Calcutta High Court
Nally Bharat Engg. Co. Ltd. vs Commissioner Of Income Tax And Ors. on 7 April, 2005
Equivalent citations: (2005)3CALLT110(HC)
Author: Girish Chandra Gupta
Bench: Girish Chandra Gupta
JUDGMENT Girish Chandra Gupta, J.
1. The petitioner in this writ petition has prayed for a writ in the nature of mandamus commanding the respondents to cancel the order dated 9th September, 1997 by which the Commissioner refused to grant interest on interest and to issue a mandate and/or a writ in the nature of mandamus directing the respondents to grant interest for such period during which the payment of interest was delayed. The order dated 9th September, 1977 reads as follows:
"The Appellant Company is engaged in the business of manufacturing certain engineering goods for the above mentioned assessment years. It has claimed interest under Section 241(1A) for assessment year (1982-83) and under Section 214 and 241(1A) for assessment year 1985-86 and other years on the amount of interest that it had earned on the refund and for late payment of the said refund interest on the interest amount. The details regarding quantum of interest on interest etc. are not furnished because they are on record and considered not necessary to state again. The A/R vehemently argues stating that as per the decision of the Hon'ble Gujarat High Court in D.J. Works v. DCIT & Chamanlal S. Patel v. CIT and Anr., where the High Court has held that interest should be allowable on the delayed payment of interest. With utmost respect, I would state that I beg to differ from the decision of the learned High Court. The provisions of the Act both in Section 214 as well as any other section, which either charges or allows interest to the assessee, states that "simple interest" should be charged/allowed. If interest on interest is allowed then it will result in a compound interest, which is not within the scheme of the Act. Apart from that there has to be equity both for charging or allowing interest. The Department does not charge interest from the assessee on the interest due to default, likewise, charging interest on late payment of refund and interest cannot be allowed to the assessee.
The assessee has no basis for such a claim and petition under Section 264 does not lie, as there is no order prejudicial to the interest of the assessee. The petition is rejected."
2. Mr. Khaitan, learned Sr. Advocate appearing in support of this writ petition made the following submissions:
(a) That the right of the assessee to recover interest on excess payment has been recognised by Section 214 and 244 of the Income Tax Act. He submitted that under Section 244(1A) interest is payable in the event refund is not made within a period of three months. According to him, the intention of the legislature was that the excess money paid by the assessee should be refunded to him as early as possible and not later than 90 days and in order to secure the interest of the assessee as also for the sake of fairness legislature has provided that in the event the refund is delayed, the assessee is entitled to recover interest at the rate of 15% per annum. According to him, the intention is that the excess payment should be refunded together with interest. But the revenue has sought to sabotage that intention of the legislature by refunding only the principle amount and the interest thereon has been refunded after a very long time. He submitted that there is no reason why the revenue should have withheld payment of interest which is in lakhs of rupees for an inordinately long period. If the revenue has chosen to retain the amount which is not authorised by the statute then the authority is also liable to pay interest on that and it is no answer to the claim for interest that this would amount to paying interest upon interest. Colour of money whether it is on account of interest or on account of principal is not different. The fact that the money has been withheld for no reason whatsoever is enough reason to attract payability of interest and interest should be payable on the basis of same rationale which led to the enactment of Section 244(1A) and 214. In support of his submission he relied on a Division Bench Judgment of the Gujarat High Court in the case of D.J. Works v. Deputy Commissioner of Income Tax, reported in 195 ITR 227. He also relied on a Judgment of the Delhi High Court in the case of Commissioner of Income Tax v. Goodyear India Limited, reported in 249 ITR 527 and finally he relied on a Judgment of the Apex Court in the case of Commissioner of Income Tax v. Narendra Doshi, reported in 254 ITR 606 wherein the Judgment of the Gujarat High Court was upheld. He, accordingly, submitted that the right of the petitioner to recover interest has wrongfully been denied. Therefore, a writ in the nature of mandamus should be issued.
(b) He drew attention of this Court to the provisions contained in Section 156 of the Income Tax Act which provides that when "any amount is due to the revenue be it on account of tax or interest a demand shall be made which is payable within 30 days and in case such payment is not made within 30 days then interest is payable under Section 220 of the Income Tax Act. He submitted that if a demand based on interest can attract further interest and the revenue can thus recover interest on interest it would be violative of Article 14 to say that such a right to recover interest on interest is open to the revenue but the same right is not open to the citizen. He, therefore, submitted that an order as prayed for should be passed.
Mr. Mallick, learned senior advocate appearing for the revenue made the following submissions:
(a) Neither Section 214 nor Section 244 of the Income Tax Act does contain any provision for payment of interest upon interest.
(b) A writ in the nature of mandamus can only be issued for the purpose of complying with a provision of law. If there is no provision of law directing the revenue to pay interest on interest, he submitted, which provision shall the Court direct the revenue to follow? After all mandamus can be issued to perform an obligation which has either statutorily or constitutionally been laid down. Constitution does not provide anything to take care of the situation, which is before the Court. Therefore, the only thing left is the Income Tax Act. The Income Tax Act is also silent on the point. How can then a writ in the nature of mandamus be issued?
3. In support of his submission he also relied on a Judgment of the Apex Court in the case of Union of India v. Kirloskar Pneumatic Company In the aforesaid judgment their Lordships expressed the following view:
"The power conferred by Articles 226/227 is designed to effectuate the law, to enforce the Rule of law and to ensure that the several authorities and organs of the State Act in accordance with law. It cannot be invoked for directing the authorities to act contrary to law. In particular, the Custom authorities, who are the cratures of the Customs Act, cannot be directed to ignore or act contrary to Section 27, whether before or after amendment. May be the High Court or a Civil Court is not bound by the said provisions but the authorities under the Act are. Nor can there be any question of the High Court clothing the authorities with its power under Article 226 or the power of a Civil Court. No such delegation or conferment can ever be conceived."
4. Lastly, he submitted that equity has no manner of application in a matter where Revenue is concerned. He submitted that the question of discrimination raised by Mr. Khaitan, that the Revenue is entitled to recover interest on interest but citizen is not, is essentially a question of equity which cannot be a basis or foundation for granting relief particularly in a taxation matter.
5. Mr. Mallick relied on a Division Bench judgment of the Bombay High Court In the case of Sandvik Asia Ltd. v. Commissioner of Income Tax and Ors., reported in 267 ITR 78 wherein all the judgments cited by Mr. Khaitan were considered and the Division Bench held that interest upon interest could not be awarded. He, therefore, submitted that the Judgments cited by Mr. Khaitan have already been considered by a Division Bench of Bombay High Court and it would only be proper to follow the same.
6. After hearing the submissions made by the learned Counsel appearing for the parties, this Court is of the view that its task has greatly been diminished in this case by the Judgment of the Apex Court in the case of Commissioner of Income Tax v. Narendra Doshi, reported in 254 ITR 606. The question as to whether the Revenue can be made liable to pay interest was before Their Lordships and Their Lordships opined that the question had rightly been answered in the affirmative. It would be appropriate to notice the judgment in extenso which reads as follows:
"The question that the High Court was called upon to answer read thus:
'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?
It is answered 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 High Court affirmed, had relied upon the decision of the Gujarat High Court in the case of D.J. Works v. Deputy CIT , which had been followed by the same High Court in Chimanlal S. Patel v. CIT . These decisions held that the Revenue is liable to pay interest on the amount of interest which it should have paid to the assessee but has unjustifiably failed to do.
The Revenue has not challenged the correctness of the two decisions of the Gujarat High Court. They must, therefore, be bound by the principle laid down therein. Following that principle, the question has, as we find, been rightly answered in the affirmative and in favour of the assessee.
The Civil Appeal is dismissed."
7. The law laid down by the Supreme Court is binding throughout the territory of India. This is the simple and plain effect of Article 141 of the Constitution. When the Apex Court has held that the question as to whether the Revenue could be made liable to pay interest on interest had rightly been answered in the affirmative, this Court is of the view, there is no further scope for enquiry or investigation into the matter.
8. Mr. Mallick may be right in saying that the Apex Court in the case of Narendra Doshi gave importance to the fact that the two decisions of Gujarat High Court had not been challenged by the Revenue and therefore the Revenue was held bound by the principles laid down in those two judgments of the Gujarat High Court. Mr. Mallick wanted to submit that it is because of a sort of estoppel operating against the Revenue that Their Lordships did not interfere in that matter. My opinion, however, is that it is both because of the estoppel as also owing to the view entertained by Their Lordships that the question had rightly been answered that Their Lordships rendered the judgment. I say so becuase in the case of Berger Paints India Ltd. v. Commissioner of Income Tax, reported in 266 ITR 99. One of the views expressed by Their Lordships was as follows:
"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 assessee, without just cause."
9. Therefore, it appears to be a principle that if the Revenue has accepted a decision then it cannot go back on that and challenge the applicability of the same view in a different matter. That has now acquired a status of a principle. If that is a principle then that principle is equally applicable to Mr. Mallick's client because Revenue is the same throughout the territory of India and on the top of that Their Lordships have also said that the question was rightly answered.
10. I also find lot of substance in the submission of Mr. Khaitan that Revenue cannot say that they can recover interest on interest based on Sections 156 and 220 of the Income Tax Act but they are not liable to pay interest on interest because the statute does not provide for such payment. Equality is in the fabric of our Constitution. When the State itself is entitled to recover interest on interest then State is also liable to pay interest on interest.
11. The submission of Mr. Mallick that the equity has no manner of application in taxation matters certainly held the field at one point of time but has since been fading its colour. It is an age old rule of equity that unjust enrichment should be prevented. Legal recognition to this principle has been given in Sections 68 to 72 of the Indian Contract Act. This principle was applied in the case of Mqfatlal Industries Ltd. and Ors. v. Union of India and Ors., in order to refuse a prayer for refund which was otherwise sustainable. Therefore, what is of concern to a Court of Law is only the cause of justice. Theories, which do not advance the cause of justice, hardly are adhered to.
12. I have more reasons to assign in favour of the view I have taken as regards the answer to the question about payability of interest on interest. While it is true that the traditional view has been that interest can only be paid where there is an agreement or there is any usage of trade having the force of law or under the provisions of any substantive law. We can profitably notice the law laid down in the case of Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji and Ors., , which is as follows:
"The crucial question however is whether the Court has . authority to allow interest for the period prior to the institution of the suit; and the solution of this question depends, not upon the Civil Procedure Code, but upon substantive law. Now, interest for the period prior to the date of the suit may be awarded, if there is an agreement for the payment of interest at a fixed rate, or it is payable by the usage of trade having the force of law, or under the provision of any substantive law entitling the plaintiff to recover interest, as for instance, under Section 80, Negotiable Instruments Act, 1881, the Court may award interest at the rate of 6 percent per annum, when no rate of interest is specified in the promissory note or bill of exchange,"
13. The aforesaid Privy Council Judgment was followed in the case of Union of India v. Watkins Mayor & Co., .
14. In Secretary, the Irrigation Department, Government of Orissa and Ors. v. G.C. Roy . It was held that interest can be granted where the agreement between the parties does not prohibit grant of interest. It was further held that :
"A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages."
15. In Central Bank Of India v. Ravindra and Ors., it was held that "liability to pay interest is founded on the doctrine of compensation".
Therefore, the distinction between compensation and interest, in an appropriate case, has for all practical purposes ceased to exist in law. In the case of Haryana Urban Development Authority v. Rajnish Chandra Sharda, . Their Lordships held as follows:
"There is no merit in this appeal. Considering what has been stated by the appellant in its own written statement filed before the National Consumer Disputes Redressal Commission, we express our surprise that it should have filed this appeal at all. Learned counsel for the appellant now desires to confine the appeal only to the interest that has accumulated because of the stay order that was passed at the appellant's instance by this Court. In the order of the National Commission it is stated that the respondent had claimed compensation for having being compelled to live in rented accommodation from 1982 till 1994 at the rate of Rs. 1600 per month. Instead of making that award, the National Commission directed the appellant to pay interest at the rate of 18% per annum on the amounts that had been deposited by the respondent from time to time from 1979 onwards till a new plot could be allotted to him and possession, thereof could be delivered. Given the facts, we see no justification in interfering with that direction and, consequent upon the dismissal of the appeal and the vacation of the stay order, that direction must now be fully complied with.
The appeal is dismissed with costs."
16. A further instructive discussion on the point is to be found in the case of Ghaziabad Development Authority v. Balbir Singh .
17. Viewed in the light of the aforesaid Judgments of the Apex Court, I am of the considered opinion that the Judgment of the Division Bench of the Delhi High Court in the case of Commissioner of Income Tax v. Goodyear India Ltd. reported in 249 ITR 527 is preferable to the view expressed by the Bombay High Court which was relied upon by Mr. Mullick. The Division Bench of the Delhi High Court in the said case of Goodyear India Ltd. opined as follows:
"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 proceeding under this Act, refund of any amount becomes due to 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 in 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 assessee on the basis of the appellate order. Therefore, the assesse 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 and Chiman Lal S. Patel v. CIT though with different conclusions. Above being the position, we answer the question in the affirmative, in favour of the assessee and against the Revenue."
18. The exercise strictly speaking was not necessary because I already with an arm of the Judgment of the Apex Court in the case of Narendra Doshi. But in deference to strenuous submission made by Mr. Mullick I thought it was worthwhile.
19. For the aforesaid reasons, this writ petition succeeds. The order dated 09.09.97 is set aside and the Department is directed to reconsider the matter in the light of the law laid down by the Apex Court in the case of Commissioner of Income Tax v. Narendra Doshi, reported in 254 ITR 606.
There shall, however, be no order as to costs.
Mr. Mallick, learned Senior counsel, prayed for stay of operation of this order. The operation of this order shall remain stayed for a period of three weeks hence.
Let xerox certified copies of this Judgment be supplied to the parties urgently if applied for the same.