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CASE NO.: Appeal (civil)  1337-1340 of 2005

PETITIONER: Sandvik Asia Ltd.

RESPONDENT: Commissioner of Income Tax-I, Pune & Ors.

DATE OF JUDGMENT: 27/01/2006

BENCH: H.K. Sema & Dr. AR. Lakshmanan

JUDGMENT: J U D G M E N T

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, 1961 pertaining to assessment  years 1977-78, 1978-79, 1981-82 and 1982-83 requiring consideration of this Court.   Since common 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, 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/-.   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.13,72,331/-.  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 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 31.03.1986.

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.1,11,81,844/-.  An assessment order determining  income of Rs.1,54,17,090/- and tax payable thereon at Rs.89,03,368/- after adjusting  the advance tax paid against the tax payable a refund of Rs.22,78,476 was determined.   However, respondent No.2, declined to grant interest on refund to the appellant.  The  appellant filed a revision petition with Respondent No.1 under Section 264 of the Act  against the second respondent’s refusal to grant interest under Section 214 of the Act.   Respondent No.1 rejected the same.  Commissioner of Income-tax disposed of the  appellant’s appeal against the Assessment Order substantially allowing the same.   Respondent No.2 gave effect to the appellate order determining income at  Rs.93,93,180/- and tax payable thereon at Rs.54,24,561/-  Respondent No.2 granted a  refund of Rs.34,78,807/- and the appellant also became entitled to receive interest on

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the said refund.  

Assessment Year 1981-82: The appellant submitted its estimate of advance tax and paid instalments thereon  amounting to Rs. 1,49,62,292/-.  Respondent No.2 passed a provisional Assessment  Order determining the tax payable at Rs.1,29,54,736/- and, therefore, granted a refund  of Rs.20,07,556/-.  Respondent No.2 passed an Assessment Order determining the  total income of Rs.1,79,84,200/- and tax payable thereon at Rs.1,06,33,157/- and  hence granted a further refund on Rs.23,20,051/-.  Along with the said refund, a sum of  Rs.10,06,464/- was also paid as interest under Section 214 of the Act.  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  income of 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 was for the period from 01.04.1981 to 31.03.1986.  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/- and, therefore, granted a refund of Rs.17,01,927/-.  He passed an  Assessment Order determining the total income of 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 30.03.1985.  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 income of 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 01.04.1982 to 31.03.1986.  Respondent No.2 granted  interest of Rs.1,20,533/-.

FOR ALL FOUR ASSESSMENT YEARS 02.01.1987      Appellant asked for further interest on the advance tax paid for the  Assessment Years 1977-78, 1978-79, 1981-82 & 1982-83 12.01.1987      Appellant asked for further interest on the advance tax paid which was  rejected by Respondent No.2 holding that interest under Section 244(1A)  of the Act was admissible only on post assessment taxes.  27.02.1987      Appellant filed four Revision Petitions under Section 264 of the Act before  the 1st respondent for grant of interest under Sections 214 and 244 of the  Act for the following periods:                 Assessment years                Period                 1977-78                 01.04.1977 to 30.04.1986                 1978-79                 01.04.1978 to 30.04.1986 1981-82                 01.04.1981 to 30.04.1986 1982-83                 01.04.1982 to 30.04.1986 28.02.1990      Respondent No.1 rejected the revision petitions. 30.04.1997      Being aggrieved by the 1st Respondent’s Order, appellant moved this  Court which by its common order passed in Civil Appeal No.1887 of 1992  with Civil Appeal Nos. 2649 of 1992 etc. directed respondent No.1 to  consider the revision petitions in light of its decision in the case of Modi  Industries Ltd. Vs. CIT reported in 216 ITR 759.   The order of this Court dated 30.04.1997 is reproduced hereunder:- "CIVIL APPEAL NO. 1887 OF 1992

Sandvik Asia Ltd.                                       \005. Appellant

                               Versus

S.M.Soni & Ors.

(With C.A.Nos. 2649/92, 2550/92, 2687/92 & 1471/96)

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O R D E R

These appeals are covered against the revenue by the decision of this Court in  Modi Industries Ltd. & Ors. Vs. Commissioner of Income Tax 216 ITR 759.  For the  reasons given in the said judgment these appeals are allowed, the impugned order  passed by Respondent No. 1 are set aside and the matter is remitted to him for  considering the revision petitions filed by the appellant claiming interest under Section  214 of the Income Tax Act, 1961 in accordance with the principles laid down in Modi  Industries Ltd. Case (supra).  No order as to costs.                                                                                               Sd/- (S.C.Agarwal)          Sd/-     (D.P.Wadhwa) New Delhi, April 30, 1997"

27.03.1998      Pursuant to the 1st Respondent’s direction, the 2nd 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 U/S 214/244 (1A) I)   Interest u/s 214(1) of the       Act at 12% on Rs. 22,78,400       For the period 1.4.1978 to 28.2.1981                               7,97,440

ii)   Interest u/s 214(1) of the Act        at 12% p.a. on Rs. 34,78,800/-       for the period 1.4.1978 to 27.3.1981 (u/s 143(3))                   12,17,580

iii)   Int. u/ss 244(1A) on Rs.        34,78,800/- (R.O. issued on 23/4/1986)

From 1.4.1981 to 30.9.1984 @ 12%                                                14,61,096

From 1.10.1984 to 31.3.1986 @ 15%                                               7,82,730                                                                        ------------------                                                                           42,38,846

Interest granted on 28.11.1986                                  1,73,940                                                                        ------------------ Interest payable to the assessee                                         40,84,906

27/3/1998                                                                  Sd/-                                                         (Surinder Jit Singh)                                                  Dy. Commissioner of Income Tax                                                            Spl.Rg.2, Pune" 25.09.2000      Appellant’s revision petition dated 03.07.1998 asking for interest on the  delayed payment of interest up to the date of payment of the same was  rejected by the 1st respondent on the ground that as the monies were  refunded to the assessee only after the direction of this Court, the  question of granting of interest for the period the matter was sub judice,  does not really arise.

07.06.2001      Appellant filed four writ petitions in the High Court at Bombay challenging  the aforesaid orders of Respondent No.1.

16.01.2004      Impugned common judgment and order passed by the High Court.  

Aggrieved by the above common judgment, the appellant has filed the above

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civil appeals.  

We heard Mr. Jehangir D. Mistri, learned counsel assisted by Mr. Rustom B.  Hathikhanawala, for the appellant and Mr. Mohan Parasaran, learned ASG assisted by  Mr. Manish Tiwari and Others for the respondents.   

The order rejecting the claim for interest on interest is sought to be challenged  on the ground that the appellant’s were entitled to be paid for interest @ 15% p.a. 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 and in the alternative, assuming that no such interest on interest  is payable under any of the provisions of the 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 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 on  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  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 delayed  payment of refund was not paid to the appellant on 27th March, 1981 and  30th April, 1986 due to the erroneous view that had been taken by the  respondents, that this Court in the appellant’s own case had passed  Order dated 30.04.1997 which finally resulted in the respondents granting  interest on the delayed payment of refund, that the said Order of this  Court is a declaration of law as it always was, that interest on refund was  granted to the appellant after a substantial lapse of time and hence it  should be entitled to interest for this period of delay; 6)      The High Court has committed an error 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; 7)      The High Court has also erred in purporting to distinguish/explain the  decision of this Court based on various decisions (about 20) 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; 8)      The decision of the High Court was erroneous as it rejected 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 Income-tax  Department contrary to law; 9)      That the High Court erred in holding that an assessee was entitled to  interest only on the amounts paid by him in excess of amounts  chargeable under the Act.  It ought to have held that interest is also

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payable by the Income-tax Department under Section 244 or otherwise  on any amount that becomes "due" to an assessee and which has not  been paid within the time allowed by the Act. 10)     The High Court has erred in relying on the proviso to Section 240 of the  Act for reaching the conclusion that interest is payable only on the  amounts paid by the assessee in 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 1st April, 1989 and hence was not applicable to the present case.  In  any event, it failed to appreciate that 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.  01.04.1989 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:

7[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, the refund, if any, shall  become due only on the making of such fresh assessment;

(b)     the assessment is annulled, the refund shall become due only  of the amount, if any, of the tax paid in excess of the tax  chargeable on the total income returned by the assessee.]"

7. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1.4.1989.

11)     The High Court erred in purporting to distinguish this Court’s decision in  Narendra Doshi’s case and, in particular, the said decision has sought to  be distinguished based on various decisions which were never cited  during the course of the hearing which were never put to counsel  appearing.  In this context, the High Court has failed to appreciate that this  Court in the case of C.I.T. vs. Narendra Doshi, 254 ITR 606 (SC) had  set out the two issues before itself, viz., whether when department had  not challenged the correctness of the Gujarat High Court decisions it was  bound by the principle laid down therein; Whether the Gujarat High Court had rightly laid down the principle that an  assessee would be entitled to interest on interest. That sequitur to the first issue was that the department having accepted  the Gujarat High Court decisions they were bound by the same and,  therefore, they ought not to have filed an appeal against the M.P. High  Court’s decision.  The High Court failed to appreciate that this Court did  not hold that the department ought not to have filed an appeal.  On the  contrary, it had decided the second issue while holding that, "following  that principle, the question has, as we find, been rightly answered in the  affirmative and in favour of the assessee."  It, therefore, erred in holding  that this Court had only decided the issue relating to correctness of the  decision of the M.P. High Court and not the decisions of the Gujarat High  Court.  12)     That the doctrine of merger was not argued at all before the High Court.  

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However, the High Court has considered the said point from pages 46-54  of its judgment.

Mr. Jehangir D. Mistri, learned counsel for the 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 vs. Deputy Commissioner of Income-Tax, 195 ITR 227 2.      Commissioner of Income-Tax vs. Narendra Doshi, 254 ITR 606 3.      Berger Paints India Ltd. Vs. Commissioner of Income-Tax, 266 ITR 99 4.      Union of India & Ors. Vs. Kaumudini Narayan Dalal & Anr., 249 ITR 219 5.      Commissioner of Income-Tax vs. Shivsagar Estate, 257 ITR 59 6.      Chimanlal S. Patel vs. Commissioner of Income-Tax & Anr., 210 ITR 419 7.      Jwala Prasad Sikaria & Ors. Vs. Commissioner of Income-tax & Ors.,  175 ITR 535 at 539 8.      Commissioner of Income-tax vs. Goodyear India Ltd., 249 ITR 527 9.      Commissioner of Income-Tax vs. Needle Industries Pvt. Ltd., 233 ITR  370 10.      Suresh B. Jain vs. P.K.P. Nair and Ors. 194 ITR 148

Mr. Mohan Parasaran, learned ASG 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. case (supra).  According to him, none of the provisions of law  contained in the said Act provide for payment of interest on interest and certainly under  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  consideration of equity or intendment and what is expected is the strict interpretation.   He has further argued that when the statute does not permit grant of interest, it would  be inappropriate to grant interest in exercise of writ jurisdiction.  

Arguing further and placing strong reliance on Modi Industries Ltd. Case  (supra), Mr. Parasaran submitted that this Court in Modi Industries Ltd. Case (supra)  has clarified two factors, namely, the amount on which the interest is to be granted and  the time period for which the interest is to be granted under Sections 214 and 244 (1A).   The decision of Modi Industries Ltd. Case (supra) does not refer to interest on interest  and that the decision of this Court had been given on September, 1995.   

Mr. Mohan Parasaran submitted that in the present case, the Assessing Officer  did not grant interest to the assessee as per his claim and the Assessing Officer’s stand  was upheld by the C.I.T. Pune vide his order dated 28.02.1990 under Section 264 and  it can be seen that the order under Section 264 passed by the CIT is as per the position  of law as it then was and before the decision of this Court and that the decision of Modi  Industries Ltd. Case (supra) had been given in 1995 and this Court has only clarified  the position regarding payment of interest under Sections 214 and 244(1A).  This  Court’s decision was received on 29.09.1997.  Under such circumstances, it cannot be  said that the Department had wrongfully withheld the assesse’s money without any  authority of law and naturally such a conclusion cannot be drawn.  The C.I.T. Pune had  considered and judiciously interpreted the provisions of Sections 214 and 244 (1A) as  per the established position of law as on that date i.e. 28.02.1990 and on the  assessee’s reference this Court had issued directions after seven years i.e. on  29.09.1997 which should 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. Case (supra).  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

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Court in the case of Modi Industries case (supra), 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 statute.  This Court was pleased to pass the order of remand on  30.4.1997 directing the Commission of Income Tax Pune, to consider the Revision  Petition in the light of the decision in the case of Modi Industries.  By order dated  29.9.1997, the Commissioner of Income Tax, Pune, directed the payment of interest  according to the decision in Modi Industries case and in pursuance thereto the Dy.  Commissioner of Income Tax (SR-2), Pune, passed order dated 27.3.1998 giving effect  to the order of the CIT dated 29.9.1997 and granted interest to the tune of Rs.  40,84,906/- in addition to Rs. 1,73,940/- which had already been paid on 28.11.1986,  thereby totalling the interest amount to Rs. 42,38,846/-.  This interest was calculated  strictly as per the provisions of Section 214 read with Section 244(1A) of the Act.   Hence it is vehemently denied that the Department has ever enjoyed any funds of the  appellant rather in all fairness and in strict accordance with the statute, the interest on  the refund has been paid to the appellant.

Questions of law: The substantial questions of law of general public importance arising out of the  common impugned judgment and order are as under:- A.      Whether in view of binding decisions of this Court the respondents are estopped  from urging that compensation as claimed by the appellant is not payable by  them? And therefore whether the Bombay High Court erred in allowing them to  urge such a contention in the impugned judgment? B.      Assuming for the sake of argument that there is no provision in the Income-tax  Act, 1961 ("the Act") for grant of such compensation, this Court had upheld the  view of the Gujarat & Madhya Pradesh High Courts that compensation should be  granted (whether called interest or otherwise) and hence the impugned judgment  was contrary to a decision of this Court and ought to be reversed? C.      Whether on a proper interpretation of the various provisions of the Act 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, as had been held  by the Delhi and Madras High Courts and hence the impugned judgment was  erroneous and ought to be reversed ? D.      Whether in any event in the facts and circumstances of the case the Bombay  High Court ought to have ordered that the assessee be compensated 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 vs. Narendra Doshi 254 ITR 606 (SC) 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 (reproduced in  paragraphs (supra), 243 & 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 under this Act for that Year, he shall be entitled to a  refund of the excess.

243. Interest on delayed refunds. (1) If the Income-tax Officer does not  grant the refund \026

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(a) in any case where the total income of the assessee does not consist  solely of income from interest on securities or dividend, within three months  from the end of the month in which the total income is determined under this  Act, and

(b) in any other case, within three months from the end of the month in  which the claim for refund is made under this Chapter,

the Central Government shall pay the assessee simple interest at (twelve)  per cent per annum on the amount directed to be refunded from the date  immediately following the expiry of the period of three months aforesaid to  the date of the order granting the refund.

Explanation : If the delay in granting the refund within the period of three  months aforesaid is attributable to the assessee, whether wholly or in part,  the period of the delay attributable to him shall be excluded from the period  for which interest is payable.

(2) Where any question arises as to the period to be excluded for the  purposes of calculation of interest under the provisions of this section, such  question shall be determined by the Commissioner whose decision shall be  final. 244. Interest on refund where no claim is needed. (1) Where a refund is  due to the assessee in pursuance of an order referred to in section 240 and  the Income-tax 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 [twelve] 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 sub-section (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 appear  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 appear 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 appear 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 date the refund is granted."

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We have given our anxious and thoughtful consideration on the elaborate  submissions made by counsel appearing on either side.  In our opinion, the High Court  has failed to notice that in view of the express provisions of the Act an assessee is  entitled to compensation by way of interest on the delay in the payment of amounts  lawfully due to the appellant which were withheld wrongly and contrary to the law by the  Department for an inordinate long period of up to 17 years.  The High Court, in our  opinion, has unnecessarily made the judgment a bulky one by considering various  provisions of the Act and, in particular, Section 240 which was inserted by Direct Tax  Laws (Amendment) Act, 1987 with effect from 01.04.1989 and hence was not  applicable to the present case.  The High Court has not considered Section 240 as it  stood then i.e. at the relevant point of time.  This apart, the High Court has also  considered the question of merger and relied on many number of judgments which  were not even relied on or cited by counsel for the parties.  Counsel for the appellant  has taken specific grounds in regard to the above factors in the special leave petition  grounds which were not denied by the Department.  Cartload of judgments were cited  by counsel for the appellant which is directly and pointedly cover the issue raised in  these appeals.  

1) D.J. Works vs. Deputy Commissioner of Income-Tax, 195 ITR 227         The above judgment is identical to the case on hand and there is no factual  difference.  In awarding interest, the Gujarat High Court has held as under:         "Section 214(1) itself recognizes in principle the liability to pay  interest on the amount of tax paid in excess of the amount of assessed tax  and which is retained by the Government.  Interest on the excess amount is  payable at the rate of 15 per cent from the first day of the year of  assessment to the date of regular assessment.  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.  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 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 the assessee, on the interest amount which had  become due under section 214(1) of the Act.  In the light of the above  discussion, this petition must succeed."

2) Commissioner of Income-Tax vs. Narendra Doshi, 254 ITR 606 (S.P. Bharucha,   Y.K. Sabharwal and Brijesh Kumar,JJ.) In this case, this Court has affirmed the decision of the M.P. High Court  (Indore  Bench) in I.T.R. No. 5 of 1996.  In that case, the High Court was called upon to answer  the following question: "Whether, on the facts and in the circumstances of the case, the Income-tax  Appellate Tribunal was justified in law in upholding the order of the Deputy  Commissioner of Income-tax (Appeals), Indore, directing to allow interest on  interest, when the law points for grant of simple interest only?"  

The High Court answered the question in the affirmative and in favour of the  assessee, relying upon the judgments which laid down that interest was payable on the  excess amount paid towards income-tax.  The Tribunal, whose decision the M.P. High

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Court affirmed had relied upon the decision of the Gujarat High Court in the case of  D.J. Works vs. Deputy CIT (supra), which had been followed by the same High Court  in Chimanlal S. Patel vs. CIT, (supra).  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.  This Court, in the above case, held as under: "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 (by Madhya Pradesh High Court) in the affirmative and in  favour of the assessee.  The civil appeal is dismissed. No order as to costs."   

3) Berger Paints India Ltd. Vs. Commissioner of Income-Tax, 266 ITR 99 [K.G.  Balakrishnan and B.N. Srikrishna, 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  assesses 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 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 down by the High Court and has accepted it in the case of one  assessee, then it is not open to the Revenue to challenge its correctness in  the case of other assessees, without just cause.

The decision in Lakhanpal National Ltd.’s case [1986] 162 ITR 240 (Guj),  which clearly laid down the interpretation of section 43B was followed by the  judgments of the Madras High Court and Bombay High Court and was again  followed by the decision of the Special Bench of the Income-tax Appellate  Tribunal, none of which have been challenged. In these circumstances, the  principle laid down in Union of India v. Kaumudini Narayan Dalal [2001] 249  ITR 219 (SC); CIT v. Narendra Doshi [2002] 254 ITR 606 (SC) and CIT v.  Shivsagar Estate [2002] 257 ITR 59 (SC) clearly applies. We see no "just  cause" as would justify departure from the principle. Hence, in our view, the  Revenue could not have been allowed to challenge the principle laid down  in Lakhanpal National Ltd.’s case [1986] 162 ITR 240 (Guj), which was  followed by the Inspecting Assistant Commissioner in the case of the  assessee in the three assessment years in question. We are, therefore, of  the view that the Commissioner, the Income-tax Appellate Tribunal and the  Calcutta High Court erred in permitting the Revenue to raise a contention  contrary to what was laid down by the Gujarat High Court in Lakhanpal  National Ltd.’s case [1986] 162 ITR 240. This decision has been  subsequently followed by the decisions of the Bombay High Court in CIT v.  Bharat Petroleum Corporation Ltd. [2001] 252 ITR 43 and the Madras High  Court in Chemicals and Plastics India Ltd. v. CIT [2003] 260 ITR 193 as well  as the decision of the Special Bench in Indian Communication Network Pvt.  Ltd. v. IAC [1994] 206 ITR (AT) 96 (Delhi), which have all remained  unchallenged."

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4) Union of India & Ors. Vs. Kaumudini Narayan Dalal & Anr., 249 ITR 219 (S.P.  Bharucha, N. Santosh Hegde and Y.K. Sabharwal,JJ.)         In this case, the Revenue followed the earlier judgment of the same High Court  in the case of Pradip Ramanlal Sheth vs. Union of India [1993] 204 ITR 866.   Enquiries with the registry reveal that no appeal against that judgment was preferred by  the Revenue.  This Court held thus: "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 assesses 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) Commissioner of Income-Tax vs. Shivsagar Estate, 257 ITR 59 (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 65 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 vs. Commissioner of Income-Tax & Anr., 210 ITR 419         In this case, the Division Bench of the Gujarat High Court held as follows:-         "The Government is liable to pay interest on the interest amount at  the same rate at which interest is payable on the excess amount refundable  to the assessee.  Excess tax cannot be returned without payment of  interest: so also, interest which is payable thereon cannot be retained  without payment of interest.  There is no specific provision for payment of  interest on the interest amount.  Interest would be payable at the same rate  at which the excess amount carries interest."

       The above judgment has also relied on the reported decision in the case of D.J.  Works vs. Dy. CIT [1992] 195 ITR 227 (Guj).         The Court further held as under:         "Mr. Shah, learned advocate, further submitted that the Government  is liable to pay interest on the amount of tax paid in excess of the amount of  assessed tax and the Government has withheld payment of interest  wrongfully.  Section 214 of the Act itself recognises in principle the liability to  pay interest on the amount of tax paid in excess of the amount of assessed  tax which is retained by the Government.  Relying on a reported decision in  the case of D.J.Works v. Dy. CIT (1992) 195 ITR 227 (Guj.) , the learned  advocate submitted that the Government is liable to pay interest on the  interest amount at the same rate at which interest is payable on the excess  amount refundable to the assessee.  Excess tax cannot be returned without  payment of interest.  So also, interest which is payable thereon cannot be  retained without payment of interest.  The Court, while deciding the above  case, observed that there is no specific provision for payment of interest on  the interest amount.  Interest would be payable at the same rate at which  the excess amount carries interest.  In other words, the court held that 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." 7) Jwala Prasad Sikaria & Ors. Vs. Commissioner of Income-tax & Ors., 175 ITR  535 at 539         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 merits.  Learned counsel for  the assessee cited the decision Jwala Prasad Sikaria & Ors. (supra)  in support of his  contention wherein the Gauhati High Court held that a citizen is entitled to payment of

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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 vs. Secretary, Ministry of Communication, AIR 1987 SC 2177, and  Deputy Commissioner vs. 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: "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 decision was cited before the Bombay High Court.  The High Court  very conveniently omitted to consider the decision holding that the decision in 175 ITR  535 was in the peculiar facts of that case.        8) Commissioner of Income-tax vs. Goodyear India Ltd., 249 ITR 527         In the above case, the dispute relates to the assessment year 1967-68.  At the  instance of the Revenue, the following question has been referred for the opinion of the  High Court by the Income-tax Appellate Tribunal, New Delhi. "Whether on the facts and in the circumstances of the case, the Tribunal is  right in holding that the assessee is entitled to interest under section 244 on  the amount of interest amounting to Rs.1,90,499 payable under section 214  of the Income-tax Act, 1961?"

       Arijit Pasayat, C.J. speaking for the Bench held as follows:-          "The provisions of this section shall not apply in respect of any  assessment for the assessment year commencing on the 1st day of April,  1989, or any subsequent assessment years.          Section 244 deals with interest on refund where no claim is needed.   Sub-section (2), inter alia, provides that 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 the stipulated time, the  Central Government is required to pay simple interest at the stipulated rate.   Section 240 deals with refund on appeal etc.  This provision clearly lays  down that 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 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.   The crucial expressions in section 240 are "any  amount which becomes due to the assessee as a result of any order  passed in any appeal or other proceedings under the Act" and the "amount  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  Chiman Lal S.Patel v. CIT (1994) 210 ITR 419 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) Commissioner of Income-Tax vs. Needle Industries Pvt. Ltd., 233 ITR 370         Mr. Parasaran argued that the High Court was right in law in rejecting the  appellant’s claim on the sole ground that as the amount due to the appellant was on  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

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High Court in Commissioner of Income-Tax vs. Needle Industries Pvt. Ltd., 233 ITR  370 succinctly interpreted the expression "amount" in Section 244(1A).  In that case,  the original assessment for the assessment year 1974-75 was completed on August 29,  1977 and the order of assessment was the subject-matter of appeal before the  appellate authority and the Tribunal.  The Tribunal ordered refund.  The ITO allowed  interest under section 244 (1A) the assessee filed an appeal against the order passed  by the ITO refusing to grant interest on interest.  The Tribunal, on an appeal by the  Revenue upheld the due to the CIT (Appeals) and held that the assessee was entitled  to interest under Section 244(1A) in respect of interest calculated under section 139(8)  and 215 and refunded under the provisions of the Act.  The Tribunal at the instance of  the Revenue referred certain questions of law for consideration by the High Court.  The  High Court, while construing the expression "amount" in earlier part of Section 244(1A)  held that it would refer to not only the tax but also the interest on the expression  "amount" is a neutral expression and it cannot be limited to the tax paid in pursuance of  the order of assessment.  The High Court held as follows: "Further, the expression, "amount" in the earlier part of the section 244(1A)  would refer to not only the tax but also the interest and the expression  "amount" is a neutral expression and it cannot be limited to the tax paid in  pursuance of the order of assessment.  We are of the opinion that the  expression "tax or penalty" found in the later part of the section 244(1A)  would not qualify or restrict the scope of the expression "amount" found in  the earlier part to mean only "tax or penalty".  As already seen, the function  of the later part of section 244(1A) of the Act is to find out the excess of the  amount which the assessee paid by way of tax or penalty and that is the  reason 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 assess.  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 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 rectification, the Income-tax Officer has  granted interest on the refunded interest which clearly shows the right  thinking of the Department in accepting the position that the assessee would  be entitled to interest on the interest refunded.  The view of the Appellate  Tribunal that the assessee would be entitled to interest on the refunded  amount of interest levied under sections 139(8) and 215 of the Act is legally  sustainable in law." (Underlining is ours)

       In the above judgment, the Madras High Court has followed the judgment in the  case of CIT vs. Ambat Echukutty Menon [1988] 173 ITR 581 (kerala) and CIT vs.  Sardar Balwant Singh Gujral [1990] 86 CTR 64(MP).  The Madhya Pradesh High  Court in Sardar Balwant Singh Gujral’s case (supra) held that the liability to pay  interest is on the amount of refund due and the assessee would be entitled to interest  on the amount of refund due which includes interest paid under Sections 139(8) and  215 of the Act.  While agreeing with the view expressed by the Kerala High Court and  the Madhya Pradesh High Court, the Madras High Court held that the expression  "amount" in Section 244(1A) of the Act would include the amount of interest levied and  paid under Sections 139(8) and 215 of the Act and collected in pursuance of an order of

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assessment which was refunded.  

10) Suresh B. Jain vs. P.K.P. Nair and Ors. 194 ITR 148         The learned single Judge of the Bombay High Court in the judgment reported  above while interpreting the provisions of Section 245 held that a restricted meaning  cannot be given to the word "refund" which is commonly understood generic term which  refers to the payment by the Income-tax Department on any amount due to an  assessee and it does not mean only the return of an amount paid to the Department by  an assessee.          The Court held further  "The Income-tax Act envisages several situations where amounts are to be  paid to the Department or by the Department which include income-tax,  penalty, interest, 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 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 purpose would be  served either of the Income-tax Department or of an assessee.  There is,  therefore, nothing wrong if interest payable to an assessee under section  244(1A) of the said Act is set off and adjusted against the tax liability of an  assessee under section 245 as if the said amount was a refund due to an  assessee."  

We have already considered the judgments cited by learned counsel appearing  on either side.  We shall now further analyse and discuss about the various judgments  cited by the counsel concerned and the arguments advanced by the respective counsel  with reference to the pleadings and of the judgment of the Bombay High Court.

Estoppel In the present hearing Mr. Mohan Parasaran only argued that there was no  decision of this Court on the merits of the matter and hence estoppel could not apply.  It  is submitted with respect that whether or not there is a decision of this Court on the  merits of the matter is of no relevance, further, even in Berger Paint’s case (supra)  there was no decision of this Court on the merits of the matter and the principle of  estoppel was applied.  The only consideration laid down by this Court is whether there  is any "just cause" to depart from the principle of estoppel.  It is submitted that in the  instant case there is no ’just cause’ and none has even been claimed by the Revenue.   Finally it is the appellant’s case that this Court has taken a decision on the merits of the   matter.  

Assuming that there is no provision in the Act for payment of compensation,  compensation for delay is required to be paid in view of decision of inter alia this  Court:

       The Gujarat High Court in D.J. Works and Chimanlal Patel’s cases (supra)  had taken the view that even proceeding on the basis that there was no specific

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provision for payment of interest on amounts of interest which had been wrongfully  retained, the Act itself recognized in principle the liability 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 ITR 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 (supra) 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 "\005the 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\005 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 interest on interest, a view is ex  facie erroneous and clearly impossible to sustain as a plain reading of the question  before the Madhya Pradesh High Court will show.   

The Gauhati High Court in Jwala Prasad Sikaria’s case (supra) had also taken  a similar view that an assessee is entitled to payment of interest due to delay even if  there is no statutory provision in this regard.  In the impugned order, the Bombay High  Court has held that the decision was in the peculiar facts of the case without  elaborating any further as to what these peculiar facts were or how they had any  bearing on the case.

In the present hearing, Mr. Mohan Parasaran has further argued that  there is no  provision in the Act for the grant of further compensation and hence the same cannot  be granted.  Per contra, Mr. Jehangir D. Mistri submitted that there is a provision for  grant of compensation but, be that as it may, the Gujarat High Court has proceeded on  the basis that there is no such provision and yet allowed compensation to an assessee  in circumstances identical to the appellant’s.  Further it is submitted that on a proper  reading of this Court’s judgment in Narendra Doshi’s case (supra) the Gujarat view  has been upheld by this Court on its merits as well.  In this view of the matter, the  question of there being no provision to grant compensation becomes irrelevant and  immaterial.  Further the Gauhati & Madhya Pradesh High Courts have also taken the  same view.

Mr. Mohan Parasaran argued that the Gujarat High Court principle has to be  confined to cases where the amounts due to an assessee have been ’unjustifiably’  withheld.  The revenue argued that in the present case the amounts have not been  unjustifiably withheld since the order of this Court dated 30.04.1997 only required the  revenue to apply the decision of Modi Industries case (supra) insofar as interest under  Section 214 was concerned, 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 30.04.1997 is of no  relevance.  

The counsel for the Revenue argued that the reason for not granting interest  was that the amounts on which interest was claimed was 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 (supra) has

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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 (o r  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 tax are collected from an  assessee or any amounts are wrongfully withheld from an assessee without authority of  law the revenue must compensate the assessee.

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 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 appreciate 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 assessee.

       The Delhi High Court in Goodyear India Ltd. Case (supra) held that an assessee  is entitled to further interest under Section 244 of the Act on interest under Section 214  of the Act which had been withheld by the Revenue.  The case of the Revenue was that  interest payable to an assessee under Section 214 of the Act was not a refund as  defined in Section 237 of the Act and hence no interest could be granted to the  assessee under Section 244 of the Act.  The Court held that for this purpose Section  240 of the Act was relevant which referred to refund of ’any amount becoming due to  an assessee’ and that the said phrase would include interest and hence the assessee  was entitled to further interest on interest wrongfully withheld.  It is also important to  appreciate that the Delhi High Court also referred to the Gujarat High Court decision in  D.J. Works case (supra) and read it as taking the same view.  This supports the view of  the appellant on the correct reading of the Gujarat decision.  

As already noticed in paragraph supra, the Madras High Court in Needle  Industries Private Ltd. Case (supra) has also interpreted the phrase ’any amount’ in the  same manner when considering the 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 (supra).  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 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 27.03.1981  and 31.03.1986 (under different sections of the Act) and it’s 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 01.04.1989.

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. (supra) extracted two paragraphs  from this Court’s judgment holding that there can be no question of paying interest

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under both Section 214(1A) and 244(1A) of the Act simultaneously, and further that  there is no right to receive interest except as provided by the statute. The decision in  Modi Industries case (supra) has no bearing whatsoever on the issue in hand as the  issue in that case was the correct meaning of the phrase "regular assessment" and as a  consequence under which provision an assessee was entitled to interest for the period  up to the date of regular assessment and thereafter.  The matter of what was due to it  in terms of the decision in Modi Industries case is over, concluded, no longer in dispute  and was agreed/accepted on 27.03.1998 when the 2nd respondent gave effect to the  previous order of this Court dated 30.04.1997.  The working of the respondents itself  conclusively shows, further the interest received is admittedly in accordance with the  Act. The decision in Modi Industries case (supra), in our view, has no bearing  whatsoever on the matter in hand.  The main issue now is whether an assessee is  entitled to be compensated by the Revenue for the delay in paying to the assessee’s  amounts admittedly due to it?

The High Court has dissented from the decision of the Delhi High Court in  Goodyear’s case (supra) on the utterly and ex facie erroneous ground that it  proceeded on an assumption as to the meaning of the phrase "any amount".  A plain  reading of the Delhi High Court judgment will show that this reasoning is utterly  erroneous, false and unsustainable.

The High Court has not followed the decision of this Court in Narendra Doshi’s  case (supra) on the ground that this Court did not decide that further interest was  payable by interpretation of the Act.    What was urged before the High Court was 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 (supra) 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 (supra) and a previous decision of the  Bombay High Court itself in the case of Suresh B. Jain’s case (supra).

        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?         The learned counsel for the appellant says that it cannot be denied that it has  been deprived of the use of it’s 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 compensated for such deprivation.           In the impugned order, the Bombay High Court has held that no compensation is  required to be paid since "\005. there was a serious dispute between the parties, which  was ultimately ordered to be paid pursuant to the order passed by this Court on  30.04.1997.  Undisputedly, the amount pursuant thereto was paid on 27.03.1998\005".   The Court further held that since the amount was paid once the controversy was  resolved there was no wrongful retention of monies.  No authority can ever accept an  obligation to make payment and simply refuse to pay.  In each and every case an  authority must at least claim to act in accordance with law and hence claim it has no  obligation to pay for some reason or another.  When the claims of the authority are  found to be unsustainable or erroneous by the Courts it follows that the authority has  acted wrongfully in the sense of not in accordance with law and compensation to the  party deprived must follow.  If the decision of the High Court is upheld it would mean  that there can never be any wrongful retention by an authority until this Court holds that  their stand is not in accordance with law.  Therefore, that on this issue as well, the  impugned judgment cannot be sustained and ought to be reversed.      

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In the present context, it is pertinent to refer to the Circular on Trade Notice  issued by the Central Excise Department on the subject of refund of deposits made in  terms of Section 35F of the Central Excise Act, 1944 and 129E of the Customs Act,  1962.  The Circular is reproduced hereunder:- "Refund/Return of deposits made under Section 35F of CEA, 1944 and  Section 129E of Customs Act, 1962 - Clarifications

The issue relating to refund of pre-deposit made during the  pendency of appeal was discussed in the Board Meeting.  It was decided  that since the practice in the Department had all along been to consider  such deposits as 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 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 26-11-2001  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 CEGAT order consequent to which the deposit made becomes  returnable and an attested Xerox copy of the Challan in Form TR6  evidencing the payment of the amount of such deposit, addressed  to the  concerned Assistant/Deputy Commissioner of Central Excise or Customs,  as the case may be, will suffice for the purpose.  All pending refund  applications already made under the relevant provisions of the Indirect Tax  Enactments for return of such deposits and which are pending with the  authorities will also be treated as simple letters asking for return of the  deposits, and will be processed as such.  Similarly, bank guarantees  executed in lieu of cash deposits shall also be returned.

4.      The above instructions may be brought to the notice of the field  formations with a request to comply with the directions and settle all the  claims without any further delay.  Any deviation and resultant liability to  interest on delayed refunds shall be viewed strictly.

5.      All the trade associations may be requested to bring the contents of  this circular to the knowledge of their members and the trade in general.          6.      Kindly acknowledge receipt.

[Source : M.F.(D.R.) F.No. 275/37/2K-CX.8A, dated 2-1-2002]"

A close scrutiny of the contents of the Circular dated 2.1.2002 would disclose as  to the modalities for return of pre-deposits.  It again reiterated that in terms of the

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Supreme Court order such pre-deposit must be returned within 3 months from the date  of the order passed by the Tribunal, Court or other fiscal authority unless there is a stay  on the order of the fiscal authority, tribunal, court by a superior court.  The Department  has very clearly stated in the above circular that the delay beyond the period of 3  months in such cases will be viewed adversely and appropriate disciplinary action will  be initiated against the concerned defaulting officers, a direction was also issued to all  concerned to note that defaulter will entail a interest liability if such liability accrue b y  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 (supra) 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 of 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 30.04.1997.  Interest  on delayed payment of refund was not paid to the appellant on 27.03.1981 and  30.04.1986 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 assesses, 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 of 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 the Department takes they are liable to pay interest only  upto the date of refund of tax while they take the benefit of assesses funds by delaying  the payment of interest on refunds without incurring any further liability to pay interest.    This stand taken by the respondents is discriminatory in nature and thereby causing  great prejudice to the lakhs and lakhs of assesses.  Very large number of assesses are  adversely affected inasmuch as the Income Tax Department can now simply refuse to  pay to the assesses amounts of interest lawfully and admittedly due to that as has  happened in the instant case.  It is a case of the appellant as set out above in the  instant case 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 ranging up to 17 years without any  compensation whatsoever from the Department.  Such actions and consequences, in  our opinion, seriously affected the administration of justice and the rule of law.  

COMPENSATION: The word ’Compensation’ has been defined in P. Ramanatha Aiyar’s Advanced  Law Lexicon 3rd Edition 2005 page 918 as follows: "An act which a Court orders to be done, or money which a Court  orders to be paid, by a person whose acts or omissions have caused  loss or injury to another in order that thereby the person damnified  may receive equal value for his loss, or be made whole in respect of  his injury; the consideration or price of a privilege purchased; some  thing given or obtained as an equivalent; the 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

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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 the 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 to.  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 suffer  financially.     

By allowing this appeal, the Income-tax Department would have to pay a 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 high side.  Though, we hold that the Department is  solely responsible for the delayed payment, we feel that the interest of justice would be  amply met if we order payment of simple interest @ 9% p.a. from the date it became  payable till the date it is actually paid.  Even though the appellant is entitled to interes t  prior to 31.03.1986, learned counsel for 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.

       The assessment years in question in the four appeals are the assessment years  1977-78, 1978-79, 1981-82 and 1982-83.  Already the matter was pending for more  than two decades.  We, therefore, direct the respondents herein to pay the interest on  Rs.40,84,906 (rounded of to Rs.40,84,900) simple interest @ 9% p.a. from 31.03.1986  to 27.03.1998 within one month from today failing which the Department shall pay the  penal interest @ 15% p.a. for the above said period.   

       In the result, the appeals stand allowed.  We have no hesitation to set aside the  impugned judgment of the High Court of Bombay.  No costs.