while awarding the rate of interest on the compensation. This is a fit and proper case in which action should be initiated against all the officers concerned who were all in charge of this case at the appropriate and relevant point of time and because of whose inaction the appellant was made to suffer both financially and mentally, even though the amount was liable to be refunded in the year 1986 and even prior thereto. A copy of this judgment will be forwarded to the hon'ble Minister for Finance for his perusal and further appropriate action against the erring officials on whose lethargic and adamant attitude the Department has to surfer financially. By allowing this appeal, the Income-tax Department would have to pay a huge sum of money by way of compensation at the rate specified in the Act, varying from 12 per cent, to 15 per cent, which would be on the high side. Though we hold 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. Even though the appellant is e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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