1991 (10) TMI 33 - HC - Income Tax

Government liable under Section 214(1) to pay 15% interest on excess tax and interest on delayed payment

HC allowed the petition, holding that s.214(1) recognizes liability to pay 15% interest on tax paid in excess and that same principle extends to interest ... Entitlement to interest on refund u/s 214(1) - excess tax paid - HELD THAT:- Section 214(1) itself recognizes in principle the liability to pay interest on the amount of tax paid in excess of the amount of assessed tax and which is retained by the Government. Interest on the excess amount is payable at the rate of 15 per cent. from the first day of the year of assessment to the date of regular assessment. It would thus appear that the Legislature itself has considered it fair and reasonable to award interest on the amount paid in excess, which has been retained by the Government. We do not see any reason why the same principle should not be extended to the payment of interest which has been wrongfully withheld by the Assessing Officer or the Government. It was the duty of the Assessing Officer to award interest on the excess amount of tax paid by the petitioner while giving effect to the appellate order and granting refund of the excess amount. If the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest. Once the interest amount becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment. Therefore, in our opinion, though there is no specific 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. In the result, this petition is allowed. Issues Involved:The judgment addresses the entitlement of a partnership firm to claim interest on refunded amounts for assessment years 1983-84 to 1985-86 u/s 214(1) of the Income-tax Act, 1961, due to excess tax paid and refunded, as well as the legality of withholding such interest by the Assessing Officer.Assessment Year 1983-84:The petitioner firm was assessed for a total income of Rs. 6,56,536, with a relief granted by the Commissioner reducing it to Rs. 5,96,868. The Assessing Officer refused registration initially but the appellate order granted continuance of registration. The petitioner claimed interest of Rs. 45,708 on the refunded amount, which the Assessing Officer did not award. The court held the firm entitled to claim interest and directed the respondent to pay the due amount with 15% interest from October 4, 1988.Assessment Year 1984-85:The firm was assessed for a total income of Rs. 5,21,497, with registration refused by the Assessing Officer but continued by the appellate authority. The petitioner claimed interest of Rs. 36,168 on the refunded amount, which was later awarded by the Assessing Officer. The court acknowledged the interest claim and directed payment with 15% interest from October 4, 1988, to December 15, 1989.Assessment Year 1985-86:The Assessing Officer assessed the firm's total income at Rs. 5,98,690, refusing registration initially but granted by the Commissioner on appeal. The petitioner claimed interest of Rs. 21,210 on the refunded amount, which was not awarded initially. The court recognized the interest claim and directed payment with 15% interest from October 4, 1988, to July 13, 1989.Legal Interpretation and Conclusion:The court clarified that interest is payable on excess tax refunded, as per section 214(1) of the Act, and extended this principle to interest wrongfully withheld by the Assessing Officer. It held that interest on interest would be payable at the same rate as the excess amount, i.e., 15% per annum. The judgment concluded by allowing the petition, directing the respondent to pay the interest amounts due for each assessment year with applicable interest rates, ruling in favor of the petitioner firm.