H.N. Devani, J.
1. By this petition under Article 226 of the Constitution of India, the petitioner seeks following reliefs:
[A] This Hon'ble Court be pleased to call for the proceedings of the case, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction, quashing the order of the respondent, at Exhibit SD whereby he rejected the application of the petitioner to grant the interest of Rs. 36,1,500/- on payment of Rs. 54,00,000/- made on 23rd June 1988;
[B] This Hon'ble Court be pleased to issue a writ of mandamus or any other writ or order or direction, asking the respondent to pay the above interest of Rs. 36,31,500/-;
[C] This Hon'ble Court be pleased to ask the respondent to pay the interest on the above interest in accordance with the decision of the Gujarat High Court in D.J. Works v. Dy. CIT : [1992]195ITR227(Guj) ;
[D] If this Hon'ble Court is pleased to hold that on interpretation of Section 214, the petitioner is not entitled to interest under Section 214 in full, then this Hon'ble Court be pleased to declare that, that part of Section 214 which restricts the payment of interest only on the payment made in the financial year is ultra vires the Constitution of India and, therefore, such restriction is bad in law;
[E] Pending the hearing and final disposal of this application, this Hon'ble Court be pleased to ask the respondent to pay forthwith the amount of Rs. 36,31,500/- on execution of an undertaking to return the said moneys forthwith if the final outcome of this application is against the petitioner.
[F] This Hon'ble Court be pleased to grant such further or other relief as the interest of justice demands in the matter.
[G] This Hon'ble Court be pleased to allow this petition with cost against the respondents.
2. The controversy involved in the present petition pertains to Assessment Year 1988-89. The petitioner is a Public Limited Company. In relation to the said assessment year, the petitioner had submitted a `Nil' estimate of advance tax under Section 210 of the Income Tax Act, 1961 (the Act) on 11th September, 1987. Subsequently, on 15th March 1988, the assessee submitted revised estimate of income of Rs. 2,10,00,000/- and paid advance tax of Rs. 92,90,000/- thereon. Thereafter, on 28th March 1988, the petitioner submitted another revised estimate of income of Rs. 3,43,50,000/- and paid the differential amount of advance tax to the tune of Rs. 70,08,750/-. In all, in the financial year 1987-88, the petitioner had paid Rs. 1,62,98,750/- towards advance tax. Subsequently, on 23rd June 1988, the petitioner paid further tax of Rs. 54,00,000/-, making a total of Rs. 2,16,98,750/-.
3. The assessing officer framed assessment under Section 143(3) of the Act on 30th January 1991 computing refund at Rs. 79,265/-. The petitioner carried the matter in appeal before the Commissioner of Income Tax (Appeals) [CIT (Appeals)]. Consequent to the order of the CIT (Appeals), the petitioner became entitled to a further refund of Rs. 2,31,57,382/- which was paid to the petitioner. The petitioner was also paid interest under Section 17(B) of the Act on the amount of Rs. 1,62,98,750/- paid towards advance tax in the financial year for the period between 1st July 1988 to 25th September 1992, i.e. the date on which the petitioner got the refund. However, in respect of the amount of Rs. 54,00,000/- paid on 23rd June 1988 i.e. after the financial year, no interest had been paid. Therefore, the petitioner made an application dated 5th January 1993 for grant of interest on the sum of Rs. 54,00,000/- under the provisions of Section 17(B)/244A of the Act.
4. By an order dated 18th February 1993, the aforesaid application was rejected. In the said order, it was recorded that the Commissioner of Income Tax, Surat was in agreement with the view taken by the respondent No. 1.
5. The petitioner preferred an application before the Central Board of Direct Taxes (the Board), stating that it was entitled to interest of Rs. 36,31,500/- on the refund of Rs. 54,00,000/-. The Board, by a communication dated 30th August 1994, rejected the application of the petitioner, holding that interest under Section 244(1A) of the Act is admissible only in respect of refund of excess tax payment, where such payments were made in pursuance of an order of assessment or penalty. That as self-assessment tax was voluntarily paid by the petitioner, the same could not be categorized as payment in pursuance of an order of assessment or penalty, hence, no interest was admissible on refund of self-assessment tax.
6. Being aggrieved by the stand of the respondents, the petitioner has moved the present petition claiming interest under Section 214(1) of the Act with effect from 1/7/1988 to 25/9/1992 on the amount of Rs. 54,00,000/-. Alternatively, it has been prayed that if it is held that the petitioner is not entitled to interest under Section 214(1) of the Act, the petitioner would be entitled to interest under Section 244(1A) of the Act, from 1st February 1991 to 25th September 1992, i.e. from the date of the assessment order to the date of payment of refund.
7. Heard Mr. J.P. Shah, the learned advocate on behalf of the petitioner and Mr. B.B. Naik, the learned standing counsel for the revenue on behalf of the respondents.
8. At the outset, Mr. Shah has submitted that he does not press the relief prayed for vide paragraph No. 11(D) of the petition, namely, the challenge to the constitutional validity of Section 214 of the Act.
9. Insofar as the claim for interest under Section 214 of the Act is concerned, Mr. Shah has very fairly drawn attention to a decision of this Court in the case of Life Bond Fabrics Pvt. Ltd. v. Commissioner of Income Tax : [1995]216ITR529(Guj) , wherein it has been held that payments made after the close of the relevant financial year could not be regarded as advance tax. As regards alternative prayer whereby interest is claimed under the provisions of Section 244(1A) of the Act, Mr. Shah has placed reliance upon a decision of the Apex Court in the case of Modi Industries Ltd. v. Commissioner of Income Tax : [1995]216ITR759(SC) , and submitted that, in view of this decision, the petitioner was entitled to interest from the date of the assessment order till the date of payment of refund.
10. Mr. Shah has also submitted that the petitioner is entitled to the relief prayed for vide paragraph No. 11(C) of the petition whereby the petitioner has claimed interest on interest in accordance with the decision of this Court in D.J. Works v. Deputy CIT : [1992]195ITR227(Guj) . Mr. Shah has also placed reliance upon a decision of the Apex Court in the case of Commissioner of Income Tax v. Narendra Doshi : [2002]254ITR606(SC) , wherein the Apex Court has upheld the direction to allow interest on interest in view of the fact that the revenue had not challenged the decision of this Court in D.J. Works v. Deputy CIT : [1992]195ITR227(Guj) , and in the case of Chimanlal S. Patel v. CIT : [1994]210ITR419(Guj) . Accordingly, it was submitted that the petitioner is entitled to interest on the amount of Rs. 54,00,000/- from the date of assessment order till the date of payment of refund, as well as interest on the amount of interest till the date of payment.
11. Mr. B.B. Naik for the respondents very fairly submitted that, in view of the decision of the Apex Court in the case of Modi Industries Ltd. (supra), the claim of the petitioner as regards payment of interest from the date of assessment order to the date of refund cannot be disputed. However, insofar as the claim of interest on interest is concerned, it was submitted that payment of tax by way of self-assessment tax had not been made in pursuance of the assessment order, hence, at the relevant time, the interest on the said amount had rightly been refused. It was submitted that position of law had been clarified by the Supreme Court in the year 1995, hence, no fault can be found with the revenue for non-payment of interest on the amount of Rs. 54,00,000/- paid after the financial year, prior to the decision of the Supreme Court.
12. It was submitted that interest of refund where it is clearly admissible had been paid immediately without even waiting for the maximum period permitted under the statute to elapse. That as there was ambiguity as regards the provisions under which the amount in question was paid, the petitioner had not been paid interest on the said amount. It was submitted that no fault can be found in the conduct of the respondents, accordingly, the Government should not be penalized by burdening it with the liability of payment of interest on interest. It was submitted that, in the circumstances, this was not a fit case for awarding interest on interest.
13. This Court has, in the case of Life Bond Fabrics Pvt. Ltd. (supra), held that unless the payment of advance tax is made in the manner provided for in the Act, it cannot be deemed that advance tax payment has been made. That, in order to recognize payments of tax as advance tax, it is necessary that the said tax must be paid in the financial year immediately preceding the assessment year and it must be paid in accordance with the provisions of Sections 207 to 213 of the Act. In the present case, it is an admitted position that the amount of Rs. 54,00,000/- on which the interest is claimed has been paid after the relevant financial year, hence, the same is not in the nature of advance tax as envisaged under the provisions of Section 207 to 219 of the Act.
14. Section 214(1) of the Act provides for payment of simple interest by the Central Government at the rate of 15% per annum on the amount by which the aggregate sum of any installments of advance tax paid during any financial year in which they are payable under Sections 207 to 213 exceeds the amount of assessed tax from 1st day of April next following the said financial year to the date of regular assessment for the assessment year immediately following the said financial year. Thus, the aforesaid provisions contemplate payment of interest on the amount of advance tax paid in the financial year to the extent the same exceeds the amount of assessed tax. Admittedly, in the present case, the amount of Rs. 54,00,000/- has been paid after the financial year, and as stated above, the same is not in the nature of advance tax, therefore, the petitioner is not entitled to the payment of interest under the provisions of Section 214(1) of the Act on the said amount.
15. Insofar as the alternative prayer for grant of interest from 1st February 1991 to 25th September 1992, i.e. from the date of assessment order to the date of payment of refund under the provisions of Section 244(1A) of the Act is concerned, it is common ground between the parties that the issue stands concluded by the decision of the Apex Court in the case of Modi Industries Ltd. (supra). The Apex court has held that:
If any tax is paid pursuant to an assessment order after March 31, 1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the Income Tax Officer as payment of tax in discharge of the assessee's tax liability in the assessment order), becomes refundable wholly or in part as a result of any appellant or other order passed, the Central Government will have to pay the assessee interest on the refundable amount under Section 244(1A). For the purpose of this section, the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of income tax pursuant to an order of assessment on and from the date when these amounts were set off against the tax demand raised in the assessment order, in other words, the date of the assessment order.
16. Applying the ratio of the aforesaid decision to the facts of the present case, the petitioner would be entitled to interest on the amount of Rs. 54,00,000/- from 1st February 1991 to 25th September 1992.
17. As regards the prayer for grant of interest on the amount of interest payable on the sum of Rs. 54,00,000/-, strong reliance has been placed on behalf of the petitioner on the decision of this Court in the case of D.J. Works v. Deputy CIT (supra) as well as the decision of the Apex Court in the case of CIT v. Narendra Doshi (supra).
18. In D.J. Works v. Deputy CIT (supra), this Court has held that 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 excess amount. It was held that if excess tax paid cannot be retained without payment of interest, the interest which is payable thereon also cannot be retained without payment of interest. That, once the interest amount becomes due, it takes the same colour as the excess amount of tax which is refundable on regular assessment. The Court was of the opinion that though there was 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 interest.
19. The Apex Court in the case of Commissioner of Income Tax v. Narendra Doshi (supra) has held that, as the revenue has not challenged the correctness of the decision of D.J. Works v. Deputy CIT and Chimanlal S. Patel v. CIT, the revenue must be bound by the principles laid down therein.
20. In view of the principles laid down by this Court in the aforesaid decision, the petitioner would be entitled to payment of interest on the amount of interest payable on the sum of Rs. 54,00,000/- from the date of refund till the date on which the amount of interest is paid. The stand of the revenue that there was no default on the part of the Department as the decision of the Supreme Court was rendered only in the year 1995, cannot be accepted, as the Supreme Court has only explained the law as it stood right from the date of the enactment of the provision.
21. It bears no repetition that the underlying principle which the legislature has recognized, as recorded by this Court in the case of D.J. Works (supra), lays down that when funds of a person are retained by another person, who is not legally entitled to such funds, upon making of an order in favour of the former person, the latter is required to compensate the former by payment of an amount which is commercially and in common parlance known as interest. Once a person is deprived of funds when another person retained those funds without authority of law, as a natural corollary, the former is required to be compensated. Therefore, once it is accepted that interest on refund was not paid and the interest was withheld without being authorized by law, such interest would take the same colour as the excess amount of tax which became refundable and accordingly, interest on such withheld interest or delayed interest is required to be paid by revenue.
22. In the circumstances, the petition is partly allowed. It is held that:
(a) The petitioner is entitled to the grant of interest on Rs. 54,00,000/- under Section 244(1A) of the Act from 1st February 1991 to 25th September 1992.
(b) The petitioner shall also be entitled to the payment of simple interest on the amount of interest payable on the sum of Rs. 54,00,000/- at the rate specified under Section 244(1A) of the Act from the date it had become payable till the date of actual payment.
23. Rule is made absolute to the aforesaid extent, with no order as to costs.