Sandvik Asia Ltd vs Commissioner of Income Tax-I, Pune, decided by the apex court on January 27.
The main issue was whether the Income-Tax Department should compensate an assessee for the delay in paying him the amounts due. "The delay in the instant case was for various periods ranging from 12 to 17 years," and Sandvik claimed interest for delayed refunds. The Bombay High Court had ruled in favour of the Department. Aggrieved, the company approached the apex court for remedy.
Jehangir D. Mistri argued the company's case at the Supreme Court. He submitted that the High Court ought to have held that an assessee is entitled to compensation by way of interest on the delay in the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to law by the I-T Department for an inordinately long period of up to 17 years.
"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," said Mistri.
Mohan Parasaran, Additional Solicitor-General, spoke for the Department. For the years in question, interest payable on the refund amount was a simple interest at the rate specified therein, he said. "Neither compound interest nor interest on interest is payable," he argued.
Justices H. K. Sema and AR. Lakshmanan of the apex court heard the case and gave `anxious and thoughtful consideration' to `the elaborate submissions' made by both the counsels.
"In our opinion, the High Court has failed to notice that in view of the express provisions of the Act an assessee is entitled to compensation by way of interest on the delay in the payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to the law by the Department for an inordinate long period of up to 17 years," said the court.
"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 the Direct Tax Laws (Amendment) Act, 1987 with effect from April 1, 1989, and hence was not applicable to the present case," the court stated. This was despite `cartload of judgments' cited by the company's counsel, `directly and pointedly' covering the issue at hand!
D. J. Works vs Deputy Commissioner of Income-Tax, where the Gujarat High Court said, "If the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest. Once the interest amount becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment." And the
Jwala Prasad Sikariacase, in which 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 Department argued that the delay was not unjustifiable, and therefore, there was no liability to pay interest. The apex court said, "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'." And, "17 (or 12) years delay has not been and cannot in the circumstances be justified," stated the court.
"Does the Act provide for payment of compensation for delayed payment of amounts due to an assessee in a case where these amounts include interest?" asked the court, and answered thus: "In our view, the Act recognises the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law, the revenue must compensate the assessee."
Another question is, "Whether on general principles the assessee ought to have been compensated for the inordinate delay in receiving monies properly due to it?" The apex court noted the High Court's view that no compensation is required to be paid since "there was a serious dispute between the parties." Order was passed in April 1997, and amount paid in March 1998. The High Court, therefore, had observed that since the amount was paid once the controversy was resolved there was no wrongful retention of monies.
On that, the Supreme Court opined: "No authority can ever accept an obligation to make payment and simply refuse to pay." If the decision of the High Court were upheld it would mean that there could never be any wrongful retention by an authority, reasoned the apex court, reversing the Bombay High Court's judgment.
Criticising the Department's stand as `discriminatory', the apex court said that the taxman was thereby `causing great prejudice to lakhs and lakhs of assessees'.
The court rued: "Very large number of assessees are adversely affected inasmuch as the Income-Tax Department can now simply refuse to pay to the assessees amounts of interest lawfully and admittedly due to them as has happened in the instant case." Enough arsenal to make a class action suit!
"This is the fit and proper case in which action should be initiated against all the officers concerned who were all in charge of this case at the appropriate and relevant point of time and because of whose inaction the appellant was made to suffer both financially and mentally, even though the amount was liable to be refunded in the year 1986 and even prior to," observed the apex court.
"A copy of this judgment will be forwarded to the Hon'ble Minister for Finance for his perusal and further appropriate action against the erring officials on whose lethargic and adamant attitude the Department has to suffer financially."
Sufficiently vindicated, Sandvik graciously accepted a lower interest of 9 per cent compared to 12-15 per cent it was eligible to. Also, the company didn't pursue its claim for period prior to 1986.
"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 per cent 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 per cent p.a. for the above said period," concluded the court.
"If hell is where you have taxes and returns, how will heaven be like?"
"Full of deductions?"
"No, only refunds!"