IN this writ petition, the petitioner has prayed to set aside:
(1) the order dated October 6, 1992 passed by the Commissioner of Income Tax, Baroda, by which the claim of interest on refund advanced by the petitioner was rejected as inadmissible under Sections 243(1)(b), 244(1A) and Section 214(2) of the Income Tax Act, 1961;
(2) the order dated January 18, 1993 passed by the Chief Commissioner of Gujarat, Ahmedabad, by which interest claimed by the petitioner on the excess amount of tax deducted at source was rejected on the ground that excess amount of tax deducted at source was not as a result of order passed by an authority under the Act and that the provisions of Section 244A(1) of the Act were not applicable since those provisions were brought into force only from the assessment year 1989-90; and,
(3) the order dated April 19, 1993 passed by the Government of India by which the claim for interest advanced by the petitioner was refused on the ground that the refund was not issued in pursuance of order of assessment or penalty and, therefore, provisions of Section 244(1A) of the Act were not applicable to the facts of the case.
The petitioner has further prayed to issue a writ of mandamus directing the respondents to award compensation by way of interest on the amount of refund for the period from July 1, 1987 to November 13, 1990.
The petitioner is a company manufacturing Anhydrous Hydrogen Fluoride and Chlorofluorocarbon Refrigerant Gases. For this purpose, the promoters of the petitioner company had entered into a technical collaboration agreements with a company based at U.S.A. On June 19, 1987, the petitioner had paid a sum of Rs.23,96,032/ – to its collaborator. The petitioner thereafter intimated the Income Tax Officer, regarding payment made by it by making applications dated June 20, 1987 and requested him to issue no objection certificate.
The case of the petitioner is that the Income Tax Officer directed the petitioner to deduct and pay taxes at the rate of 30% on the amount remitted by the petitioner to M/s.StearansCatalyi c Corporation, U.S.A. Accordingly, the petitioner deducted and paid Rs.34,22,900/ – towards the tax. Subsequently, the Assessee company claimed that in view of the amended provisions of Section 6(10) of the Act, no grossing was required to be made as the payment was to be remitted under the agreement approved by the Government of India and claimed refund. The Income Tax Officer, Ward-2(1), Baroda, by order dated November 30, 1990 held that the petitioner was entitled to refund of Rs.10,26,868/ -. The petitioner thereafter requested the respondent No.4, i.e. Income Tax Officer, Ward-2(1), Baroda, to grant interest on the excess amount of tax refunded by letter dated January 17, 1991. As there was no response from the respondent No.4 to the said letter, the petitioner applied on July 15, 1992 to the Commissioner of Income Tax, Baroda, with a prayer to grant interest on the amount refunded. However, the Commissioner of Income Tax by his letter dated October 6, 1992 declined to entertain the claim of interest on the ground that the same was not admissible either under Section 243(1)(b) or 244(1A) or under Section 214(2) of the Act. Feeling aggrieved, the petitioner approached the Chief Commissioner of Income Tax, Gujarat. However, the Chief Commissioner of Income Tax also by letter dated January 18, 1993 refused to entertain the claim of the petitioner for interest on the excess amount of tax paid on the ground that excess amount of tax deducted at source was not as a result of any order passed by an authority under the Act nor the provisions of Section 244A(1) of the Act were applicable to the facts of the case. Dissatisfied by the said order, the petitioner approached CBDT by making application on February 26, 1993. The petitioner reiterated its submissions made before the Chief Commissioner of Income Tax. However, the CBDT also by order dated April 19, 1993 refused to accept the claim made by the petitioner for awarding interest on the amount of excess tax paid by it.
And the perseverant Assessee is before the High Court.
The High Court observed,
(1) The question whether an Assessee is entitled to compensation by way of interest for the delay in the payment of amounts lawfully due to the Assessee, which are withheld wrongly and contrary to law, stands concluded in favour of the petitioner by the judgment of the Supreme Court rendered in Sandvik Asia Limited vs. Commissioner of Income-Tax & Ors.,
(2) The facts and the law would clearly go to show that the appellant was indisputably entitled to interest under Sections 214 and 244 of the Act as held by the various High Courts (including this High Court)
(3) In the instant case, the appellant’s money had been unjustifiably withheld by the Department for 17 years without any rhyme or reason. The interest was paid only at the instance and the intervention of this Court in Civil Appeal No. 1887 of 1992 dated April 30, 1997. Interest on delayed payment of refund was not paid to the appellant on March 27, 1981, and April 30, 1986, due to the erroneous view that had been taken by the officials of the respondents.
(4) 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.
(5) While charging interest from the Assessees, the Department first adjusts the amount paid towards interest so that the principal amount of tax payable remains 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.
(6) Hence, as per the stand that the Department takes they are liable to pay interest only up to the date of refund of tax while they take the benefit of the Assessees funds by delaying the payment of interest on refunds without incurring any further liability to pay interest.
(7) The stand taken by the respondents is discriminatory in nature and thereby causing great prejudice to lakhs and lakhs of Assessees. Very large number of Assessees are adversely affected inasmuch as the Income-tax Department can now simply refuse to pay to the Assessees amounts of interest lawfully and admittedly due to them as has happened in the instant case.
(8) it has been deprived of an amount of Rs.40lakhs 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 affect the administration of justice and the rule of law.
Compensation: The word “compensation” has been defined in P.RamanathaAiyar’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 to an employee or officer.”
The High Court further observed,
(1) This is a fit and proper case in which action should be initiated against all the officers concerned who were all in charge of this case at the appropriate and relevant point of time and because of whose inaction the appellant was made to suffer both financially and mentally, even though the amount was liable to be refunded in the year 1986 and even prior thereto.
(2) 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.
(3) 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 per cent to 15 per cent, 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 at 9 per cent per annum from the date it became payable till the date it is actually paid. Even though the appellant is entitled to interest prior to March 31, 1986, learned counsel for the appellant fairly restricted his claim towards interest from March 31, 1986 to March 27, 1998 on which date a sum of Rs 40,84,906 was refunded.