No statutory right to interest on refunded seized money where a third party's claim falls outside the Income-tax Act framework.

A third party whose seized money was later found not to belong to the assessee had no enforceable right to compensatory interest on refund, because the Income-tax Act, 1961 contains no express provision for such interest in the statutory scheme governing search, seizure, retention and release. The provisions on interest for tax defaults and refunds were confined to specified statutory situations and did not extend to third-party claims. Common law and equity also did not supply an independent entitlement, and section 4(1) of the Interest Act, 1978 preserved only existing rights rather than creating a new one. The claim for interest was therefore not maintainable.

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Issues: (i) Whether a non-assessee third party, whose money seized during search was later held not to belong to the assessee and refunded, can claim compensatory interest in the absence of an express provision in the Income-tax Act, 1961. (ii) Whether such interest is payable under common law, in equity, or under section 4(1) of the Interest Act, 1978.

Issue (i): Whether a non-assessee third party, whose money seized during search was later held not to belong to the assessee and refunded, can claim compensatory interest in the absence of an express provision in the Income-tax Act, 1961.

Analysis: The statutory scheme governing search, seizure, retention, adjudication of third-party claims, and release of assets under section 132 and section 132B did not provide for interest on a refund ordered in favour of a third party under section 132(11). The provisions for interest on tax defaults and refunds under sections 234A, 234B, 237 and 244A were held inapplicable because they operate in favour of assessees or in specified statutory situations, not in favour of third parties claiming release of seized money. The Act was treated as a complete code on the subject, and in the absence of an express statutory provision, no interest could be awarded.

Conclusion: The claim for interest was rejected and the issue was decided against the petitioner.

Issue (ii): Whether such interest is payable under common law, in equity, or under section 4(1) of the Interest Act, 1978.

Analysis: The common-law rule, as recognized in the authorities considered, did not allow interest as damages for mere detention of money unless the case fell within recognized equitable or statutory exceptions. Section 4(1) of the Interest Act, 1978 preserved only such rights to interest as were otherwise payable by enactment, rule of law, or usage having the force of law, but it did not create a substantive entitlement where none existed. No equitable circumstances justifying interest were established, and section 73 of the Indian Contract Act, 1872 was treated as not authorizing interest for the present kind of retention.

Conclusion: Interest was held not payable under common law, equity, or section 4(1) of the Interest Act, 1978, and the issue was decided against the petitioner.

Final Conclusion: The petitioner's claim for compensatory interest on the refunded seized amount was not maintainable either under the Income-tax Act, 1961 or under general law, so the writ petition failed.

Ratio Decidendi: In the absence of an express statutory provision, a third party whose seized money is refunded after adjudication under the Income-tax Act, 1961 has no enforceable right to compensatory interest, and neither common law nor section 4(1) of the Interest Act, 1978 supplies such entitlement without an independent legal basis.

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