TMI Blog2006 (1) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... s arise in all these appeals, they were heard together and are being disposed of by this common judgment. The impugned common judgment was passed by the High Court of Bombay (see [2004] 267 ITR 78) rejecting the appellant's claim to interest holding that no such interest on interest is payable under any of the provisions of the Income-tax Act, 1961 (for short "the Act"). The main issue raised in these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining the income at Rs. 89,02,070 and tax payable thereon at Rs. 52,63,348. The appellant received a refund of Rs. 53,69,809 and became entitled to receive interest on the refund. The appellant requested to grant interest on refund under sections 214 and 244 of the Act for the period from April 1, 1981 to March 31, 1986. Respondent No. 2 rectified its order and granted further interest of Rs. 1,87,203 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries Ltd.'s case [1995] 216 ITR 759 (SC). No order as to costs. (Sd.) ........... 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) Interest under section 214(1) of the Act at 12 per cent. per annum on Rs. 34,78,800 for the period 1-4-1978 to 27-3-1981 (under section 143(3)) 12,17,580 (iii) Interest under section 244(1A) on Rs. 34,78,800 (R.O. issued on 23/4/1986) From 1-4-1981 to 30-9-1984 at 12 per cent. From 1-10-1984 to 31-3-1986 at 15 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest under sections 214 and 244 of the Act. The High Court has failed to appreciate that during the intervening period, the Department had enjoyed the benefit of these funds while the appellant was deprived of the same; (5) The High Court failed to appreciate that the appellant's monies had been withheld by the Department contrary to law, that interest on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under this Act, refund of any amount becomes due to the assessee, the Assessing 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: '[Provided that where, by the order aforesaid,- (a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 laid down in Modi Industries Ltd.'s case [1995] 216 ITR 759 (SC). According to him, none of the provisions of law contained in the said Act provide for payment of interest on interest and certainly not section 244(1). He would further submit that in the matter of interpretation of a taxing statute and the provisions of law contained therein, there can be no scope for considerations of equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 remand on April 30, 1997, directing the Commissioner of Income-tax, Pune, to consider the revision petition in the light of the decision in the case of Modi Industries [1995] 216 ITR 759 (SC). By order dated September 29, 1997, the Commissioner of Income-tax, Pune, directed the payment of interest according to the decision in Modi Industries' case [1995] 216 ITR 759 (SC) and in pursuance thereof the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t? 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. Before considering the rival claims, it would be beneficial to reproduce the section as it stood then (at the relevant point of time) sections 237, 240, 243 and 244. "237. Refunds.-If any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 so found to be in excess. (2) Where a refund is withheld under the provisions of section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of three months from the end of the month in which the order referred to in section 241 is passed to the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anpal 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 all. This fact asserted before us by the petitioner-assessee has not been disputed in the counter affidavit of the Department ... In view of the judgments of this court in Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219; CIT v. Narendra Doshi [2002] 254 ITR 606 and CIT v. Shivsagar Estate [2002] 257 ITR 59, the principle established is that if the Revenue has not challenged the correctness of the law laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 hands of the individual co-owners and not in the hands of an association of persons. The Department preferred appeals and special leave petitions to this court. This court dismissed the appeals and petitions on the ground that no appeal had been taken to this court for the earlier year. (6) Chimanlal S. Patel v. CIT [1994] 210 ITR 419 (Guj). In this case, the Division Bench of the Gujarat High Court held as follows: "T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision 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 after the commencement of the 1961 Act and refund is granted to the assessee, interest is payable on such refund. The High Court has further held (head-note): "The interest would, however, be deemed to have accrued after expiry of three months from the end of the month in which refund had become payable. The rate applicable would be that applicable to grant of refund under the Act of 1961 at the relevant time." The above deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and against the Revenue." (9) CIT v. Needle Industries Pvt. Ltd. [1998] 233 ITR 370 (Mad). Mr. Parasaran argued that the High Court was right in law in rejecting 46 the appellant's claim on the sole ground that as the amount due to the appellant was of interest, no compensation could be paid to it even when gross delay in payment was admittedly made by the Department contrary to law. The Division Bench of the Madras High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 interest also and the definition of tax in section 2(43) meaning 'income-tax' cannot be applied in the context of section 244(1A) of the Act. Consequently, the interest paid in pursuance of the order of assessment has to be regarded as forming part of income-tax or an adjunct to income-tax. The result would be that the assessee is entitled to interest on the interest refunded also. As a matter of fact in the subsequent order of rectificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efunds 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 an inconvenient and cumbersome procedure for the Income-tax Department but may also put an assessee to unnecessary inconvenience and harassment in that one has to take the amount of interest with one hand and pay back the same amount to the Income-tax Department as tax liability with the other. Therefore, if a restricted and technical meaning is given to the word 'refund' while implementing the provisions of section 245, no useful purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt 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 question has, as we find, been rightly answered in the affirmative and in favour of the assessee". This is clearly a decision of this court on the merits of the matter, albeit proceeding on the assumption that there was no provision in the Act granting interest on unpaid interest, in favour of the appellant's contentions. In the impugned order, the Bombay High Court has held that the Madhya Pradesh High Court was not on the point of payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 principle laid down for an allegedly "justifiable" withholding, and even if there was, 17 (or 12) years delay has not been and cannot in the circumstances be justified. Does the Act provide for payment of compensation for delayed payment of amounts due to an assessee in a case where these amounts include interest? In our view, the Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conclusion is based mainly on the wording of the proviso to section 240 of the Act. As already discussed by us in paragraph supra the proviso can have no relevance whatsoever as it was not part of the Act during the relevant period. The said proviso was inserted with effect from April 1, 1989. The High Court in its judgment has referred to the provisions of section 244(1A) and the decision of this court in Modi Industries Ltd. [1995] 216 ITR 759 extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase [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 ought to have been compensated for the inordinate delay in receiving monies properly due to it? Learned counsel for the appellant says that it cannot be denied that it has been deprived of the use of its monies for periods ranging from 12 to 17 years. It also cannot be denied that such deprivation is solely due to the actions of the Revenue which have been held by this court to be contrary to the provisions of the Act, on general principles it ought to be compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-deposit has become final. 3. In order to attain uniformity and to regulate such refunds it is clarified that refund applications under section 11B(1) of the Central Excise Act, 1944 or under section 27(1) of the Customs Act, 1962 need not be insisted upon. A simple letter from the person who has made such deposit, requesting the return of the amount, along with an attested xerox copy of the order-in-appeal or the CEGAT order consequent to which the deposit made becomes return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of refund was not paid to the appellant on March 27, 1981, and April 30, 1986, due to the erroneous view that had been taken by the officials of the respondents. Interest on refund was granted to the appellant after a substantial lapse of time and hence it should be entitled to compensation for this period of delay. The High Court has failed to appreciate that while charging interest from the assessees, the Department first adjusts the amount paid towards interest so that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermanent 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 concerned who were all in charge of this case at the appropriate and relevant point of time and because of whose inaction the appellant was made to suffer both financially and mentally, even though the amount was liable to be refunded in the year 1986 and even prior thereto. A copy of this judgment will be forwarded to the hon'ble Minister for Finance for his perusal and further appropriate action against the erring officials on whose lethargic and adamant attitude the Department has to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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