Vildirect: IncomeTax-caselaws-2014-VIL-15-SC-DT

2014-VIL-15-SC-DT

Supreme Court of India

CIVIL APPEAL NO. 3507 OF 2014 (Arising out of S.L.P.(C) No. 11406 of 2008)

Date: 26.02.2014

COMMISSIONER OF INCOME TAX, GUJARAT

GUJARAT FLUORO CHEMICALS LTD.

BENCH

MR. H.L. DATTU AND MR. S.A. BOBDE, JJ.

JUDGMENT

1. Delay condoned.

2. Leave granted.

3. This appeal is directed against the judgment and order passed by the High Court of Gujarat at Ahmedabad in Special Civil Application No. 12855 of 1994, dated 03.07.2007, whereby and where under the High Court has directed the Revenue to grant compensation by way of interest at the rate of 9% per annum on the amount for period from July 1, 1987 to November 13, 1990 refunded as well as to make payment of running interest at the rate of 9% per annum on the interest accrued on the aforesaid amounts to the assessee/respondent.

4.Brief facts in this case are: the respondent- assessee is a company incorporated under the provisions of Companies Act, 1956 engaged in the business of manufacturing Anhydrous Hydrogen Fluoride and Chlorofluorocarbon Refrigerant Gases. The assessee had entered into a technical collaboration agreement with a Non-Resident company based in U.S.A (for short, "Non-Resident Company"). The permissions sought for and necessary approvals were granted by the appropriate authority(s) including the Reserve Bank of India for the aforesaid.

5. The appellant had paid a sum of Rs. 23,96,032/- to non-resident company and intimated the Income Tax Officer, New Delhi regarding payment made vide application dated 20.06.1987 and requested for issuance of a "No Objection Certificate". In response to that the Income Tax Officer directed the appellant to deduct and pay taxes at the rate of 30 per cent.

6. The respondent had deducted tax at source at the rate of 30 per cent on the gross amount under Section 195 of the Income Tax Act, 1961 (for short, "the Act") and paid Rs. 34,22,900/- towards tax. Subsequently, in view of the amendment to Section 10(6A) of the Act by Finance Act, 1983 with effect from 01.04.1984, since no grossing of tax was required to be made on payment to the non-resident company under the agreement approved by the Government of India, the assessee claimed refund.

7. The Income Tax Officer, Baroda, by its order dated 30.11.1990 granted a refund of Rs. 10,26,868/-. Further, the assessee by its letter dated 17.01.1991 requested the Income Tax Officer, Baroda, Gujarat to grant interest on the excess amount of tax so refunded. As there was no response from the Income Tax Officer, the assessee approached the Commissioner of Income Tax, Baroda, Gujarat (for short, "the CIT") with a prayer to grant interest on the amount refunded. The CIT has declined to entertain the claim on the ground that the provisions of Sections 243(1)(b) or 244(1A) or 214(2) are not applicable on the excess amount of tax refunded.

8. The assessee approached the Chief Commissioner of Income Tax, Gujarat by making an application dated October 31, 1992 against the aforesaid order. The Chief Commissioner of Income Tax by letter dated 18.01.1993 refused to entertain the assessee's application on the ground that the refund of excess amount of tax was firstly, not as a result of any order passed by the authority under the Act and secondly, the provisions of Section 244(1A) of the Act are not applicable to the facts of the assessee's case.

9. The assessee aggrieved by the aforesaid, approached the Central Board of Direct Taxes (for short, "the Board") to claim the interest on refund of excess amount of tax paid by it to the Revenue. The Board by its letter dated 19.04.1993 rejected the assessee's claim on the ground that refund was not issued in pursuance of either an order of assessment or penalty and therefore, provisions of Section 244(1A) of the Act were not attracted in the instant case.

10. The assessee filed a writ petition before the High Court against the aforesaid rejection of its claim by the CIT, the Chief Commissioner of Income Tax and the Board, respectively and sought for a writ of mandamus directing the Revenue to award compensation by way of interest on the amount of refund of tax for period from 01.07.1987 to 13.11.1990. The High Court has primarily relied upon the observations made by this Court in Sandvick Asia Ltd. v. Commissioner of Income Tax & Ors. (2006) 280 ITR 643 and concluded that the assessee is entitled to compensation by way of interest for the delayed payment of amounts refunded by the Revenue which were wrongfully withheld and therefore, set aside the letters of authorities below impugned therein and directed the Revenue to grant compensation by way of interest at the rate of 9% per annum on the amounts refunded and further, to make payment of running interest at the rate of 9% per annum on the interest accrued on the aforesaid amounts to the assessee.

11. Aggrieved by the aforesaid, the Revenue is before us in this appeal.

12. We have heard the learned counsel for the parties to the lis and perused the documents on record including the letters of the authorities below and the judgment and order of the High Court.

13. The High Court, while disposing of the writ petition has primarily placed reliance upon the dictum of this Court in Sandvick Asia case (supra) and consequently allowed the petition of the assessee. The aforesaid decision was doubted by a Bench of this Court and referred to the larger Bench for its consideration and clarification by order dated 23.08.2012. In reference, a Three Judge Bench of this Court in Commissioner of Income Tax, Gujarat vs. Gujarat Fluoro Chemicals, (2014) 1 SCC 126 has explained the decision in Sandvick Asia case (supra). This Court therein has clarified the law on interest on refund of tax as laid down in the aforesaid decision and observed thus:

"4. We would first throw light on the reasoning and the decision of this Court on the core issue in Sandvik case (supra). The only issue formulated by this Court for its consideration and decision was whether an assessee is entitled to be compensated by the Income Tax Department for the delay in paying interest on the refunded amount admittedly due to the assessee. This Court in the facts of the said case had noticed that there was delay of various periods, ranging from 12 to 17 years, in such payment by the Revenue. This Court had further referred to the several decisions which were brought to its notice and also referred to the relevant provisions of the Act which provide for refunds to be made by the Revenue when a superior forum directs refund of certain amounts to an assessee while disposing of an appeal, revision etc.

5. Since, there was an inordinate delay on the part of the Revenue in refunding the amount due to the assessee this Court had thought it fit that the assessee should be properly and adequately compensated and therefore in paragraph 51 of the judgment, the Court while compensating the assessee had directed the Revenue to pay a compensation by way of interest for two periods, namely; for the Assessment Years 1977-78, 1978-79, 1981-82, 1982-83 in a sum of Rs. 40,84,906/- and interest @ 9% from 31.03.1986 to 27.03.1998 and in default, to pay the penal interest @ 15% per annum for the aforesaid period.

6. In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue. They are of the view that in Sandvik case (supra) this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment. In other words, the interpretation placed is that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period.

7. As we have already noticed, in Sandvik case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.

8. Further it is brought to our notice that the Legislature by the Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest."

14. Since the High Court has primarily relied upon Sandvick Asia case (supra) and directed the Revenue to pay interest on the amounts refunded as provided for under the provisions of Section 244(1A), in light of the decision by this Court in Gujarat Fluoro case (supra), in our considered opinion, the impugned judgment and order requires to be set aside and the matter be remanded back to the High Court for re- consideration of the stand of the assessee as well as the Revenue once over again.

15. In view of the above, we set aside the judgment and order passed by the High Court and remand the matter back to the High Court for re- consideration of the writ petition filed by the respondent herein before the High Court keeping in view the observations made by this Court in Commissioner of Income Tax, Gujarat vs. Gujarat Flouro Chemicals, decided on 18.09.2013.

16. The Civil Appeal is disposed of accordingly.

17. All the contentions of both the parties are kept open. We request the High Court to dispose of the writ petition as expeditiously as possible.

Ordered accordingly.

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