Interest on refunded sales tax denied where no debtor-creditor relationship or recognised equitable basis existed.

Interest on refunded sales tax was denied because Section 1 of the Interest Act, 1839 does not create a general equitable right to interest. The Court held that interest is recoverable only in recognised categories, such as fiduciary or analogous relationships, and that tax collected by the State in exercise of sovereign power does not establish an ordinary debtor-creditor relationship. The claim also failed as damages for wrongful detention and on restitutionary principles, especially where the refund was governed by a specific statutory provision that did not provide for interest.

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Issues: Whether the assessee was entitled to interest on the sales tax amount refunded after the levy was declared illegal, either under the Interest Act or on general equitable, damages, or restitutionary principles.

Analysis: The claim for interest was examined against Section 1 of the Interest Act, 1839. The Court held that the proviso to that section does not confer a general right to interest on broad equitable grounds. It accepted the settled distinction that interest is recoverable only in recognised categories where equity would ordinarily award it, such as specific fiduciary or analogous relationships, and not merely because the taxpayer was deprived of the use of money. The Court further held that tax collected by the State in exercise of sovereign power does not create the ordinary relationship of debtor and creditor, and the claim could not be sustained as damages for wrongful detention. The alternative plea based on restitution was also rejected, and the existence of a specific statutory refund provision without interest reinforced the conclusion.

Conclusion: The assessee was not entitled to interest on the refunded sales tax amount.

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