High Court orders 9% interest on refunded amount from 1987-1990, no interest on interest.

The High Court directed the respondents to grant compensation by way of interest at a rate of 9% per annum on the refunded amount for the period from July 1, 1987, to November 13, 1990. The court clarified that while the petitioner is entitled to compensation by way of interest, they are not entitled to further compensation by way of interest on such interest. The decision was based on Supreme Court rulings emphasizing compensation for delays in payment without extending to interest on interest.

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Issues Involved:
1. Entitlement to compensation by way of interest on delayed refund.
2. Applicability of interest on interest as compensation.
3. Interpretation of relevant Supreme Court decisions regarding compensation and interest.

Detailed Analysis:

1. Entitlement to Compensation by Way of Interest on Delayed Refund:
The petitioner filed a petition under Articles 226 and 227 of the Constitution of India seeking compensation by way of interest on the amount of refund for the period from July 1, 1987, to November 13, 1990. The High Court, in its earlier decision dated July 3, 2007, directed the respondents to grant compensation by way of interest at the rate of 9% per annum on the refunded amount. This decision was based on the Supreme Court's ruling in Sandvik Asia Limited vs. Commissioner of Income Tax & Others (2006) 280 ITR 643 (SC), which emphasized that compensation by way of interest should be awarded for the delay in payment of amounts lawfully due. The High Court set aside the orders of the Commissioner of Income Tax and the Chief Commissioner of Income Tax, which had declined the petitioner's claim for interest on the refund.

2. Applicability of Interest on Interest as Compensation:
The Supreme Court, in its decision dated February 26, 2014, remanded the matter back to the High Court for reconsideration in light of its observations in Commissioner of Income Tax, Gujarat vs. Gujarat Fluoro Chemicals (2014) 1 SCC 126. The High Court noted that the latter Supreme Court decision clarified that the Revenue is not obliged to pay interest on interest in the event of its failure to refund the interest payable within the statutory period. The Larger Bench of the Supreme Court in the Gujarat Fluoro Chemicals case held that the Sandvik Asia decision did not mandate interest on interest but rather compensation for the delay in refunding the statutory interest.

3. Interpretation of Relevant Supreme Court Decisions:
The High Court analyzed both the Sandvik Asia and Gujarat Fluoro Chemicals decisions to determine the scope of compensation by way of interest. The Sandvik Asia case established that the assessee should be compensated for the inordinate delay in receiving monies due, but the Gujarat Fluoro Chemicals case clarified that this compensation does not extend to interest on interest. The High Court concluded that while the petitioner is entitled to compensation by way of interest at the rate of 9% per annum for the period in question, they are not entitled to further compensation by way of interest on such interest.

Conclusion:
In conclusion, the High Court directed the respondents to grant compensation by way of interest at the rate of 9% per annum on the amount refunded for the period from July 1, 1987, to November 13, 1990. This decision aligns with the general principles for awarding compensation for delayed refunds, as established by the Supreme Court, but does not extend to awarding interest on interest. The rule was made absolute to the extent indicated, with no order as to costs.

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