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| DATE: | October 1, 2013 (Date of publication) |
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| Click here to download the judgement (Gujarat_Flouro_Sandvik_Asia_244A_Interest.pdf) |
S. 244A: The department is not obliged to pay interest on interest as that is not provided in the law. Sandvik Asia 280 ITR 643 (SC) awarded compensation for inordinate delay on its facts
In Sandvik Asia 280 ITR 643 (SC) the Supreme Court held that if the department delays paying interest on the refunded amount, the assessee is entitled to interest on interest. Subsequently, in CIT vs. Gujarat Flouro Chemicals, a view was expressed that Sandvik Asia 280 ITR 643 (SC) did not lay down the correct law and ought to be reconsidered. The matter was referred to a larger Bench. HELD by the larger Bench:
The judgment in Sandvik Asia 280 ITR 643 (SC) has been misquoted and misinterpreted by the assessees and also by the Revenue. Their view that in Sandvik case this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment and that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period is not correct. In Sandvik Asia, the Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court came 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 but not an interest on interest. S. 244A provides for interest on refunds under various contingencies. It is clarified that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest.
The judgment with due respect to Hon’ble Supreme Court does not lay down the correct law and will give a handle to the corrupt and irresponsible IT authorities to delay the refund for the maximum possible period. An assessee stands already battered by the harsh and illegal approach by the IT authorities and this decision will give one more ammunition to the officer to create harassment without any corresponding and just compensation.
The SC, to go by one’s own perceptive reaction, seems to have adopted a purely technical approach ; in that, court, acting within its judicial powers, cannot read something into a statute, such as ‘interest on interest’, which is not so provided. Nonetheless, the taxpayer’s entitlement to be suitably compensated has not been denied.
For deciding on the question of ‘suitable compensation’ in a given case, however,- that is, for quantifying the fair compensation, as one imagines, perhaps the monetary loss to the party arising as a result of delay in granting interest on overdue refund , would require to be most likely measured only in terms of ‘interest’- even if it to be termed not interest but differently.
At best, or worst, the only area of dispute left open is, whether taxpayer could successfully claim ‘compensation’ in all cases so long as refund has not been granted within the statutory time limit ; that is, not necessarily only if there is an INORDINATE DELAY as in Sandvik’s case (of course, whatever that is taken to mean or is meant to say.)
In short, as envisaged, the debate is bound to go on and on.
Incidentally, as one is expected to be aware, there is another related concept known as ‘pendente lite’ ; on which there has been any amount of litigation in the past, but with no finality as yet. For a firsthand knowledge, one may care to look up the study of case law covered in a published article @, -INDIAN CORPORATE LAW: Supreme Court on Arbitrator’s Powers …indiacorplaw.blogspot.com/…/supreme-court-on-arbitrators-powers-to.ht…
The reasoning that in Sandvik India tthere was a considerable delay and it was therefore compensation awarded by way of interest, which essentialy was compensation, leads to a situation that you let the department commit inordinate delay in granting refund so as to be eligible to apply Sandvik to your case. If the delay is not inordinate, you cannot get interst on interest. Rewarding less than inordinate delay? The result of this decision is absurd. Now what is ‘inirdinate’? Wait for another decision.