Commissioner of Income-tax, Gujarat v. Gujarat Fluoro Chemicals Ltd
[Citation -2014-LL-0226-168]

Citation 2014-LL-0226-168
Appellant Name Commissioner of Income-tax, Gujarat
Respondent Name Gujarat Fluoro Chemicals Ltd.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 26/02/2014
Judgment View Judgment
Keyword Tags technical collaboration agreement • no objection certificate • non-resident company • interest on interest • interest accrued • penal interest • refund of tax • tax at source • excess amount • reserve bank
Bot Summary: 3.This appeal is directed against the judgment and order passed by the High Court of Gujarat at Ahmedabad in Special Civil Application No. 12855 of 1994, dated 03.07.2007, whereby and whereunder the High Court has directed the Revenue to grant compensation by way of interest at the rate of 9 per annum on the amount for period from July 1, 1987 to November 13, 1990 refunded as well as to make payment of running interest at the rate of 9 per annum on the interest accrued on the aforesaid amounts to the assessee/respondent. The assessee filed a writ petition before the High Court against the aforesaid rejection of its claim by the CIT, the Chief Commissioner of Income Tax and the Board, respectively and sought for a writ of mandamus directing the Revenue to award compensation by way of interest on the amount of refund of tax for period from 01.07.1987 to 13.11.1990. 280 ITR 643 and concluded that the assessee is entitled to compensation by way of interest for the delayed payment of amounts refunded by the Revenue which were wrongfully withheld and therefore, set aside the letters of authorities below impugned therein and directed the Revenue to grant compensation by way of interest at the rate of 9 per annum on the amounts refunded and further, to make payment of running interest at the rate of 9 per annum on the interest accrued on the aforesaid amounts to the assessee. The only issue formulated by this Court for its consideration and decision was whether an assessee is entitled to be compensated by the Income Tax Department for the delay in paying interest on the refunded amount admittedly due to the assessee. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest. Since the High Court has primarily relied upon Sandvick Asia case and directed the Revenue to pay interest on the amounts refunded as provided for under the provisions of Section 244(1A), in light of the decision by this Court in Gujarat Fluoro case, in our considered opinion, the impugned judgment and order requires to be set aside and the matter be remanded back to the High Court for re-consideration of the stand of the assessee as well as the Revenue once over again. In view of the above, we set aside the judgment and order passed by the High Court and remand the matter back to the High Court for re-consideration of the writ petition filed by the respondent herein before the High Court keeping in view the observations made by this Court in Commissioner of Income Tax, Gujarat vs. Gujarat Flouro Chemicals, decided on 18.09.2013.


IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3507 OF 2014 (Arising out of S.L.P.(C) No. 11406 of 2008) Commissioner of Income Tax, Gujarat Appellant(s) Versus Gujarat Fluoro Chemicals Ltd. Respondent(s) O R D E R 1.Delay condoned. 2.Leave granted. 3.This appeal is directed against judgment and order passed by High Court of Gujarat at Ahmedabad in Special Civil Application No. 12855 of 1994, dated 03.07.2007, whereby and whereunder High Court has directed Revenue to grant compensation by way of interest at rate of 9% per annum on amount for period from July 1, 1987 to November 13, 1990 refunded as well as to make payment of running interest at rate of 9% per annum on interest accrued on aforesaid amounts to assessee/respondent. 4.Brief facts in this case are: respondent-assessee is company incorporated under provisions of Companies Act, 1956 engaged in business of manufacturing Anhydrous Hydrogen Fluoride and Chlorofluorocarbon Refrigerant Gases. assessee had entered into technical collaboration agreement with Non-Resident company based in U.S.A (for short, Non-Resident Company ). permissions sought for and necessary approvals were granted by appropriate authority(s) including Reserve Bank of India for aforesaid. 5.The appellant had paid sum of Rs.23,96,032/- to non-resident company and intimated Income Tax Officer, New Delhi regarding payment made vide application dated 20.06.1987 and requested for issuance of No Objection Certificate . In response to that Income Tax Officer directed appellant to deduct and pay taxes at rate of 30 per cent. 6.The respondent had deducted tax at source at rate of 30 per cent on gross amount under Section 195 of Income Tax Act, 1961 (for short, Act ) and paid Rs.34,22,900/- towards tax. Subsequently, in view of amendment to Section 10(6A) of Act by Finance Act, 1983 with effect from 01.04.1984, since no grossing of tax was required to be made on payment to non-resident company under agreement approved by Government of India, assessee claimed refund. 7.The Income Tax Officer, Baroda, by its order dated 30.11.1990 granted refund of Rs.10,26,868/-. Further, assessee by its letter dated 17.01.1991 requested Income Tax Officer, Baroda, Gujarat to grant interest on excess amount of tax so refunded. As there was no response from Income Tax Officer, assessee approached Commissioner of Income Tax, Baroda, Gujarat (for short, CIT ) with prayer to grant interest on amount refunded. CIT has declined to entertain claim on ground that provisions of Sections 243(1)(b) or 244(1A) or 214(2) are not applicable on excess amount of tax refunded. 8.The assessee approached Chief Commissioner of Income Tax, Gujarat by making application dated October 31, 1992 against aforesaid order. Chief Commissioner of Income Tax by letter dated 18.01.1993 refused to entertain assessee s application on ground that refund of excess amount of tax was firstly, not as result of any order passed by authority under Act and secondly, provisions of Section 244(1A) of Act are not applicable to facts of assessee s case. 9.The assessee aggrieved by aforesaid, approached Central Board of Direct Taxes (for short, Board ) to claim interest on refund of excess amount of tax paid by it to Revenue. Board by its letter dated 19.04.1993 rejected assessee s claim on ground that refund was not issued in pursuance of either order of assessment or penalty and therefore, provisions of Section 244(1A) of Act were not attracted in instant case. 10. assessee filed writ petition before High Court against aforesaid rejection of its claim by CIT, Chief Commissioner of Income Tax and Board, respectively and sought for writ of mandamus directing Revenue to award compensation by way of interest on amount of refund of tax for period from 01.07.1987 to 13.11.1990. High Court has primarily relied upon observations made by this Court in Sandvick Asia Ltd. v. Commissioner of Income Tax & Ors. (2006) 280 ITR 643 and concluded that assessee is entitled to compensation by way of interest for delayed payment of amounts refunded by Revenue which were wrongfully withheld and therefore, set aside letters of authorities below impugned therein and directed Revenue to grant compensation by way of interest at rate of 9% per annum on amounts refunded and further, to make payment of running interest at rate of 9% per annum on interest accrued on aforesaid amounts to assessee. 11. Aggrieved by aforesaid, Revenue is before us in this appeal. 12. We have heard learned counsel for parties to lis and perused documents on record including letters of authorities below and judgment and order of High Court. 13. High Court, while disposing of writ petition has primarily placed reliance upon dictum of this Court in Sandvick Asia case (supra) and consequently allowed petition of assessee. aforesaid decision was doubted by Bench of this Court and referred to larger Bench for its consideration and clarification by order dated 23.08.2012. In reference, Three Judge Bench of this Court in Commissioner of Income Tax, Gujarat vs. Gujarat Fluoro Chemicals, (2014) 1 SCC 126 has explained decision in Sandvick Asia case (supra). This Court therein has clarified law on interest on refund of tax as laid down in aforesaid decision and observed thus: 4. We would first throw light on reasoning and decision of this Court on core issue in Sandvik case (supra). only issue formulated by this Court for its consideration and decision was whether assessee is entitled to be compensated by Income Tax Department for delay in paying interest on refunded amount admittedly due to assessee. This Court in facts of said case had noticed that there was delay of various periods, ranging from 12 to 17 years, in such payment by Revenue. This Court had further referred to several decisions which were brought to its notice and also referred to relevant provisions of Act which provide for refunds to be made by Revenue when superior forum directs refund of certain amounts to assessee while disposing of appeal, revision etc. 5. Since, there was inordinate delay on part of Revenue in refunding amount due to assessee this Court had thought it fit that assessee should be properly and adequately compensated and therefore in paragraph 51 of judgment, Court while compensating assessee had directed Revenue to pay compensation by way of interest for two periods, namely; for Assessment Years 1977-78, 1978-79, 1981-82, 1982-83 in sum of Rs.40,84,906/- and interest @ 9% from 31.03.1986 to 27.03.1998 and in default, to pay penal interest @ 15% per annum for aforesaid period. 6. In our considered view, aforesaid judgment has been misquoted and misinterpreted by assessees and also by Revenue. They are of view that in Sandvik case (supra) this Court had directed Revenue to pay interest on statutory interest in case of delay in payment. In other words, interpretation placed is that Revenue is obliged to pay interest on interest in event of its failure to refund interest payable within statutory period. 7. As we have already noticed, in Sandvik case (supra) this Court was considering issue whether assessee who is made to wait for refund of interest for decades be compensated for great prejudice caused to it due to delay in its payment after lapse of statutory period. In facts of that case, this Court had come to conclusion that there was inordinate delay on part of Revenue in refunding certain amount which included statutory interest and therefore, directed Revenue to pay compensation for same not interest on interest. 8. Further it is brought to our notice that Legislature by Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under statute which may be claimed by assessee from Revenue and no other interest on such statutory interest. 14. Since High Court has primarily relied upon Sandvick Asia case (supra) and directed Revenue to pay interest on amounts refunded as provided for under provisions of Section 244(1A), in light of decision by this Court in Gujarat Fluoro case (supra), in our considered opinion, impugned judgment and order requires to be set aside and matter be remanded back to High Court for re-consideration of stand of assessee as well as Revenue once over again. 15. In view of above, we set aside judgment and order passed by High Court and remand matter back to High Court for re-consideration of writ petition filed by respondent herein before High Court keeping in view observations made by this Court in Commissioner of Income Tax, Gujarat vs. Gujarat Flouro Chemicals, decided on 18.09.2013. 16. Civil Appeal is disposed of accordingly. 17. All contentions of both parties are kept open. We request High Court to dispose of writ petition as expeditiously as possible. Ordered accordingly. ...................J. [H.L. DATTU] ....................J. [S.A. BOBDE] NEW DELHI, FEBRUARY 26, 2014. Commissioner of Income-tax, Gujarat v. Gujarat Fluoro Chemicals Ltd
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