TaxTMI 
TaxTMI 
2006 (1) TMI 55
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....ese appeals is whether an assessee is entitled to be compensated by the Income-tax Department for the delay in paying to the assessee amounts admittedly due to it? The delay in the instant case was for various periods ranging from 12 to 17 years. The following facts are not in dispute: Assessment year 1977-78: Notice of demand was issued to the appellant by respondent No. 2 for advance tax payable of Rs. 2,74,31,250. The appellant paid a sum of Rs. 1,86,04,450. The assessment order was passed by respondent No. 2 determining income of Rs. 3,88,37,630. Respondent No. 2, after rectifying his assessment order, determined the income at Rs. 3,45,91,830 and tax thereon at Rs. 1,99,76,781 and raised a demand for further tax payable of Rs. 13,72,331. The appellant paid the said sum. The Commissioner of Income-tax (Appeals) disposed of the appellant's appeal substantially allowing the same. Respondent No. 2 gave effect to the appellate order determining the income at Rs. 2,68,88,220 and tax thereon at Rs. 1,47,88,521. The appellant on April 30, 1986, received a refund of Rs. 42,38,260 and became entitled to receive interest on the refund and requested respondent No. 2 to grant inter....
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....,203 under section 214 of the Act but refused to grant interest under sections 214(1A) and 244(1A) of the Act. Assessment year 1982-83: The appellant submitted its estimate of advance tax and paid instalments thereon of Rs. 1,45,48,006. A provisional assessment order determining the tax payable at Rs. 1,28,46,079 was passed and, therefore, granted a refund of Rs. 17,01,927. He passed an assessment order determining the total income at Rs. 2,43,41,780 and tax payable thereon at Rs. 1,37,22,678 and raised demand for further tax of Rs. 8,76,600 which was paid by the appellant on March 30, 1985. The Commissioner of Income-tax (Appeals) disposed of the appellant's appeal substantially allowing the same. Respondent No. 2 gave effect to the appellate order determining the income at Rs. 2,05,91,540 and tax payable thereon at Rs. 1,16,07,670. The appellant received a refund of Rs. 21,15,008 and became entitled to receive interest on the refund. The appellant requested respondent No. 2 to grant interest on refund under sections 214 and 244 of the Act for the period from April 1, 1982 to March 31, 1986. Respondent No. 2 granted interest of Rs. 1,20,533. For all four assessment years:....
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.... S.C. Agarwal (Sd)............ D.P. Wadhwa New Delhi, April 30, 1997". March 27, 1998: Pursuant to the first respondent's direction, the second respondent passed an order paying amounts under sections 214 and 244(1A) of the Act up to the date of refund of tax. The refund order has been marked as annexure P-16 (Colly). For the sake of brevity, the working of interest under sections 214 and 244(1A) is reproduced hereunder: "Working of interest under section 214/244(1A) (i) Interest under section 214(1) of the Act at 12 per cent, on Rs. 22,78,400 for the period 1-4-1978 to 28-2-1981 7,97,440 (ii) Inter....
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....hheld by the respondents for a very long period as stated in the writ petition. Mr. Jehangir D. Mistri, learned counsel for the appellant, submitted that: (1) In view of the express provisions of the Act, the High Court ought to have held that an assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to law by the Income-tax Department for an inordinately long period of up to 17 years; (2) The appellant being undisputedly entitled in law to receive certain amounts from the Department in view of excess taxes paid by/collected from it (which amounts included interest) and payment of these amounts having been admittedly delayed by the respondents contrary to law, the appellant was entitled to receive interest on the said amount; (3) The High Court is not right in holding that interest under sections 214 and 244 of the Act is not a refund under section 240 and hence the Department is not liable to pay interest under section 244 in respect of delay in payment of the aforesaid interest; (4) Admittedly there was a delay on the part of the Department in paying the ....
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.... excess of that chargeable under the Act. The High Court has miserably failed to appreciate that the proviso was inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from April 1, 1989 and hence was not applicable to the present case. In any event, it failed to appreciate that the proviso to section 240 was inserted to overcome the difficulty caused by the view that if any assessment had been annulled for any reason the Department was not permitted to retain even the tax due on the basis of the returned income. Section 240 of the Act as it stood then at the relevant point of time, namely, the assessment years in question and the insertion of the proviso to section 240 w.e.f. April 1, 1989, is reproduced hereunder for the sake of convenience: "240. Refund on appeal, etc.-Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Income-tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf." "240. Refund on appeal, etc.-Where, as a result of any order passed in appeal or other proceeding unde....
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....he appellant, took us through the entire pleadings, annexures marked in these appeals and the documents relied on by both the parties in the High Court and of this court and also cited the following decisions in support of his contention. 1. D.J. Works v. Deputy CIT [1992] 195 ITR 227 (Guj); 2. CIT v. Narendra Doshi [2002] 254 ITR 606 (SC); 3. Berger Paints India Ltd. v. CIT [2004] 266 ITR 99 (SC); 4. Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC); 5. CIT v. Shivsagar Estate [2002] 257 ITR 59 (SC); 6. Chimanlal S. Patel v. CIT [1994] 210 ITR 419 (Guj); 7. Jwala Prasad Sikaria v. CIT [1989] 175 ITR 535 at 539 (Gauhati); 8. CIT v. Goodyear India Ltd. [2001] 249 ITR 527 (Delhi); 9. CIT v. Needle Industries Pvt. Ltd. [1998] 233 ITR 370 (Mad); and 10. Suresh B, Jain v. P.K.P. Nair [1992] 194 ITR 148 (Bom). Mr. Mohan Parasaran, learned Additional Solicitor-General appearing for the respondents, on the other hand, submitted that the Commissioner had decided the matter in terms of the directions issued by the apex court and the direction was to decide the claim in relation to the interest payable to the appellant in the light of the law l....
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.... have been expeditiously complied with as the monies were refunded to the assessee after the direction of this court, the question of granting interest for the period the matter was sub judice, does not really arise. Mr. Mohan Parasaran has not cited or relied on any other judgment except Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC). It was further submitted that interest payable on the refund amount under section 244(1) is a simple interest at the rate specified therein and neither compound interest nor interest on interest is payable and that under section 244(1A) no further interest will be payable under section 244(1) for the same period and on the same amount and that there is no provision in the Act for payment of interest on interest. The High Court through a detailed analysis and study of relevant case law correctly rejected the alternative claim of the appellant by following the decision of this court in the case of Modi Industries [1995] 216 ITR 759 (SC), wherein the scope of section 214 of the Act was discussed and it was held that there is no right to get interest on refund except as provided by the statute. This court was pleased to pass the order of reman....
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....ted for the extraordinary delay of up to 17 years? E. Whether the High Court ought to have held that sections 240 and 244 of the Act refer to "refund of any amount", which phrase clearly includes any amount (including interest) due, by the Income-tax Department to the assessee, and hence the appellant was entitled to interest on the delay in the payment of amounts due from the Income-tax Department? F. Whether the High Court erred in purporting to distinguish/explain the decision of this court in the case of CIT v. Narendra Doshi [2002] 254 ITR 606 based on inter alia various (about 20) decisions which were never cited during the course of the hearing, which were never put to counsel appearing and which, therefore, the appellant had no opportunity of dealing with? G. Whether the High Court erred in basing its interpretation of the provisions of the Act very largely upon other statutory provisions which were not even enacted during the relevant time, and which contentions were never urged or put to counsel appearing in the matter? H. Whether the High Court is right in considering the doctrine of merger which contentions were never urged by counsel for both the sides. ....
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....aid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted: Provided that, where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted: Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding: Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount....
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....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 simpl....
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....na, JJ.] This case deals with doctrine of estoppel. The decision in the case of one assessee was accepted by the Department and the correctness was not challenged. This court held that it is not open to the Department to challenge in the case of other assessees without just cause. Speaking for the Bench B.N. Srikrishna, J. has observed thus: "There is no doubt that the judgment of the Gujarat High Court in Lakhanpal National Ltd.'s case [1986] 162 ITR 240 is completely in favour of the assessee as it accepts the contention of the assessee in toto. It is not in dispute that the decision in Lakhanpal National Ltd.'s case [1986] 162 ITR 240 (Guj) was not challenged by the Department before this court and thus has been accepted by the Department. The interpretation placed on section 43B in Lakhanpal National Ltd.'s case [1986] 162 ITR 240 (Guj) was directly followed by the judgment of the Bombay High Court in CIT v. Bharat Petroleum Corporation Ltd. [2001] 252 ITR 43 and by the Madras High Court in Chemicals and Plastics India Ltd. v. CIT [2003] 260 ITR 193. These two judgments also appear to have been accepted by the Revenue and have not been challenged before this court at a....
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.... followed the earlier judgment of the same High Court in the case of Pradip Ramanlal Sheth v. Union of India [1993] 204 ITR 866 (Guj). Enquiries with the registry revealed that no appeal against that judgment was preferred by the Revenue. This court held thus (page 220 of [2001] 249 ITR): "If the Revenue did not accept the correctness of the judgment in the case of Pradip Ramanlal Sheth [1993] 204 ITR 866 (Guj), it should have preferred an appeal thereagainst and instructed counsel as to what the fate of that appeal was or why no appeal was filed. It is not open to the Revenue to accept that judgment in the case of the assessee in that case and challenge its correctness in the case of other assessees without just cause. For this reason, we decline to consider the correctness of the decision of the High Court in this matter and dismiss the civil appeal. No order as to costs." (5) CIT v. Shivsagar Estate [2002] 257 ITR 59 (SC) (S.P. Bharucha, R.C. Lahoti and N. Santosh Hegde JJ.) In this case, following its decision for an earlier year, the High Court held for certain subsequent years that the income from property held by co-owners had to be assessed separately in the han....
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....d Sikaria v. CIT [1989] 175 ITR 535 at 539 (Gauhati). It was argued by Mr. Mohan Parasaran that interest payable on the refund amount under section 244(1) is a simple interest at the rate specified therein and neither compound interest nor interest on interest is payable and that under section 244(1A), no further interest shall be payable under section 244(1) for the same period and on the same amount and that there is no provision in the Act for payment of interest on interest. This contention, in our opinion, has no merit. Learned counsel for the assessee cited the decision Jwala Prasad Sikaria [1989] 175 ITR 535 (Gauhati) in support of his contention wherein the Gauhati High Court held that a citizen is entitled to payment of interest due to delay even if there is no statutory provision in this regard. The grant of interest to owners whose property was requisitioned under the provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952, was upheld in Abhay Singh Surana v. Secretary, Ministry of Communication AIR 1987 SC 2177, and Deputy CIT v. Mamat Kaibarta, AIR 1984 Gauhati 25. The High Court held that where an assessment is made under the Act of 1922 af....
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....ount becomes due to the assessee'. Section 244 refers to the liability fastened on the Central Government in case of failure to grant refund within the stipulated time in a case where refund is due to the assessee in pursuance of an order referred to in section 240. A combined reading of both the provisions makes the position crystal clear that it is any amount which becomes due to the assessee and not necessarily the tax component. Undisputedly, a sum of Rs. 1,90,499 which qualifies for interest became payable to the assessee on the basis of an order passed under section 240 of the Act. Merely because this was inclusive of an amount which was payable under section 214 of the Act, that would not make the position any different. It is an amount which became due to the assessee on the basis of the appellate order. Therefore, the assessee was entitled to interest in terms of section 244 of the Act. A similar view has been taken by the Gujarat High Court in D.J. Works v. Deputy CIT [1992] 195 ITR 227 and Oilman Lal S. Patel v. CIT [1994] 210 ITR 419 (Guj) though with different conclusions. Above being the position, we answer the question in the affirmative, in favour of the assessee an....
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....n the expression 'tax or penalty' has been employed. However, to determine the amount on which the Revenue is liable to pay interest, section 244(1A) gives emphasis on the amount paid by the assessee in pursuance of the order of assessment and the amount, in our opinion, cannot be limited to the amount of tax or penalty, but would encompass the amount of interest paid by the assessee. The clear intention of Parliament is that the right to interest will compensate the assessee for the excess payment during the intervening period when the assessee did not have the benefit of use of such money paid in whatsoever character. In addition, if a literal meaning is given to the expression, 'tax' found in the later part of section 244(1A) of the Act, it will create an anomalous situation resulting in exclusion of the concept of the interest. In our opinion, the word 'tax' in the later part of section 244(1A) has to be construed in the light of the expression 'amount' found in the earlier part of section 244(1A) of the Act to include the amount of interest paid by the assessee. Therefore, in the context of section 244 (1A) of the Act, the expression 'tax', in our opinion, would include intere....
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.... etc., of any assessment year, arrears in respect of these items for earlier years, amounts under any head wrongly paid or paid in excess, amounts pertaining to one person considered in another's hands and, while computing the tax liability or penalty for any year, separate notices are issued for different items but demand or refund is made of the net figure which cannot, therefore, be identified as tax. The amount of interest paid on refunds should not be treated in isolation and the concept of the word 'refund' does not admit of a limited meaning but must be held to mean any amount payable by the Department to an assessee whether as and by way of 'refund' or 'interest'. After all, the amount of interest payable to an assessee under section 244(1A) of the Income-tax Act, 1961, is also an amount that is refunded by the Department to an assessee and, if the same is not permitted to be adjusted under section 245, almost absurd, if not ridiculous, results may ensue inasmuch as the Income-tax Department would be required to pay a certain sum of money to an assessee on account of interest with one hand and take back the same amount as tax liability with the other. This may not only be a....
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....ity of the Department to pay interest where excess tax was retained and the court held that the same principle should be extended to cases where interest was retained. The court held that once interest becomes due it takes the same colour as excess amounts of tax and they awarded interest thereon at the rates prescribed under the Act. The Madhya Pradesh High Court in an income-tax reference I.T.R. No. 5 of 1996 followed the Gujarat High Court decisions and answered in the affirmative and in favour of the assessee, a question as to whether the Tribunal was right in holding that interest was payable on delayed payments of interest. The question specifically refers to the Department's claim that the law allegedly does not provide for any such payment. This court in Narendra Doshi's case [2002] 254 ITR 606, dismissed the appeal filed by the Income-tax Department against the said judgment of the Madhya Pradesh High Court. This court specifically held that following the principle laid down by the Gujarat High Court, viz., that "... the Revenue is liable to pay interest on the amount of interest which it should have paid to the assessee but has unjustifiably failed to do ... the que....
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....erned, and this has been strictly complied with. In our view, the withholding by the Revenue commenced in 1981 and 1986 by its refusal to pay interest amounts due to the appellant and hence the order of this court on April 30, 1997, is of no relevance. Counsel for the Revenue argued that the reason for not granting interest was that the amounts on which interest was claimed were amounts of advance tax and no interest under section 214 could be paid on advance tax after the date of the order of assessment. The question of what interest was payable to it is not the subject-matter of the present dispute at all and is now agreed, settled and concluded. In any event, the contentions urged are erroneous as this court in Modi Industries' case [1995] 216 ITR 759, has clarified that advance tax is to be treated as paid pursuant to an order of assessment and hence interest is payable thereon but under section 244 of the Act. In our view, there is no question of the delay being "justifiable" as is argued and in any event if the Revenue takes an erroneous view of the law, that cannot mean that the withholding of monies is "justifiable" or "not wrongful". There is no exception to the prin....
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....e provisions of section 244(1A) of the Act, which also uses the same phrase in the context of interest payable by the Revenue. In express terms the court held that the expression referred not only to the tax but also to interest. The court agreed with a similar view taken by the Kerala High Court in the case of Ambat Echukutty Menon [1988] 173 ITR 581. Both these were cases where the court was called upon to decide whether further interest was payable by the Revenue on interest which had to be repaid to the assessee. In our opinion, the appellant is entitled to interest under section 244 and/or section 244A of the Act in accordance with the terms and provisions of the said sections. The interest previously granted to it has been computed up to March 27, 1981 and March 31,1986 (under different sections of the Act) and its present claim is for compensation for periods of delay after these dates. In the impugned order, the Bombay High Court has rejected the appellant's contention mainly on the ground that the word "refund" must mean an amount previously paid by an assessee and does not relate to an amount payable by the Revenue by way of interest on such sums. The High Court's c....
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....s that this court decided the matter by upholding the Gujarat High Court view which proceeded on the basis that the provisions of the Act did not provide for such further interest. The High Court has merely noted the decision of the Madras High Court in Needle Industries' case [1998] 233 ITR 370, without dealing with the same in any manner. The High Court similarly noted and failed to deal with the Kerala High Court's decision in Ambat Echukutty Menon's case [1988] 173 ITR 581 and a previous decision of the Bombay High Court itself in the case of Suresh B. Jain's case [1992] 194 ITR 148. In the present appeal, the respondents have argued that the compensation claimed by the appellant is for delay by the Revenue in paying of interest, and this does fall within the meaning of refund as set out in section 237 of the Act. The relevant provision is section 240 of the Act which clearly lays down that what is relevant is whether any amount has become due to an assessee, and further the phrase any amount will also encompass interest. This view has been accepted by various High Courts such as the Delhi, Madras, Kerala High Court, etc. Whether on general principles the assessee o....
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....s other than duty, such deposits should be returned in the event the appellant succeeds in appeal or the matter is remanded for fresh adjudication. 2. It would be pertinent to mention that the Revenue had recently filed a special leave petition against the Mumbai High Court's order in the matter of NELCO LTD, challenging the grant of interest on delayed refund of pre-deposit as to whether: (i) the High Court is right in granting interest to the depositor since the law contained in section 35F of the Act does in no way provide for any type of compensation in the event of an appellant finally succeeding in the appeal, and, (ii) the refunds so claimed are covered under the provisions of section 11B of the Act and are governed by the parameters applicable to the claim of refund of duty as the amount is deposited under section 35F of the Central Excise Act, 1944. The hon'ble Supreme Court vide its order dated November 26, 2001, dismissed the appeal. Even though the apex court did not spell out the reasons for dismissal, it can well be construed in the light of its earlier judgment in the case of Suvidhe Ltd. and Mahavir Aluminium that the law relating to refund of pre-deposi....
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....f such liability accrue by reason of any orders of the Tribunal/court such orders will have to be complied with and it may be recoverable from the concerned officers. All the Commissioners were advised implementation of these instructions and ensure their implementation through a suitable monitoring mechanism. It is also specifically mentioned that the Commissioners under respective jurisdiction should be advised that similar matters pending in the High Courts must be withdrawn and compliance reported and that the Board has also decided to implement the orders passed by the Tribunal already passed for payment of interest and the interest payable shall be paid forthwith. The facts and the law referred to in paragraph would clearly go to show that the appellant was undisputably entitled to interest under sections 214 and 244 of the Act as held by the various High Courts and also this court. In the instant case, the appellant's money had been unjustifiably withheld by the Department for 17 years without any rhyme or reason. The interest was paid only at the instance and the intervention of this court in Civil Appeal No. 1887 of 1992 dated April 30, 1997. Interest on delayed payment....
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....rendering of an equivalent in value or amount; an equivalent given for property taken or for an injury done to another ; the giving back an equivalent in either money which is but the measure of value, or in actual value otherwise conferred; a recompense in value; a recompense given for a thing received; recompense for the whole injury suffered; remuneration or satisfaction for injury or damage of every description; remuneration for loss of time, necessary expenditures, and for permanent disability if such be the result; remuneration for the injury directly and proximately caused by a breach of contract or duty; remuneration or wages given to an employee or officer." There cannot be any doubt that the award of interest on the refunded amount is as per the statute provisions of law as it then stood and on the peculiar facts and circumstances of each case. When a specific provision has been made under the statute, such provision has to govern the field. Therefore, the court has to take all relevant factors into consideration while awarding the rate of interest on the compensation. This is a fit and proper case in which action should be initiated against all the officers concern....