Sandvik Asia Ltd v. Commissioner Of Income Tax-I, Pune And Ors

SANDVIK ASIA LTD. COMMISSIONER OF INCOME TAX-I, PUNE AND ORS. JANUARY 27, 2006 [H.K. SEMA AND DR. AR. LAKSHMANAN, JJ.] Income Tax Act, 1961: Section 240 (as it stood prior to 1.4.1989)-AYs 1977-78, 1978-79, 1981-82 and 1982-83-Refund on appeal-Interest on refund-Delayed C payment of interest-Compensation-Entitlement to-A notice of demand for payment of income tax was issued to the assessee-However, the appellate authority directed refund of a certain amount-The assessee, thus, became entitled to interest on the refund under Ss. 2 I 4 and 244-But the payment of interest was delayed for various periods ranging from 12 to 17 years-The D assessee filed a writ petition before the High Court claiming interest on the delayed payment of interest on refund-The High Court rejected the claim on the ground that interest under Ss. 214 and 244 was not refund under S. 240 and hence the Revenue was not liable to pay i:-:terest under S. 244 in respect of delay in payment of interest on refund-Correctness of-Held: The assessee was indisputably entitled to interest under Ss. 214 and 244-The award of E interes~ on the refunded amount is as per the statutory provisions of law--There is no question of the delay being 'justifiable' _even if the Revenue takes an erroneous view of the law-A person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without F authority of law the Revenue must compensate the assessee-The revenue is solely held responsible for the delayed payment of interest on refund-Hence, the Revenue is directed to pay simple interest @ 9% on the interest on refund from the date it is due till it is actually paid. Words and Phrases: "Refund of any amount"-Meaning of-Jn the context of Section 240 (as it stood prior to 1.4. I 989) of the Income Tax Act, 1961. A notice of demand for payment of income tax for the Assessment years 812 SUPREME COURT REPORTS [2006] I S.C.R. A 1977-78, 1978-79, 1981-82 and 1982--83 was issued to the appellant-assessee by respondent No. 2. However, as a result of the appellate order passed by the Commissioner of income tax (Appeals) the appellant received a refund of a certain amount and became entitled to receive interest on the refund. Therefore, the assessee requested respondent No. 2 to grant interest on the B [said refund under Sections ][214 ][and 244 ][of ][the Income Tax Act, ][1961 ][for the ]period from 01.4.1977 to 31.03.1989. But the payment of interest on the said refund was delayed by respondent No. 2 and the delay was for various periods ranging from 12 to 17 years. The appellant filed a writ petition before the High Court claiming c [interest on ][the ][delayed payment ][of ][interest on refund. The High ][Court ]dismissed the writ petition holding that interest under Sections 214 and 244 of the Act was not a refund under Section 240 and hence the Revenue was not liable to pay interest under Section 244 in respect of delay in payment of the aforesaid interest on refund. Hence the appeal. D The following questions arose before the Court;- (1) Whether an assessee was entitled to be compensated for the delay in paying to it any 'amount' due to it even if such 'amount' comprised of interest? (2) Whether an assessee was entitled to be compensated by the Income Tax Department for the delay in paying to the assessee amounts admittedly due to it? Allowing the appeals, the Court HELD: l. l. There is no question of the delay being 'justifiable' and in any event even if the Revenue takes an erroneous view of the law, which 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 G [cannot ][in ][the circumstances be justified. [842-F] ] 812 Section: CONCLUSION 1.2. The Income Tax Act, 1961 recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the Revenue must compensate the H assessee. [842-H; 843-A] CITv. Narendra Doshi, 254 ITR 606 (SC) and Berger Paints Ltd. v. CIT, A 266 ITR 99 (SC), relied on. CITv. Needle Industries Pvt. Ltd., 233 ITR 370, Suresh B. Jain v. P.K.P. Nair 194 ITR 148, Pradip Raman/al Sheth v. Union of India (1993) 204 ITR 866, Ab hay Singh Surana v. Secretary, Ministry of Communication AIR 1987 SC 2177, CITv. Ambat Echukutty menon (1988) 173 ITR 581 (Ker) and CIT B v. Sardar Ba/want Singh Gujral, (1990) 86 ITR 64 (MP), referred to. Modi Industries Ltd. v. CIT216 ITR 759, Union of India v. Kaumudinj Narayan Dalal 249 ITR219 and CIT v. Shivsagar Estate 257 ITR 59, held inapplicable. D.J Works v. Deputy CIT 195 ITR 227 (Guj), Chiman/al S. Patel v. CIT 210 ITR 419 (Guj), Jwala Prasad Sikaria v. CIT 175 ITR 535 (Gau) and CIT v. Goodyear India Ltd., 249 ITR 527 (Del), approved. 2. At the initial stage of any proceedings under the Act any refund will depend on whether any tax has been paid by an assessee in excess of tax D actually payable to him and it is for this reason that Section 237 of the Act is phrased in terms of tax paid in excess of amounts properly chargeable. It is, however, of importance to apprl'ciate that Section 240 of the Act, which provides for refund by the Revenue on appeal etc. deals with all subsequent· stages of proceedings and, therefore, is phrased in terms of 'any amount' becoming due to an assesse. (843-B] E 3. The appellant is entitled to interest under Section 244 and/or Section 244/ A 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 27.03.1981 and 31.03.1986 (under different Sections of the Act) and its present claim is for compensation for periods of delay after these dates. [843-H; 844-A) 4. The 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 G interest on such sums. The High Court's conclusion is based mainly on the wording of the proviso the Section 240 of the Act. The said 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 01.04.1989. [844-B] 5. In the present appeal, the respondents have argued that the H SUPREME COURT REPORTS (2006] I S. C.R. A 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 B encompass interest. [845-C-D[ 2005 . 816 6. The appellant was indisputably entitled to interest under Sections 214 and 244 if the Act as held by the various High Courts and also by 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 C interest was paid only at the instance and the intervention of this Court. Interest on delayed payment of refund was not paid to the appellant 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 assessee, D the Department first adjusts the amount paid towards interest so that the principle amount of tax payable remain outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting to interest on refund of taxes, the refunds are first adjusted towards the taxes and then the balance towards interest. Hence, as per the stand that E the Department takes it is liable to pay interest only up to the date of refund of tax while it takes the benefit of the assesse's funds by delaying the payment of interest on refunds without recurring any further liability to pay interest. This stand taken by the respondent is discriminatory in nature and thereby causing great prejudice to the lakhs and lakhs of assessee. Very large number of assessees is adversely affected inasmuch as the Income Tax Department F can now simply refuse to pay to the assessees amount of interest lawfully and admittedly due to them as has happened in the instant case. It is the case of the appellant that for the assessment year 1978-79, it has been deprived of an amount of Rs. 40 lakhs for no fault of its own and exclusively because of the admittedly unlawful actions of the Income Tax Department for periods G ranging up to 17 years without any compensation whatsoever from the Department. Such actions and consequences seriously affected the administration of justice and the rule of law. (848-C-H; 849-AJ 7. There cannot be any doubt that the award of interest on the refunded amount is as per the statutory provisions of law as it then stood and on the H peculiar facts and circumstances of each case. When a specific provision has been made under the statute, such provision has to govern the field. A Therefore, the Court has to take all relevant factors into consideration while awarding the rate of interest on the compensation. 1849-E, Fl 8. 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 B appellant was made to suffer both financially and mentally, even though the amount was liable to be refunded in years 1986 and even prior to it. A copy of this judgment will be forwarded to the Hon'ble Minister of Finance for his perusal and further appropriate action against the erring officials on whose lethargic and adamant attitude the Department has to suffer financially. C 1849-G-H] 9. By allowing this appeal, the Income Tax Department would have to 27.03.1998 pay huge sum of money by way of compensation at the rate specified in the Act, varying from 12% to 15% which would be on the higher side. Though, the Department is solely responsible for the delayed payment, the interest of D justice would be amply met if payment of simple interest is ordered@ 9% p.a. from the date it became payable till date it is actually paid. Even though the appellant is entitled to interest prior to 31.03.1986, the appellant fairly restricted his claim towards interest from 31.03.1986 to 27.03.1998 on which date a sum of Rs. 40,84,906 was refunded.1850-A, Bl 10. The assessment years in question are the assessment years 1977- 78, 1978-79, 1981-82 and 1982-83. Already the matter was pending for more than two decades. The respondents are, therefore, directed to pay simple interest @ 9% p.a. on Rs. 40,84,906 (rounded off to Rs. 40,84,900) from 31.03.1986 to 27.03.1998 within one month from the date of this judgment failing which the Department shall pay the penal interest@ 15% p.a. for the F above said period. 1850-C, DI CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1337-1340 of 2005. From the Judgment and Order dated 16.1.2004 of the Bombay High G Court in C.W.P. Nos. 5841, 5854, 5855 and 5860 of2001. Jehangir D. Mistri and Rustom B. Hathikhanawala for the Appellant. Mohan Parasaran, ASG, Manish Tiwari, Gaurav Dingra, Chidananda D.L., Vivek Sood.and B.V. Balaram Das for the Respondents. Sl!PRLME l'UllRl REPOR IS A The Judgment of the Court was delivered by DR. AR. LAKSHMANAN, J. These appeals raise substantial and important questions of law of great general public importance as well as under the Income Tax Act, I 961 pertaining to assessment years I 977-78. I 978-79. 198 I -82 and 1982-83 requiring consideration of this Court. Since common B questions of law and facts 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 rejecting the appellant's claim on interest holding that no such interest on interest is payable under any of the provisions of the Income Tax Act, I 961 (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 I 2 to I 7 years. The following facts are not in dispute:-D 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 E Rs. I ,86,04,450. 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 of Rs.3,45,91,830 and tax thereon at Rs.1,99, 76, 781 and raised a demand for further tax payable of Rs. I 3, 72,331. The appellant paid the said sum. Commissioner of Income-tax (Appeals) disposed of the appellant's appeal substantially allowing the same. Respondent No.2 gave F effect to the appellate order determining income at Rs.2,68,88,220 and tax thereon at Rs.1,47,88,521. The appellant on 30.04.1986 received a refund of Rs.42,38,260 and became entitled to receive interest on the refund and requested respondent No.2 to grant interest on refund under Sections 214 and 244 of the Act for the period from 01.4.1977 to 3 1.03 .1986. G Assessment Year 1978-79: Notice of demand was issued to the appellant by respondent No.2 for payment of advance tax on Rs.2, 14,56,853. The appellant submitted its estimate of advance tax and paid instalments thereon at Rs. I, I 1.81,844. An assessment H order determining income of Rs. 1,54.17.090 and tax payable thereon at SANDVIK ASIA LTD. 1·. COMMR. OF INCOME TAX-I, PUNE [LAKSHMANAN,J] 817