Holding

The Court held that interest on a refund is a "refund" under Section 240, making the Revenue liable to pay interest on the delayed payment of that interest, and ordered simple interest at 9% per annum on the delayed amount.

Summary

Sandvik Asia Ltd. received refunds for assessment years 1977-78, 1978-79, 1981-82 and 1982-83 and was entitled to interest under Sections 214 and 244 of the Income Tax Act, 1961. The Income Tax Department delayed payment of that interest for periods ranging from 12 to 17 years. The appellant filed writ petitions claiming interest on the delayed payment of interest, but the Bombay High Court rejected the claim, holding that interest under Sections 214 and 244 was not a "refund" under Section 240 and therefore no further interest was payable. The Supreme Court examined whether interest on a refund falls within the meaning of "any amount" under Section 240 and whether the assessee is entitled to compensation for the delay. It held that the Revenue is liable to pay interest on the delayed payment of interest, as the amount is a refund under Section 240, and that the delay cannot be justified. Consequently, the Court directed the Department to pay simple interest at 9% per annum on the delayed amount, with penal interest for non‑compliance, and set aside the High Court judgment.

Issues considered

Whether interest on a refund is covered by the term "any amount" in Section 240 and thus attracts interest under Section 244 for delay in its payment.
Whether an assessee is entitled to compensation (interest) for the Revenue's delay in paying interest on a refund.
Whether the proviso to Section 240 (effective from 1‑April‑1989) is applicable to the assessment years in question.
Whether the principle of estoppel prevents the Revenue from denying liability for interest on interest.
Whether interest on interest can be awarded despite the absence of an explicit statutory provision.

Legislation cited

Income Tax Act, 1961s. 214, s. 214(1A), s. 237, s. 240, s. 243, s. 244, s. 244(1A), s. 245

Subjects

interest on refundcompensation for delayIncome Tax ActSection 240Section 214Section 244estoppelinterest on interesttax refund

Judgment

y·
I

''
SANDVIK ASIA LTD. A
V.

COMMISSIONER OF INCOME TAX-I, PUNE AND ORS.

JANUARY 27, 2006

[H.K. SEMA AND DR. AR. LAKSHMANAN, JJ.]
B

Income Tax Act, 1961:

Section 240 (as it stood prior to 1.4.1989)-AYs 1977-78, 1978-79,
1981-82 and 1982-83-Refund on appeal-Interest on refund-Delayed C
payment of interest-Compensation-Entitlement to-A notice of demand for
payment of income tax was issued to the assessee-However, the appellate
authority directed refund of a certain amount-The assessee, thus, became
entitled to interest on the refund under Ss. 2 I 4 and 244-But the payment
of interest was delayed for various periods ranging from 12 to 17 years-The D
assessee filed a writ petition before the High Court claiming interest on the
delayed payment of interest on refund-The High Court rejected the claim on
the ground that interest under Ss. 214 and 244 was not refund under S. 240
and hence the Revenue was not liable to pay i:-:terest under S. 244 in respect
of delay in payment of interest on refund-Correctness of-Held: The assessee
was indisputably entitled to interest under Ss. 214 and 244-The award of E
interes~ on the refunded amount is as per the statutory provisions of law--
There is no question of the delay being 'justifiable' _even if the Revenue takes
an erroneous view of the law-A person should only be taxed in accordance
with law and hence where excess amounts of tax are collected from an
assessee or any amounts are wrongfully withheld from an assessee without F
authority of law the Revenue must compensate the assessee-The revenue is
solely held responsible for the delayed payment of interest on refund-Hence,
the Revenue is directed to pay simple interest @ 9% on the interest on refund
from the date it is due till it is actually paid.

Words and Phrases: G

"Refund of any amount"-Meaning of-Jn the context of Section 240
(as it stood prior to 1.4. I 989) of the Income Tax Act, 1961.

A notice of demand for payment of income tax for the Assessment years
H
811
812 SUPREME COURT REPORTS [2006] I S.C.R.

A 1977-78, 1978-79, 1981-82 and 1982--83 was issued to the appellant-assessee
by respondent No. 2. However, as a result of the appellate order passed by the
-
Commissioner of income tax (Appeals) the appellant received a refund of a
certain amount and became entitled to receive interest on the refund. •'
Therefore, the assessee requested respondent No. 2 to grant interest on the
said refund under Sections 214 and 244 of the Income Tax Act, 1961 for the
B period from 01.4.1977 to 31.03.1989. But the payment of interest on the said
refund was delayed by respondent No. 2 and the delay was for various periods
ranging from 12 to 17 years.

The appellant filed a writ petition before the High Court claiming
•
c interest on the delayed payment of interest on refund. The High Court
dismissed the writ petition holding that interest under Sections 214 and 244
of the Act was not a refund under Section 240 and hence the Revenue was not
liable to pay interest under Section 244 in respect of delay in payment of the
aforesaid interest on refund. Hence the appeal.

D The following questions arose before the Court;-

(1) Whether an assessee was entitled to be compensated for the delay
in paying to it any 'amount' due to it even if such 'amount' comprised of
interest?

E (2) Whether an assessee was entitled to be compensated by the Income
Tax Department for the delay in paying to the assessee amounts admittedly
due to it?

F
Allowing the appeals, the Court

HELD: l. l. There is no question of the delay being 'justifiable' and in
-
any event even if the Revenue takes an erroneous view of the law, which
cannot mean that the withholding of monies is 'justifiable' or 'not wrongful'.
There is no exception to the principle laid down for an allegedly 'justifiable'
withholding and even if there was 17 (or 12) years delay has not been and
G cannot in the circumstances be justified. [842-F]

1.2. The Income Tax Act, 1961 recognizes the principle that a person
should only be taxed in accordance with law and hence where excess amounts
...
of tax are collected from an assessee or any amounts are wrongfully withheld

H
from an assessee without authority of law the Revenue must compensate the
assessee. [842-H; 843-A]
-
SANDVIK ASIA LTD. v. COMMR. OF INCOME TAX-1, PUNE 813

\ CITv. Narendra Doshi, 254 ITR 606 (SC) and Berger Paints Ltd. v. CIT, A
266 ITR 99 (SC), relied on.

CITv. Needle Industries Pvt. Ltd., 233 ITR 370, Suresh B. Jain v. P.K.P.
Nair 194 ITR 148, Pradip Raman/al Sheth v. Union of India (1993) 204 ITR
866, Ab hay Singh Surana v. Secretary, Ministry of Communication AIR 1987
SC 2177, CITv. Ambat Echukutty menon (1988) 173 ITR 581 (Ker) and CIT B
v. Sardar Ba/want Singh Gujral, (1990) 86 ITR 64 (MP), referred to.

Modi Industries Ltd. v. CIT216 ITR 759, Union of India v. Kaumudinj
Narayan Dalal 249 ITR219 and CIT v. Shivsagar Estate 257 ITR 59, held
inapplicable.

D.J Works v. Deputy CIT 195 ITR 227 (Guj), Chiman/al S. Patel v. CIT
c
210 ITR 419 (Guj), Jwala Prasad Sikaria v. CIT 175 ITR 535 (Gau) and CIT
v. Goodyear India Ltd., 249 ITR 527 (Del), approved.

2. At the initial stage of any proceedings under the Act any refund will
depend on whether any tax has been paid by an assessee in excess of tax D
actually payable to him and it is for this reason that Section 237 of the Act is
phrased in terms of tax paid in excess of amounts properly chargeable. It is,
however, of importance to apprl'ciate that Section 240 of the Act, which
provides for refund by the Revenue on appeal etc. deals with all subsequent·
stages of proceedings and, therefore, is phrased in terms of 'any amount'
becoming due to an assesse. (843-B] E
3. The appellant is entitled to interest under Section 244 and/or Section
244/A of the Act in accordance with the terms and provisions of the said
Sections. The interest previously granted to it has been computed up to
27.03.1981 and 31.03.1986 (under different Sections of the Act) and its
present claim is for compensation for periods of delay after these dates. F
[843-H; 844-A)

4. The High Court has rejected the appellant's contention mainly on
the ground that the word refund must mean an amount previously paid by an
assessee and does not relate to an amount payable by the Revenue by way of G
interest on such sums. The High Court's conclusion is based mainly on the
wording of the proviso the Section 240 of the Act. The said proviso can have
no relevance whatsoever as it was not part of the Act during the relevant
period. The said proviso was inserted with effect from 01.04.1989. [844-B]

5. In the present appeal, the respondents have argued that the H
814 SUPREME COURT REPORTS (2006] I S. C.R.

A compensation claimed by the appellant is for delay by the Revenue in paying
of interest, and this does fall within the meaning of refund as set out in
Section 237 of the Act, The relevant provision is Section 240 of the Act
which clearly lays down that what is relevant is whether any amount has
become due to an assessee, and further the phrase any amount will also
B encompass interest. [845-C-D[

6. The appellant was indisputably entitled to interest under Sections
214 and 244 if the Act as held by the various High Courts and also by this
Court. In the instant case, the appellant's money had been unjustifiably
withheld by the Department for 17 years without any rhyme or reason. The
C interest was paid only at the instance and the intervention of this Court.
Interest on delayed payment of refund was not paid to the appellant due to the
erroneous view that had been taken by the officials of the respondents. Interest
on refund was granted to the appellant after a substantial lapse of time and
hence it should be entitled to compensation for this period of delay. The High
Court has failed to appreciate that while charging interest from the assessee,
D the Department first adjusts the amount paid towards interest so that the
principle amount of tax payable remain outstanding and they are entitled to
charge interest till the entire outstanding is paid. But when it comes to
granting to interest on refund of taxes, the refunds are first adjusted towards
the taxes and then the balance towards interest. Hence, as per the stand that
E the Department takes it is liable to pay interest only up to the date of refund
of tax while it takes the benefit of the assesse's funds by delaying the payment
of interest on refunds without recurring any further liability to pay interest.
This stand taken by the respondent is discriminatory in nature and thereby
causing great prejudice to the lakhs and lakhs of assessee. Very large number
of assessees is adversely affected inasmuch as the Income Tax Department
F can now simply refuse to pay to the assessees amount of interest lawfully and
admittedly due to them as has happened in the instant case. It is the case of
the appellant that for the assessment year 1978-79, it has been deprived of
an amount of Rs. 40 lakhs for no fault of its own and exclusively because of
the admittedly unlawful actions of the Income Tax Department for periods
G ranging up to 17 years without any compensation whatsoever from the
Department. Such actions and consequences seriously affected the
administration of justice and the rule of law. (848-C-H; 849-AJ

7. There cannot be any doubt that the award of interest on the refunded
amount is as per the statutory provisions of law as it then stood and on the
H peculiar facts and circumstances of each case. When a specific provision
SANDVIK ASIA LTD. 1· COM MR. OF INCOME TAX-I, PUNE 8 J5

\ has been made under the statute, such provision has to govern the field. A
Therefore, the Court has to take all relevant factors into consideration while
awarding the rate of interest on the compensation. 1849-E, Fl

8. This is a fit and proper case in which action should be initiated
against all the officers concerned who were all in charge of this case at the
appropriate and relevant point of time and because of whose inaction the B
appellant was made to suffer both financially and mentally, even though the
amount was liable to be refunded in years 1986 and even prior to it. A copy of
this judgment will be forwarded to the Hon'ble Minister of Finance for his
perusal and further appropriate action against the erring officials on whose
lethargic and adamant attitude the Department has to suffer financially. C
1849-G-H]

9. By allowing this appeal, the Income Tax Department would have to
pay huge sum of money by way of compensation at the rate specified in the
Act, varying from 12% to 15% which would be on the higher side. Though,
the Department is solely responsible for the delayed payment, the interest of D
justice would be amply met if payment of simple interest is ordered@ 9%
p.a. from the date it became payable till date it is actually paid. Even though
the appellant is entitled to interest prior to 31.03.1986, the appellant fairly
restricted his claim towards interest from 31.03.1986 to 27.03.1998 on which
date a sum of Rs. 40,84,906 was refunded.1850-A, Bl
E
10. The assessment years in question are the assessment years 1977-
78, 1978-79, 1981-82 and 1982-83. Already the matter was pending for more
than two decades. The respondents are, therefore, directed to pay simple
interest @ 9% p.a. on Rs. 40,84,906 (rounded off to Rs. 40,84,900) from
31.03.1986 to 27.03.1998 within one month from the date of this judgment
failing which the Department shall pay the penal interest@ 15% p.a. for the F
above said period. 1850-C, DI

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1337-1340 of
2005.

From the Judgment and Order dated 16.1.2004 of the Bombay High G
Court in C.W.P. Nos. 5841, 5854, 5855 and 5860 of2001.

Jehangir D. Mistri and Rustom B. Hathikhanawala for the Appellant.

Mohan Parasaran, ASG, Manish Tiwari, Gaurav Dingra, Chidananda
D.L., Vivek Sood.and B.V. Balaram Das for the Respondents.
I-I
·~·

816 Sl!PRLME l'UllRl REPOR IS 12006j I S.l'.R.

A The Judgment of the Court was delivered by

DR. AR. LAKSHMANAN, J. These appeals raise substantial and
important questions of law of great general public importance as well as under
the Income Tax Act, I961 pertaining to assessment years I 977-78. I 978-79.
198 I -82 and 1982-83 requiring consideration of this Court. Since common
B questions of law and facts arise in all these appeals they were heard together
and are being disposed of by this common judgment. The impugned common
judgment was passed by the High Court of Bombay rejecting the appellant's
claim on interest holding that no such interest on interest is payable under
any of the provisions of the Income Tax Act, I 961 (for short 'the Act').
c The main issue raised in these appeals is whether an assessee is
entitled to be compensated by the Income-tax Department for the delay in
paying to the assessee_ amounts admittedly due to it? The delay in the instant
case was for various periods ranging from I 2 to I 7 years.

The following facts are not in dispute:-
D
Assessment Year 1977-78.

Notice of demand was issued to the appellant by respondent No.2 for
advance tax payable of Rs.2,74,31.250. The appellant paid a sum of
E Rs. I,86,04,450. Assessment order was passed by respondent No.2 determining
income of Rs.3,88,37,630. Respondent No.2, after rectifying his assessment
order, determined the income of Rs.3,45,91,830 and tax thereon at Rs.1,99, 76, 781
and raised a demand for further tax payable of Rs. I 3, 72,331. The appellant
paid the said sum. Commissioner of Income-tax (Appeals) disposed of the
appellant's appeal substantially allowing the same. Respondent No.2 gave
F effect to the appellate order determining income at Rs.2,68,88,220 and tax
thereon at Rs.1,47,88,521. The appellant on 30.04.1986 received a refund of
Rs.42,38,260 and became entitled to receive interest on the refund and
requested respondent No.2 to grant interest on refund under Sections 214 and
244 of the Act for the period from 01.4.1977 to 3 1.03 .1986.

G Assessment Year 1978-79:
Notice of demand was issued to the appellant by respondent No.2 for
payment of advance tax on Rs.2, 14,56,853. The appellant submitted its estimate
of advance tax and paid instalments thereon at Rs. I, I 1.81,844. An assessment
H order determining income of Rs. 1,54.17.090 and tax payable thereon at
·~

SANDVIK ASIA LTD. 1·. COMMR. OF INCOME TAX-I, PUNE [LAKSHMANAN,J] 817

Rs.89,03,368 after adjusting the advance tax paid against the tax payable a 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. I rejected the same. Commissioner of Income-tax disposed of
the appellant's appeal against the Assessment Order substantially allowinr B
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 the said refund.

Assessment Year 1981-82:
c
The appellant submitted its estimate of advance tax and paid instalments
thereo11 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 D
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. I 0,06,464 was also paid as interest urider
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 E
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 F
refused to grant interest under Sections 214(1A) and 244 (IA) of the Act.

Assessment Year i982-83:

The appellant subm ined its estimate of advance tax and paid instalments
thereon of Rs. 1,45,48,006 a provisional Assessment Order determining the tax G
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
l. ~
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 <1ppellant 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 H
818 SUPREME COURT REPORTS [2006] I S.C.R.

A order determining income of Rs.2,05,91,540 and tax payable thereon at
Rs. I, 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. i 982 to 31.03.1986. Respondent No.2 granted interest of
B Rs.t,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

c 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( I A) of the Act was admissible only on post
assessment taxes.
27.02.1987 Appellant filed four Revision Petitions under Section 264 of the
D Act before the I st 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

E 1978-79 01.04.1978 to 30.04.1986
1981-82 01.04.1981 to 30.04.1986
1982-83 O1.04.1982 to 30.04.1986

28.02.1990 Respondent No. I rejected the revision petitions.

F 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. I to consider the revision petitions in light of its
decision in the case of Modi Industries Ltd. v. CIT. reported in
216 ITR 759.
G
The order of this Court dated 30.04.1997 is reproduced hereunder:-

H
\
:-1-

SANDVIK ASIA LTD. 1·. COMMR. OF INCOMETAX-1. l'UNE [LAKSHMANAN. J] 819

"CIVIL APPEAL NO. 1887 OF 1992 A
' . Sandvik Asia Ltd. ... Appellant

v.

S.M. Soni & Ors.
B
(With C.A. Nos. 2649/92, 2550/92, 2687/92 & 1471/96)

ORDER

These appeals are covered against the revenue by the decision
of this Court in Modi Industries Ltd. & Ors. v. Commissioner of
Income Tax, 216 ITR 759. For the reasons given in the said judgment
c
these appeals are allowed, the impugned order passed by Respondent
No. I 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
-1
principles laid down in Modi Industries Lid. Case (supra). No order D
as to costs.

Sd/-

(S.C. Agarwal)

Sd/- E

(D.P. Wadhwa)
New Delhi,
April 30, l 997"
27.03.1998 Pursuant to the l st Respondent's direction, the 2nd Respondent F
passed an Order paying amounts under Sections 214 and 244(\A)
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 (I A) is reproduced hereunder:- G

"WORKING OF INTEREST U/S 214/244 (IA)
• -l
(I) Interest u/s 2I4(l) of the Act at
12% on Rs. 22,78,400
For the period l .4. l 978 to 28.2.1981 7,97,440 H
820 Sl'PRl:ME COURT REPORTS (2006] I S.C.R.

A
(ii) Interest u/s 214( I) of the
Act at 12% p.a. on Rs. 34, 78,800
for the period 1.4.1978 to 27.3.1981(u/s143(3)) 12,17,580

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

From 1.4.1981 to30.9.1984@12% 14,61,096

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

Interest granted on 28.11.1986 1,73,940

Interest payable to the assessee 40,84,906
D
27/3/1998
Sd/-
(Surinder J it Singh)
Dy. Commissioner of Income Tax
Spl.Rg.2, Pune"
E
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 Ist 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
F 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. I.
16.01.2004 Impugned common judgment and order passed by the High
Court.
G
Aggrieved by the above common judgment, the appellant has filed the
above civil appeals.

We heard Mr. Jehangir D. Mistri, learned counsel assisted by Mr.
H Rustom B. Hathikhanawala. for the appellant and Mr. Mohan Parasaran, learned
SANDVIK ASIA LTD.,.. COM MR. OF INCOME TAX-I. PUNE ILAKSHMANAN,J.J 82 J

ASG assisted by Mr. Manish Tiwari and Others for the respondents. A
\
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 B
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 C
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 D
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 periodt of up to 17 years;
(2) The appellant being undisputedly entitled in law to receive certain E
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; F
(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 G
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 H
822 SL:PREV!E COURT REPORTS J2006] I S.C.R.

A 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
B 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
c 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/
D 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
E 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 Depanment contrary to law;
(9) That the High Court erred in holding that an assessee was
F 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 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.
G
(IO) The High Court has er red 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
H
SANDVIK ASIA LTD. r. COM MR. OF INCOME TAX-I. PUNE[LAKSHMANAN. J.J 823

Laws (Amendment) Act, 1987 with effect from 1st April, 1989 A
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. B
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:-
c
"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."
D
"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 ~ny claim in that behalf: E
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;
F
(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. G
(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. H
824 SUPREME COURT REPORTS [2006] I S.C.R.

A In this context, the High Court has failed to appreciate that this
Court in the case of C. l. T v . .Varendra Doshi, 254 ITR 606 (SC) had
set out the two issues before itself, viz .. whether when department
had not challenged the c0rrectness of the Gujarat High Court decisions
it was bound by the principle laid down therein;

B 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
c 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 th.: 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
D 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. However, the High Court has considered the said point
from pages 46-54 of its judgment.
E
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.

F I. D.J. Works v. Deputy Commissioner of Income-Tax, 195 ITR 227

2. Commissioner of lnwme-Tax v. Narendra Doshi. 254 ITR 606

3. Berger Paints India ltd v. Commissioner of Income-Tax, 266
ITR99
G 4. Union of India & Ors. v. Kaumudini Narayan Dalal & Anr., 249
ITR 219
5. Commissioner of Income-Tax v. Shivsagar Estate, "!.57 ITR 59

6. Chimanlal S. Pale/ v. Commissioner olfncome-Tax & Anr., 210
ITR419
H
SANDVIK ASIA LTD. r. COMMR. OF INCOME TAX-I. PUNE [LAKSllMANAN. J] 825

7. Jwala Prasad Sikaria & Ors. v, Commissioner of Income-tax & A
Ors., 175 ITR 535 at 539

8. Commissioner of Income-tax v. Goodyear India ltd., 249 ITR 527

9. Commissioner of Income-Tax v. Needle Industries Pvt. ltd, 233
ITR370
B
JO. Suresh B. Jain v. P.K.P. Nair and Ors.. 194 !TR 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 C
of the law laid down in Modi Industries ltd. case (supra). According to him,
none of the provisions of Jaw 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 Jaw contained therein, there can be no scope for consideration of equity
or intendment and what is expected is the strict interpretation. He has further D
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 submitt~d that this Court in Modi Industries Ltd., E
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 (IA). 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, I 995.
F
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. I 990
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 G
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. I 997. 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.l.T. H
826 SUPREME COURT REPORTS [200611 S.C.R.

A Pune had considered and judiciously interpreted the provisions of Sections
214 and 244 (I A) 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
B 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( I) is a simple interest at the
C 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( I) 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
D law correctly rejected the alternative claim of the appellant by following the
decision of this 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
E 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 oflncome 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
p 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 calc,ulated strictly as per the prov:sions 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
G 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:-
H
SANDVIK ASIA LTD. 1·. COM MR. OF INCOME TAX- I. PUNE [LAKSHMANAN, l] 827

A. Whether in view of binding decisions of this Court the respondents A
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 B
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
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 D
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
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
F. Whether the High Court erred in purporting to distinguish/explain
the decision of this Court in the case of CIT v. 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 G
appellant had no opportunity of dealing with?
J.
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 H
828 SUPREME COURT REPORTS [200611 S.C.R.

A 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.

B Before considering the rival claims, it would be beneficial to reproduce
the Section as it stood then (al the relevant point of lime) Sections 237, 240
(reproduced in paragraphs (supra), 243 & 244.

"237. Refunds.--lfany 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
c 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.--{ I) If the Income-tax Officer does
not grant the refund
D (a) in any case where the total income of tht: assessee does not
consist solely of income from interest on securitit!s 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
E 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.
F
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.

G (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 refimd where no claim is needed-( l) Where a refund
H
SANDVIK ASIA LTD. 1·. COM MR. OF INCOME TAX-I, PUNE [LAKSHMANAN, J.J 829

is due to the assessee in pursuance of an order referred to in section A
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. B
(IA) Where the whole or any part of the refund referred to in sub-
section (!) is due to the assessee, as a result of any amount having
been paid by him after the 3 lst 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 C
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 D
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 E
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 :
F
Provided also that where any interest is payable to an assessee under
this sub-section, no interest under sub-section (I) 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 G
• 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."
f H
830 SLPREME COURT REPORTS (2006] 1 S.C.R.

A 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
B 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, I98i with effect from 01.04.1989 and hence was not
applicable to the present case. The High Court has not considered Section
C 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
D which is directly and pointedly cover the issue raised in these appeals.
(I) D.J. Works v. 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
E 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
F 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
G 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
H
SANDVIK ASIA LTD. 1•. COM MR. OF INCOME TAX-I, PUNE [LAKSHMANAN, J.J 831

payment of interest. Once the interest amount becomes due, it takes A
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 B
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 C
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."
D
(2) Commissioner of Income-Tax v. Narendra Doshi, 254 !TR 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. 5of1996. In that case, the High Court was called
upon to answer the following question: E
"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?" F
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 Court affirmed had relied upon the decision of G
the Gujarat High Court in the case of D.J Works v. Deputy CIT, (supra), which
had been followed by the same High Court in Chimanlal S. Patel v. 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:
H
832 SUPREME COURT REPORTS 120061 I S.C.R.

A "'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."
B
(3) Berger Paints India ltd. v. Commissioner of Income-Tax, 266 !TR 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
C 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
D lakhanpal National ltd. 's case [1986] 162 ITR 240 is completely in
favour of the assessee as it accepts the contenrion 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 43 B in lakhanpal
E 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., (200 I) 252 ITR 43 and by the Madras High Court
in Chemicals and Plastics India ltd. v. C/T(2003) 260 ITR 193. These
two judgments also appear to have been accepted by the Revenue
F 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, (200 I) 249 ITR 219; C/Tv. Narendra Doshi, (2002) 254
G ITR 606 and C/Tv. 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.

H The decision in Lakhanpal National ltd. ·.1· case ( 1986) 162 ITR 240
SANDVIK ASIA LTD. v. COM MR. OF INCOME TAX-I, PUNE [LAKSHMANAN, l] 833

(Guj), which clearly laid down the interpretation of section 43B was A
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 B
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 lakhanpa/ National Ltd. 's case (1986) 162 !TR 240 (Guj),
which was followed by the Inspecting Assistant Commissioner in the C
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 !TR
240. This decision has been subsequently followed by the decisions D
of the Bombay High Court in CIT v. Bharat Petroleum Corporation
ltd (200 I) 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,
/AC, (1994) 206 ITR (AT) 96 (Delhi), which have all remained E
unchallenged."

(4) Union of India & Ors. v. 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 p
High Court in the case of Pradip Raman/a/ Sheth v. 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 die! not accept the correctness of the judgment in the
case of Pradip Raman/al Sheth (1993] 204 ITR 866 (Guj), it should G
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 H
834 SUPREME COURT REPORTS [2006) l S.C.R.

A matter and dismiss the civil appeal. No ord..:r as to costs."

(5) Commissioner of Income-Tax v. 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
B 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.
c
(6) Chimanlal S. Patel v. CfJmmissioner of Income-Tax & Anr., 210 ITR 419

In this case, the- Division Bench of the Gujarat High Court held as
follows:-

D "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
E 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 v. Dy. CIT, (1992] I95 ITR 227 (Guj).

The Court further held as under:
F
"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
G 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
H assessee. Excess tax cannot be returned without payment of interest.
SANDVIK ASIA LTD. 1·. COMMR. OF INCOME TAX-I, PUNE [LAKSllMANAN, JJ 835

So also, interest which is payable thereon cannot be retained without A
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 B
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. v. Commissioner of Income-tax & Ors.. 175
ITR 535 at 539

It was argued by Mr. Mohan Parasaran that interest payable on the C
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( I A), 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 D
., our opinion, has no merits. Learned counsel for the assessee cited the decision
Jwa/a Prasad Sikaria & Ors., (supra) in support of his contention wherein
the Gauhati High Court held that a citizen is entitled to payment of 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 E
upheld in Abhay Singh Surana v. Secretary, Ministry a/Communication, AIR
(1987) SC 2177 and Deputy Commissioner v. 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 F
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." G
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 v. Goodyear India ltd, 249 !TR 527 H
836 SUPREME COURT REPORTS [2006] I S.C.R.

A In the above case, the dispute relates to the asse~sment 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
B Tribunal is right in holding that the assessee is entitled to interest
under section 244 on the amount of interest amounting to Rs. l ,90,499
payable under section 214 of the 1ncome-tax Act, 196 l ?"

Arijit Pasaya!, C.J. speaking for the Bench held as follows:-

C "The provisions of this section shall not apply in respect of any
assessment for the assessment year comm·encing on the l st 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
D 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
E 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 behal[ 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
F
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
G 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
H
SANDVIK ASIA LTD.1'. COMMR. OF INCOME TAX-I, PUNE [LAKSHMANAN, J.] 837

became due to the assessee on the basis of the appellate order, A
., 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 !TR 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." B
(9) Commissioner of Income-Tax v. Needle Industries Pvt. Ltd., 233 !TR 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 c
gross delay in payment was admittedly made by the Department contrary to
law. The Division Bench of the Madras High Court in Commissioner of
Income-Tax v. Needle Industries Pvt. Ltd., 233 !TR 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, D
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 (IA) 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(1 A) in E
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
J 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 F
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 G
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
H
838 SUPREME COURT REPORT~ [2006] 1 S.C.R.

A penalty". As already seen, the function of the later part of section
244( IA) 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 detennine
the amount on which the Revenue is liable to pay interest, section
244( I A) gives emphasis on the amount paid by the assessee in
B 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 thm the right to interest will compensate the assessee
for the excess payment during the intervening period when the
c assessee did not have the benefit of use uf 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(IA) 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( I A) has to be construed in the light of the expression
D "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( IA) 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
E 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
F 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) ar.d 215 of the Act is legally sustainable in law."
G (Underlining is ours)

In the above judgment, the Madras High Court has foliowed the judgment
in the case of CIT v. Ambat Ec:hukutty Menon, ( 1988) 173 ITR 581 (Kerala) ·· '
and CIT v. Sardar Balww1t Singh Gujral, ( 1990) 86 CTR 64(MP). The Madhya
H Pradesh High Court in Sardar Ba/want Singh CJujra/'s case (supra) held that
SANDVIK ASIA LTD. v. COMMR. OF INCOMETAX-1. l'UNE ILAKSHMANAN. J.J 839

the liability to pa~' interest is on the amount of refund due and the assessee A
~ 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( IA) 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 B
assessment which was refunded.

(IO) Suresh B. Jain v_ P.KP. 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 C
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 f1,1rther .
D

"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 E
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 F
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 (IA) of the Income-tax Act, 1961, is also
an amount that is refunded by the Department to an assessee and, if G
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 H
840 SUPREME COliRI REPORTS [20061 I S.l'.R.

A Departmer.t 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
B either of the Income-tax Department or of an assessee. There is,
therefore, nothing wrong if interest payable to an assessee under
section 244( I A) 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."
c 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.
D
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
E 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
F 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
G alia this Court:

The Gujarat High Court i.1 DJ Works and Chimanlal Patel-'s cases
(supra) had taken the view that even proceeding on the basis that there was
no specific provision for payment of interest on amounts of interest which
had been wrongfully retained, the Act itself recognized in principle the liability
H of the department tu pay interest where excess tax was retained and the Court
SANDVIK ASIA LTD. r. COM MR. OF INCOME TAX-I, PUNE [LAKSHMANAN, .I I 84 J

held that the same principle should be extended to cases where interest was A
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 !TR No. 5
of l 996 followed the Gujarat High Court decisions and answered in the B
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 C
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...."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 question has, as we find, been rightly D
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 conte1.tions.

In the impugned order, the Bombay High Court has held that the E
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 F
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 r.1w they had any bearing on the case. G
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 H
842 SUPREME COURT REPORTS 1200611 S.C.R.

A 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 upht!ld
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
B 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
C 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
D relevance.

The counsel for the Revenue argued that the rca~un for not granting
interest was that the amounts on which interest was claim.:d 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
E 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 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.
F 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 (or 12) years delay has not
G been and cannot in the circumstances be justified.

Does the Act provide for payment of compensution for delayed pc~rment of
umounts due to an assessee in a case where these amounts include i111erest?

In our view. the Act recognizes the principle that a person should only
H be taxed in accordance with law and hence where excess amounts of tax are
1-
SANDVIK ASIA LTD. 1·. COM MR. OF INCOME TAX-I. PUNE [LAKSHMANAN,J.1843

·; collected from an assessee or any amounts are wrongfully withheld from an A
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 B
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 C
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 23 7 of the Act
and hence no interest could be granted to the assessee under Section 244 of D
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 wou Id 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 E
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 F
'any amount' in the same manner when considering the provisions of Section
244(IA) 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 G
whether further interest was payable by the Revenue on interest which had
to be. repaid to assessee.

Jn 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 H
844 SUPREME COllR I' REPORTS [200611 S.C.R.

A 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
B 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.
c The High Court in its judgment has referred to the provisions of Section
244(1 A) 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 under both Section 214( I A.) and 244( I A) of the
Act simultaneously, and further that there is no right to receive interest except
D 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, conclu~ed, no
E longer in dispute and was agreed/accepted on 27.03.1998 when the 2nd
respondent gave effect to the previous order of th is Court dated 30.04.1997.
The working of the respondents itself conclusively shows, further the interest

F
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
G 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
H interest was payable by interpretation of the Act. What was urged before the
r
SANDVIK ASIA LTD."· COMMR. OF INCOME TAX-I, PUNE[LAKSHMANAN, J.]845

High Court was that this Court decided the matter by upholding the Gujarat A
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. B
\ 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).
c
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 23 7 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 D
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? E
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 F
for such deprivation.

In the impugned order, the Bombay High Court has held that no
compensation is required to be paid since " ..... 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 G
thereto was paid on 27.03.1998" ....... 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 H
846 SUPREME COURT REPORTS [200611 S.C.R.

A 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
B with law. Therefore, that on this issue as well, the impugned judgment cannot
be sustained and ought to be reversed.

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
C 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 129£ of Customs Act, 1962 - Clarifications

The issue relating to refund of pre-deposit made during the
D 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.
E 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
F the law contained in Section 35 F 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 refund:; so claimed are covered under the provisions of Section
11 B of the Act and are governed by the parameters applicable to the
G 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 26-11-200 I
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
H
SANDVIK ASIA LTD. v. COM MR. OF INCOME TAX-I. PUNE lLAKSllMANAN,J.] 847

earlier judgment in the case of Suvidhe Ltd and Mahavir Aluminium A
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 11 B( I) 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 B
such deposit, requesting the return of the amount, along with an
\ attested Xerox copy of the order-in-appeal or CEGA T 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 C
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 D
lieu of cash deposits shall also be returned.

4. The above instruction's 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. E
5. All the trade asrnciations 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.
F
[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 Supreme Court order such pre-deposit must.be returned within G
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 H
848 SUPREME COURT REPORTS [2006 j I S.C.R.

A to all concerned to note that defaulter will entail a interest liability if such
liability accrue by 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
B 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.

C 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
D Civil Appeal No. 1887 of 1992 dated 30.04.1997. Interest on delayed payment
of refund was not paid to the appellant on 27.03.1981and30.04.1986 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.
E 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
F 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
G large number of assesses are adversely affected inasmuci1 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
H actions of the Income Tax Department for periods ranging up to 17 years
'
T
SANDVIK ASIA LTD."· COM MR. OF INCOME TAX-I. PUNE [ LAKSHMANAN, l] 849
without any compensation whatsoever from the Department. Such actions A
i and consequences, in our opinion, seriously affected the administration of
justice and the rule of law.

COMPENSATION:

The weird 'Compensation' has been defined in P. Ramanatha Aiyar's B
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 C
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 D
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 E
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, F
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 ii) charge of this case at the G
appropriate and relevant point of ti me 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 rhe erring officials on whose
lethargic and adamant attitude the Department has to suffer financially. H
850 SUPREME COURT REPORTS (200611 S.C.R.

A 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
B actually paid. Even though the appellant is entitled to interest prior to 31.03.1986,
learned counsel for the appeJant 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.

C 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
D 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.

V.S.S. Appeals allowed.