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 wrongfully withheld by the Assessing Officer or Government. The court ruled the Assessing Officer was obliged to award interest when granting the refund and that the interest due (i.e., interest on the excess tax) itself attracts simple interest at 15% p.a. from the date it became payable until actual payment. The petition was allowed and the Government held liable to pay such interest.

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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.

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