TMI Blog2004 (1) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners are entitled to be paid with the interest at the rate of 15 per cent. per annum on the total amount of refund, including the interest accrued thereon from the day such refund amount became due and payable till the date of actual payment, in terms of sections 214(1), 214(1A), and 244(1A) read with section 240 and section 244(1) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), and in the alternative, assuming that no such interest on interest is payable under any of the provisions of the said Act, then the same shall be ordered to be paid in exercise of writ jurisdiction since the amount of interest payable under section 214(1) read with sections 214(1A) and 244(1A) of the said Act was illegally and wrongfully withheld by the respondents for a long period as stated in the petition. The facts not in dispute in Writ Petition No.5841 of 2001 are that for the assessment year 1978-79 the petitioners paid advance tax of Rs. 1,11,81,844. By the assessment order dated March 27,1981, the petitioners' income for the said period was assessed at Rs. 1,54,17,090 and the tax liability was determined at Rs. 89,03,368. The excess advance tax of Rs. 22,78,476 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the petitioners was rejected by the impugned order dated September 25,2000. The case of the petitioners is that: (a) a sum of Rs. 7,97,440 was received by the petitioners on April 2,1998, when the Department ought to have paid the same to the petitioners on March 27,1981. Thus, there was a delay of 17 years in the matter of payment of the said interest amount to the petitioners, and therefore, the petitioners are entitled for the interest at the rate of 12 per cent. per annum for the period from April 1,1981, to September 30,1984, totalling to Rs. 3,34,924 and at the rate of 15 per cent., per annum from October 1,1984, to April 30,1998, totalling to Rs. 16,24,794 ; (b) a sum of Rs. 1,73,940 was paid to the petitioners on November 28,1986, when the Department ought to have paid the same on April 30,1986. Thus, there was a delay of six months in the payment of interest amount and therefore the petitioners are entitled for interest on the said amount of at the rate of 15 per cent. per annum from April 1,1986 to October 30,1986 amounting to Rs. 15,220 ; (c) a sum of Rs. 32,87,466, i.e., the amount calculated after deducting the sum of Rs. 7,97,440 out of the total sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to in section 240 and therefore the interest to be calculated under section 244(1) would be on the aggregate amount of refund including the tax component refundable to the assessee as well as the interest accrued thereon in terms of section 214 and/or 244(1A). Reliance is placed on the decisions in the matter of CIT v. Narendra Doshi [2002] 254 ITR 606 (SC); D.J. Works v. Deputy CIT [1992] 195 ITR 227 (Guj); CIT v. Goodyear India Ltd. [2001] 249 ITR 527 (Delhi); Chimanlal S. Patel v. CIT [1994] 210 ITR 419 (Guj); CIT v. Ambat Echukutty Menon [1988] 173 ITR 581 (Ker); Suresh B. Jain v. P.K.P. Nair [1992] 194 ITR 148 (Bom); Jwala Prasad Sikaria v. CIT [1989] 175 ITR 535 (Gauhati); Poddar Projects Ltd. v. Asst. CIT [1999] 240 ITR 572 (Cal); CIT v. Needle Industries Pvt. Ltd. [1998] 233 ITR 370 (Mad). It was also sought to be contended that the apex court in the case of CIT v. Narendra Doshi [2002] 254 ITR 606 and the Gujarat High Court in D.J. Works v. Deputy CIT [1992] 195 ITR 227 as also in CIT v. Chimanlal J. Dalal and Co. [1965] 57 ITR 285 (Born) have clearly laid down the law on the point in issue and while arguing about the doctrine of merger and the binding nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by the Revenue and therefore the expression "refund of any amount" in section 240 would not relate to interest on the amount payable as refund by the Department to the assessee under section 240. Reliance is placed on the decisions in the matters of Union of India v. Kirloskar Pneumatic Co. Ltd. [1996] 4 SCC 453; [1996] 84 ELT 401 (SC); Union of India v. Orient Enterprises [1998] 99 ELT 193 (SC); [1998] 3 SCC 501 (SC); Kurumber Betta Estate v. ITO [2002] 257 ITR 328 (Ker); Bardolia Textile Mills v. ITO [1985] 151 ITR 389 (Guj) [FB]. Upon hearing the learned advocates for the parties and perusal of the records, the following points arise for consideration: (i) Whether the provisions of law comprised under section 240 read with section 244(1) of the said Act entitle the assessee to claim interest on interest in case of failure on the part of the Revenue Department to pay to the assessee the refund amount within the period of three months from the date of the refund becoming due and payable to the assessee? (ii) As a prelude to the above question, it would be necessary to know what does the expression "refund of any amount" in section 240 of the said Act mean? (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Act, the provision of law contained in section 240 relates to obligation of the Department to repay to the assessee any amount becoming due and payable pursuant to the order in appeal or other proceedings, without there being claim made in that regard by the assessee. While section 237 uses the phrase "refund of excess", section 240 refers to "refund of any amount". Section 237 relates to " . . . amount of tax paid . . . exceeds the amount . . . properly chargeable under this Act . . ." whereas, section 240 relates to " . . . refund of any amount becomes due . . ." Considering the difference in the phraseology in the two sections under reference, at first sight it may appear that while section 237 refers strictly to the amount paid in excess by the assessee to be refundable, whereas section 240 relates to any amount becoming due and payable to the assessee pursuant to an order in appeal or other proceedings and that, therefore, the obligation of the Department to refund under section 240 is not restricted to the amount which was paid in excess by the assessee but would also include the amount of interest becoming due and payable on such excess amount which was paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting aside of the assessment and both can have different consequences. However, in relation to right to interest, can it be sought to be bestowed upon the assessee without there being clear provision of law in that regard, and by merely interpreting the provision of section 240? It is relevant to note that the expression "the refund" pertaining to excess payment used either in section 237 or in section 240 relates to the tax or the amount of tax. Does it mean that it has to be restricted to the tax component alone, and would not include even the amount of interest or penalty, if any, paid by the assessee? The word "tax" has been defined in section 2(43) of the said Act to mean income tax chargeable under the provisions of the said Act. The term "income-tax" has not been defined under the said Act. However, on a perusal of the various sections of the said Act and the scheme of taxation, it is apparent that any amount payable or becoming due as tax under the said Act in relation to any income of a person or persons during a financial year or any part thereof would be Income tax. Once it is clear that any amount payable as tax would be tax under the said Act, it would obviously inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must take their colour from the context in which they appear (vide: Ram Narain v. State of Uttar Pradesh, AIR 1957 SC 18). The meaning of a word must take colour from the context in which it is used (vide Mangoo Singh v. Election Tribunal, AIR 1957 SC 871). On a careful reading of section 240, it discloses that the word "refund" and the expression" any amount" have been used in the context of obligation of the Revenue "to repay" the excess amount which was paid by the assessee. In other words, it relates to the payment of an amount made by an assessee over and above the amount becoming chargeable or due and payable under the said Act and that is the amount which is repayable as the refund to the assessee. It is, therefore, difficult to accept the contention of the learned advocate for the petitioners that those words or expressions would include even the amount payable by the Department over and above the amount "paid" by the assessee either as the tax or an interest or penalty. A word in a statute though not defined therein may have different dictionary meanings, yet the meaning which suits to the word in the context in which it has been used in the statute, has to be accepted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt would be liable to pay the interest at the rate of 15 per cent. per annum on the refund amount till the refund is granted. This liability of payment of interest in case of failure to pay the amount within three months in terms of section 240, itself reveals that the obligation there-under would arise without there being any need for demand of compliance of such obligation. Upon the failure to pay the amount within three months, undoubtedly such obligation to pay interest will have to be complied with along with the compliance of the provisions of section 240. However, sub-section (1) of section 244 nowhere speaks of interest on interest. On the contrary, it refers to the simple interest on the amount of refund due in pursuance of the order referred to in section 240. Once it is clear that section 240 does not relate to any interest amount but speaks of the repayment of the excess amount paid by the assessee and section 244(1) refers to the order spoken of under section 240 for refund of such excess amount, and provides for interest on such excess amount refundable to the assessee, it clearly means that the interest payable under section 244(1) is on such excess amount refundable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to him in respect of the amount so found to be in excess." It is pertinent to note that prior to the introduction of section 244(1A), the assessee was not entitled to get any interest from the date of payment of tax up to the date of the order as a result of which excess realisation of tax became refundable and the interest under section 243 or section 244 was payable only when the refund was not paid within the stipulated period up to the date of refund, but if the assessment order was set aside 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. The situation prior to the introduction of section 244(1A) was summarised by the apex court in Modi Industries [1995] 216 ITR 759 as under "Prior to the introduction of sub-section (1A) in section 244, if any refund was payable pursuant to the order of regular assessment, that had to be paid in accordance with the provisions of section 243 of Chapter XIX of the Act. If the payment was delayed beyond the period mentioned in section 243 of the Act, interest had to be paid from the date of expiry of the aforesaid period to the date of the refund order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nths, the assessee would not be entitled for any interest on such refund amount under section 240? Certainly the answer is in the negative, as the Legislature has taken due care to ensure such interest in terms of the provisions of law incorporated in section 244(1A). In fact, the provisions of law relating to the liability to pay interest after the expiry of three months are found in sub-section (1) as well as in sub-section (1A) of section 244, but it does not mean that the Department is liable to pay interest twice on interest on interest and law in that regard is very clear from the third proviso to subsection (1A) thereof. The said proviso clearly states that where any interest is payable to the assessee under sub-section (1A), then no interest should be paid under sub-section (1) thereof. Hence, irrespective of the fact, that section 240 merely refers to the amount of refund, i.e., the amount paid by the assessee in excess of the chargeable amount, to be paid without there being demand made by the assessee, at the same time, the provisions of law comprised under section 244(1) and section 244(1A) make it clear that such refund should be along with the interest at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds. In respect of such assessments from the commencement of assessment year commencing from April 1,1989, interest will have to be calculated in terms of section 244A(1). The said provision under sub-section (1) of section 244A provides for payment of simple interest in the manner specified thereunder, however, it does not disclose provision for interest on interest. A plain reading of the provisions of law contained in sections 240 and 244, therefore, nowhere discloses liability of the Department to pay interest on interest. We are not persuaded to read the terms and expressions referred to above in the context different from the one we have read as stated above. In interpreting a taxing statute, equitable considerations are entirely out of place as has been held in CST v. Modi Sugar Mills Ltd., AIR 1961 SC 1047; [1961] 12 STC 182 (SC). Simultaneously logic or reasons cannot be of much avail, as has been held in H.H. Prince Azam Jha Bahadur v. Expenditure-tax Officer [1972] 83 ITR 92 (SC); AIR 1972 SC 2319, and that the strict interpretation rule essentially applies to charging sections, and not to machinery or procedural provisions, as was ruled in Gursahai Saigal v. CIT [1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon it because the essence of the decision is its ratio and not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under article 141 of the Constitution. With the above ruling it was held that in order to understand and appreciate the binding force of a decision it is always necessary to ascertain the facts in the case in which the decision is given and what is the point which has been decided and no judgment can be read as if it were a statute nor a word or a clause or a sentence in the judgment be regarded as a full exposition of law. In a recent decision of the apex court in the matter of Islamic Academy of Education v. State of Karnataka [2003] AIR SCW 4240; [2003] 6 SCC 697, it has been held that the ratio deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the proceedings before the High Court do not challenge its decision on the point of law, they are bound by such decision in all subsequent matters to which such decision on the point of law could be applicable. Considering the above factors and the principle of law, the apex court ruled that: "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." Apparently, the reason for refusal to interfere in the order of the High Court of Madhya Pradesh related to failure on the part of the Revenue to dispute the correctness of the judgment of the Gujarat High Court in the said decisions and consequently the same had attained finality and had resulted in being binding upon the Revenue. Considering those judgments of the Gujarat High Court which were binding upon the Tribunal as well as the Revenue Department, the Tribunal would not have been justified in setting aside the order of the Deputy Commissioner (Appeals) which was in consonance with the said two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amount payable to the assessee and therefore the Revenue should be directed to pay interest on the amount wrongfully withheld; on the other hand, it was the defence of the Revenue that there was no provision in the said Act for payment of interest on interest. Taking note of the provision of law contained in section 214(1) of the said Act, it was observed by the Gujarat High Court that: "It would thus appear that the Legislature itself has 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." Further while ruling that once the interest amount becomes due, it takes the same colour as that of the excess amount of tax which is refundable on regular assessment, it was held that: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but do not provide for payment of any interest on interest, even though there is delay in payment of such interest to the assessee. On the contrary, the provision of law contained in section 244(1) allows three months grace period, without any obligation to pay interest, though even for such period the assessee will have to be duly compensated by payment of interest in terms of section 244(1A) which came to be introduced from October, 1975. However, the fact remains that even while introducing the said provision, the Legislature thought it fit not to provide for any interest on interest even in case of delay in payment of interest on refund amount. To read the liability to pay interest on interest in the provisions of law contained in section 244(1) read with section 240 of the said Act would virtually amount to legislate upon the said Act, and that is not the function of the court. In Chimanlal's case [1994] 210 ITR 419 (Guj), no law as such was laid down and the court had merely followed its earlier decision in D.J. Works' case [1992] 195 ITR 227 for the grant of interest on interest in the facts of that case. The decision of the Delhi High Court in Goodyear's case [2001] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under clause (3) of article 133. This doctrine of merger does not apply in the case of dismissal of a special leave petition under article 136. When an appeal is dismissed the order of the High Court is merged with that of the Supreme Court" Undoubtedly, a decision of the apex court in an appeal against the order of a High Court would result in superseding the decision of the High Court and would attract the doctrine of merger. However, it is well-settled that the doctrine is not of universal or unlimited application and therefore while applying the said doctrine and weighing the effect thereof, the nature of jurisdiction exercised by the superior forum and the content or subject matter of the challenge laid or which could have been laid should be meticulously considered. In that respect, it would be necessary to take note of the decision of the apex court in Kunhayammed v. State of Kerala [2000] 245 ITR 360, wherein it was held that: "Where an appeal or revision is provided against an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the judgment of the Madras High Court had merged with the order of the apex court and, therefore, the judgment of the Madras High Court which had upheld the constitutional validity of the said statute, was approved by the apex court and was binding. The apex court while dismissing the said appeal against the judgment in the matter of M. Varadaraja Pillai [1972] 85 Mad LW 760 had held that: "The constitutional validity of Act 13 of 1960 amending the Madras City Tenants' Protection Act, 1921, is under challenge in these appeals. The State of Tamil Nadu was not made a party before the trial court. However, the State was impleaded as a supplemental respondent in appeal as per orders of the High Court. When the appellants lost the appeal, they sought leave to appeal to this court. The State of Tamil Nadu was not made a party in the said leave petition. In the S.L.P. before this court also the State of Tamil Nadu was not made a party. A challenge to the constitutional validity of the Act cannot be considered or determined, in the absence of the concerned State. Learned counsel now prays for time to implead the State of Tamil Nadu. This appeal is of the year 1973. In our vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the operative part, i.e., the mandate or decree issued by the court which may have been expressed in positive or negative form. For example, take a case where the subordinate forum passes an order and the same, having been dealt with by a superior forum, is confirmed for reasons different from the one assigned by the subordinate forum, what would merge in the order of the superior forum is the operative part of the order and not the reasoning of the subordinate forum; otherwise there would be an apparent contradiction. However, in certain cases, the reasons for the decision can also be said to have merged in the order of the superior court if the superior court has, while formulating its own judgment or order, either adopted or reiterated the reasoning, or recorded an express approval of the reasoning, incorporated in the judgment or order of the subordinate forum." The said decision was followed in Justice P. Venugopal v. Union of India [2003] 7 SCC 726; [2003] AIR SCW 4472. Considering the doctrine of merger, and the law laid down by the apex court on the subject, certainly "the decision" of the High Court of Madhya Pradesh in Civil Appeal No.2053 of 2000 stood merged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the word "refund" in section 237 or 240 or 244, as the said decision is in relation to the provision of law contained in section 245 which deals with the subject of set-off of refund against tax remaining payable by the assessee. It was held therein that while interpreting the provisions of section 245 a restricted meaning cannot be given to the word "refund". It is always to be remembered that the presumption that when the same word is used in different parts of a statute, it is used in the same sense, is a weak one and in reality displaced by the context and it is rather appropriate to state that where the draftsman uses the same word or phrase in similar contexts, he must be presumed to intend it in each place to bear the same meaning (vide Shamrao Vishnu Parulekar v. District Magistrate, AIR 1957 SC 23 and Aswini Kumar Ghose v. Arabinda Bose, AIR 1952 SC 369). Bearing in mind the object and the purpose behind the provision relating to set-off in section 245 of the said Act, the learned single judge of this court in Suresh Jain's case [1992} 194 ITR 148 had observed that after all, the amount of interest payable to an assessee under section 244(1A) is also an amount payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench of the Kerala High Court had ruled that the liability of the Revenue under section 244A is only towards the excess amount of tax or penalty demanded and collected by the Revenue in discharge of the liability of an assessee. We therefore hold that the term "refund" and the expression "any amount" in section 240 refer to the amount paid by the assessee in excess of the chargeable amount of tax or interest or penalty under the said Act and which, either in entirety or part thereof, becomes refundable by the Revenue Department to such assessee, but the same does not include any amount payable by the Department in the form of interest on such refundable excess amount of the assessee. The 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. Once interest is calculated and paid under section 244(1A) no further interest shall be payable under section 244(1) for the same period and on the same amount. There is no provision in the said Act for payment of interest on interest. In Narendra Doshi's case [2002] 254 ITR 606, the apex court had not laid down any law con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1980, Civil Appeal No.1395 of 1974, etc. Once the said controversy was resolved, the apex court by order dated April 30,1997, disposed of the appeal filed by the petitioners directing the respondents to decide the claim of interest in accordance with the principle laid down in Modi Industries case [1995] 216 ITR 759 (SC). Undisputedly the claim of interest was under section 214, when the matter was pending before the apex court or at the time of disposal thereof. The claim for interest on interest was made only after receipt of the amount pursuant to the order passed by the authorities in terms of direction issued by the apex court by its order dated April 30,1997. Undisputedly, the amount payable in terms of the said direction was paid within a few months from the date of the order of the apex court. In the circumstances, there is no scope for arriving at any conclusion about illegal or wrongful detention of the money of the petitioners by the Revenue Department. The fourth question formulated above is accordingly answered in the negative. In Kirloskar Pneumatic Company's case [1996] 84 ELT 401, it was held by the apex court that the power conferred by article 226 of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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