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TMI Blog2005 (6) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment was later revised at Rs. 57,29,355 and Rs. 39,66,126 respectively. Against the assessment, appeal was filed which was partly allowed. Thereafter, the assessment was reopened by the Assessing Officer and the principal value redetermined. Against the same, there were appeals by both sides and ultimately, consequent on exhibit P6 orders of the Income-tax Appellate Tribunal, refund of estate duty amounting to Rs. 42,80,167 became due to the petitioner and by exhibit P9 order dated December 12, 1995, the respondent modified the assessment granting refund of the said amount. This amount was originally paid by the petitioner pursuant to earlier assessments on the following dates: Rs. 28-3-1989 15,00,000 14-8-1989 5,00,000 15-9-1989 5,00,000 14-10-1989 5,00,000 Refund adjusted on 31-3-1990 1,80,000 Refund adjusted in October, 1992 10,99,591 Total 42,80,167 The claim of the petitioner for interest on this amount was rejected by exhibit P9 itself on the ground that there is no provision for granting interest on refunds in the Estate Duty Act, 1953. The petitioner is claiming interest on the above amounts from the dates of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of pre-reference period in the absence of such power either in the Act or the arbitration agreement. Counsel drew my attention to para. 8 of the judgment in that case which reads thus: "The Constitution Bench, which decided Roy case [1992] 1 SCC 508 after a critical analysis of the earlier decisions including the one is Jena case [1988] 1 SCC 418 held as follows: '43. The question still remains whether an arbitrator has the power to award interest pendente lite, and if so, on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of the aforementioned decisions the following principles emerge: (i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 22 to 24 of the said decision which read as follows: "22. We may refer to the decision of this court in Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C. Budharaj [2001] 2 SCC 721, wherein the controversy relating to the power of an arbitrator (under the Arbitration Act, 1940) to award interest for pre-reference period has been set at rest by the Constitution Bench. The majority speaking through Doraiswamy Raju J., has opined that the basic proposition of law that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation by whatever name it may be called, viz., interest, compensation or damages and this proposition is unmistakable and valid, the efficacy and binding nature of such law cannot be either diminished or whittled down. It was held that in the absence of anything in the arbitration agreement, excluding the jurisdiction of the arbitrator to award interest on the amount due under the contract, and, in the absence of any other prohibition, the arbitrator can award interest. 23. Under the English law, generally speaking, a seller cannot recover interest when the buyer is in default of paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions for grant of interest. The company relied on cases of purchases of immovable property where interest is awarded as a general rule of equity if the purchaser enters into possession without having paid the purchase money to the seller. The reason of the rule was stated a long time ago by Lord St. Leonards L.C. in Birch v. Joy [1852] 3 HL Case 565; 10 ER 222 as follows: 'The parties change characters, the property remains at law just where it was, the purchaser has the money in his pocket, and the seller still has the estate vested in him; but they exchange characters in a court of equity, the seller becomes the owner of the money and the purchaser becomes the owner of the estate.' 26. On entering possession the purchaser becomes entitled to the rents but if he has not paid the price, interest in equity is deemed payable by him on the purchase price which belongs to the seller. This principle was applied by the House of Lords in cases of compulsory purchases. In Swift and Co. v. Board of Trade [1925] AC 520, Viscount Cave L.C. gave the reason that the practice rests upon the principle that the taking of possession is an implied agreement to pay interest which was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [1994] 210 ITR 419. These decisions hold 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 Revenue has not challenged the correctness of the two decisions of the Gujarat High Court. They must, therefore, be bound by the principle laid down therein. Following that principle, the question has, as we find, been rightly answered in the affirmative and in favour of the assessee. The civil appeal is dismissed. No order as to costs." With the support of these decisions, counsel for the petitioner argues that in the absence of any express prohibition in the Estate Duty Act, 1953, prohibiting payment of interest on refunds, the respondent ought to have paid interest on the amounts of refund. He would further submit that when the respondent himself had collected interest on the estate duty under section 53(3) of the Act at the time of assessment, it is only equitable that the respondent pays interest while refunding the estate duty pursuant to the appellate order. He would also add that section 64(7) would also lend support to his contention. He submits that during reference befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to the date of refund. But, if the assessment order was reduced in appeal, no interest was payable from the date of payment of tax pursuant to the assessment order to the date of the appellate order. Therefore, interpretation of section 214 or any other section of the Act should not be made on the assumption that interest has to be paid whenever an amount which has been retained by the tax authority in exercise of the statutory power becomes refundable as a result of any subsequent proceeding." I have carefully considered the arguments of both sides. The first contention of the petitioner is that unless there is a prohibition in the Act itself against payment of interest, interest is payable, for which decisions cited by him are applicable. The decision in Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C. Budharaj [2001] 2 SCC 721 relates to the power of the arbitrator to award interest which holds that the arbitrator has power to award interest pendente lite. The existence of that power would suggest that the arbitrator can, in appropriate cases, deny interest also. The power to grant interest should not be mistaken with the liability to pay interest. The former ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecome due as refund to an assessee pursuant to final assessment. Section 214 of the Income-tax Act, 1961, provides thus: "214.(1) The Central Government shall pay simple interest at fifteen per cent. per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the assessed tax, from the 1st day of April, next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year, during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment: Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment. (1A) Where as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und. 244.(1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent. per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted. (1A) Where the whole or any part of the refund referred to in subsection (1) is due to the assessee, as a result of any amount having been paid 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 proceedings 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: Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the date on which the refund is granted." There are similar provisions in the Kerala statutes also. Section 68(4) of the Kerala Agricultural Income-tax Act, 1991 and section 44(4) of the Kerala General Sales Tax Act are cases in point. It will be advantageous to quote those provisions here: "68. Refunds.- (1) If any person satisfies the Agricultural Income-tax Officer that the amount of tax paid by him for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess amount so paid. (2) Where, as a result of any order passed in appeal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Agricultural Income-tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having made any claim in that behalf. (3) If any advance tax paid by any person in accordance with section 37 is found in excess of the amount properly chargeable under this Act for the year, he shall be entitled to a refund of the excess amount so paid. (4) If any refund due under this section is not paid within three months from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only when the appellate authority sets aside or modifies the assessment order and not at any time before. The decision in Modi Industries Ltd. v. CIT [1995] 216 ITR 759 (SC) is directly on point regarding the issue. The paragraphs quoted supra categorically deal with the question of payment of interest on the amount of tax paid when the tax paid is refunded pursuant to an appellate order. As held therein, there is no equity involved in such cases. In fact, the question of equity does not arise in taxing statutes. The fact that taxing statutes are not based on principles of equity is exemplified by the fact that the interest payable to the assessee under section 214 of the Income-tax Act on any excess amount standing to the credit of the assessee is limited to the date of the order of assessment and not to the date of the refund. There is no right to get interest on refund except as provided by the statute. The very fact that section 64(7) of the Estate Duty Act makes provision for payment of interest where the amount of any assessment is reduced as a result of any reference to the High Court and refund of estate duty overpaid becomes due to the assessee without any corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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