Section 12 (1) (c) of CP Act_Meaning of same interest_different consideration for different area at different rates and in different years

Below is the judgment of NCDRC wherein the Hon’ble Commission said  “…In the case in hand, different complainants have booked their apartments/ units for different consideration for different area at different rates and in different years.  In such circumstances, it cannot be held that each complainant has got same interest on same terms & conditions………”

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

NEW DELHI

CONSUMER CASE NO. 656 OF 2015

1. ANKUR GOSWAMI & 13 ORS.	...........Complainant(s)
Versus
1. SUPERTECH LIMITED & ANR.	...........Opp.Party(s)

BEFORE:
	HON'BLE MR. JUSTICE K.S. CHAUDHARI, PRESIDING MEMBER
	HON'BLE MR. PREM NARAIN, MEMBER

For the Complainant :

Shri Kumar Dushyant Singh & Shri Shravan Kumar Yammanur, Advocates.

For the Opp.Party :

Dated : 05 May 2016

ORDER
Pronounced on   5th May, 2016 ORDER PER JUSTICE K.S. CHAUDHARI, PRESIDING MEMBER           This complaint has been filed by 14 complainants against opposite party alongwith application under Section 12 (1) (c) of Consumer Protection Act.           Brief facts of the case are that complainants are buyers/allottees/ owners/ consumers who have booked/purchased apartments/units in opposite party project after making initial payments.  Complaint has been filed through complainant No. 1 to act as representative on behalf of all the complainants having same interest.  It was further submitted that complainants booked area between 1550 sq. ft. to 2385 sq. ft. @ Rs. 2905/- to Rs. 5,384/-.  Complainants have made major payment as mentioned in the complaint and have paid more than Rs. 5.00 crores.  Allotment of apartments was made in the year 2011-2013 but still possession has not been handed over though grace period for possession has also elapsed.  As per agreement, opposite party is liable to pay penalty of Rs. 5.00/sq. ft./pm to the complainants.  Alleging deficiency on the part of opposite parties, complainants filed complaint for direction to opposite party to complete construction of apartments/units and hand over possession to the complainants and further pay interest @ 24% p.a. on total amount paid Rs.5,20,55,098/- and further to pay escalation charges and compensation of Rs. 10.00 lakhs to each of the complainants towards mental agony and harassment and Rs. 1.00 lakh as cost of litigation to each of the complainants.           Heard Learned Counsel for the complainant for admission purposes and perused record.           Learned Counsel for complainants submitted that as complainants are having same interest on the same terms and conditions, complaint under Section 12 (1) (c ) of the Consumer Protection Act is maintainable.           Perusal of record reveals that complainant No. 1 booked apartment for a sum of Rs. 1,14,89,935/- against which he has made payment of Rs. 96,38,647/-.  As far other apartments of other complainants are concerned, they are ranging from Rs. 38.00 lakhs to Rs. 76.00 lakhs.  Admittedly, this Commission has pecuniary jurisdiction to entertain complaints only if value of goods or services and compensation claimed exceeds Rs. 1.00 crore.  Value of goods alongwith compensation claimed by Complainant No. 2 to 14 does not fall within the pecuniary jurisdiction of this Commission and in such circumstances, their complaints are not maintainable before this Commission and they are supposed to file their complaints before appropriate State Commission.  Had complainant Nos. 2 to 14 filed complaints separately, they could not have been entertained by this Commission for want of pecuniary jurisdiction.  Under the garb of Section 12 (1) (c) or Section 13 (6) of Consumer Protection Act which are primarily meant for common services, e.g., facility of lift, deficiency in maintaining common areas or common facilities, complaints are not maintainable before this Commission merely because complainant No. 1’s complaint is maintainable before this Commission.           Learned Counsel for complainant has placed reliance on judgment of this Commission in Complaint No. 282 of 2012- Dewan Ashwani & Ors.  Vs. Unitech Reliable Projects Pvt. Ltd.; in which complaint comprising many complaints was allowed as each complainant has got same interest on same terms & conditions though value of their apartments were ranging from Rs. 55.00 lakhs to Rs. 67.00 lakhs.  It was further submitted by him that SLP filed by opposite party was dismissed by Hon’ble Apex Court.  Perusal of order of Hon’ble Apex Court reveals that appeal was dismissed as withdrawn and in such circumstances, it cannot be said that order of this Commission was upheld on merits.  In the case in hand, different complainants have booked their apartments/ units for different consideration for different area at different rates and in different years.  In such circumstances, it cannot be held that each complainant has got same interest on same terms & conditions and we do not agree with law laid down by coordinate bench in Dewan Ashwani’s case (supra).           Learned Counsel for complainant submitted that if two coordinate benches differ in their opinion, matter is to be referred to larger bench as held by Hon’ble Apex Court in 2015 (319) ELT622 (SC)- Commnr. of Customs and Central Excise  Vs. Kraps Chem Pvt. Ltd. & Ors.;  in which it was held that if two coordinate benches in two cases render conflicting opinion, the only course of action open for Tribunal is to refer matter to larger Bench.  The aforesaid case is not applicable    as there is no conflicting judgment of other Bench rather this Bench is taking different view from the view taken by other coordinate Bench in Dewan Ashwani’s case (supra).  In such circumstances, matter is not required to be referred to larger Bench.           Only complainant No.1’s case falls within the pecuniary jurisdiction of this Commission and complaints of other complainant Nos. 2 to 14 are not maintainable before this Commission and merely by moving application under Section 12 (1) (c) of Consumer Protection Act, complaints filed by other complainants are not maintainable before this Commission.  In such circumstances, only the complaint filed by complainant No. 1 pertaining to his apartment is maintainable before this Commission and complaint is dismissed for mis-joinder of parties with liberty to complainant No. 1 to file fresh complaint.  Liberty is also granted to other complainants to move to appropriate Forum for relief, if they so desire.                                                                                                 -sd/-

......................J

K.S. CHAUDHARI

PRESIDING MEMBER

......................

PREM NARAIN

MEMBER

Source : http://cms.nic.in/ncdrcusersWeb/GetJudgement.do?method=GetJudgement&caseidin=0%2F0%2FCC%2F656%2F2015&dtofhearing=2016-05-05

False and frivolous consumer cases_few case laws

49. It is a typical example how a litigation proceeds and continues and in the end there is a profit for the wrongdoers.

50. Learned Amicus articulated common mans general impression about litigation in following words :

Make any false averment, conceal any fact, raise any plea, produce any false document, deny any genuine document, it will successfully stall the litigation, and in any case, delay the matter endlessly. The other party will be coerced into a settlement which will be profitable for me and the probability of the court ordering prosecution for perjury is less than that of meeting with an accident while crossing the road.

28. In our opinion, the present petition is nothing but a gross abuse of process of law and the revision petition is totally false, frivolous and bogus one, which is required to be dismissed with punitive costs of Rs.75,000/-.

National Consumer Disputes Redressal

Narayana Iit Academy vs Atishya Jain, on 14 February, 2012

REVISION PETITION NO.4142 OF 2011 

https://indiankanoon.org/doc/105078049/

R. Narasimha Reddy Vs Kuchakula Surender Reddy ( FA No 502 of 2011, decided on March 5, 2012), the Commission had said: “Equity demands that such unscrupulous litigants whose only aim and object is to deprive the opposite party (complainants or consumers) of the fruits of the decree must be dealt with a heavy hand.” Punitive damages of Rs 1 lakh were imposed on a builder in this case for filing vexatious appeal.

Emaar MGF Land Ltd Vs Karnail Singh and Another (FA No 342 of 2014, pronounced on July 25, 2014), the apex consumer court came down heavily upon the realtor for ‘gross abuse of the process of law’ and imposed exemplary damages of Rs 5 lakh. While doing so, the Commission quoted the Supreme Court in Ramrameshwari Devi and Ors Vs Nirmala Devi and Ors (CA No 4912-4913 of 2011, decided on July 4, 2011) wherein it was observed that unless the courts ensure that wrong doers are denied profit or undue benefit from frivolous litigation, it would become very difficult to curb such practices.

 the Delhi Development Authority Vs D.C. Sharma (RP No 895 of 2013, decided on Feb 18, 2014), for example, the National Consumer Disputes Redressal Commission expressed its strong displeasure over those who filed frivolous appeals and slapped a penalty of Rs 5 lakh on the Delhi Development Authority. Quoting several Supreme Court judgements on the subject, the two member bench of the Commission, consisting Justice V.B. Gupta and Rekha Gupta said: “… no leniency should be shown to such type of litigants, who, in order to cover up their own fault and negligence, go on filing meritless petitions in different Fora.” the apex consumer court pointed out that the complaint was not false and frivolous, but the defence put up by the DDA was!

http://www.tribuneindia.com/news/spectrum/society/-false-frivolous-or-pure-harassment/392434.html

22. Honble Supreme Court in S.P.Chengalvaraya Naidu (dead) by LRs Vs. Jagannath (dead) by LRs & Ors., (1994) 1 SCC 1 has observed ;

The courts of law are meant for imparting justice between the parties. One who comes to the Court, must come with clean hands. We are constrained to say that more often than not, process of the Court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, whos case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation.

 

23. In Ravinder Kaur Vs. Ashok Kumar, AIR 2004 SC 904, Apex Court observed ;

Courts of law should be careful enough to see through such diabolical plans of the judgment debtor to deny the decree holders the fruits of the decree obtained by them. These type of errors on the part of the judicial forum only encourage frivolous and cantankerous litigations causing laws delay and bringing bad name to the judicial system.

24. It is well settled that no leniency should be shown to such type of litigants who in order to cover up their own fault and negligence, goes on filing meritless petitions in different foras. Time and again Courts have held that if any litigant approaches the Court of equity with unclean hands, suppress the material facts, make false averments in the petition and tries to mislead and hoodwink the judicial Forums, then his petition should be thrown away at the threshold. Equity demands that such unscrupulous litigants whose only aim and object is to deprive the opposite party of the fruits of the decree must be dealt with heavy hands.

25. Now question which arises for consideration is as to what should be the quantum of costs which should be imposed upon the petitioners for dragging the respondent upto this fora, when petitioners had no case at all. It is not that every order passed by the judicial fora is to be challenged by the litigants even if the same are based on sound reasonings.

26. Apex Court in Ramrameshwari Devi and Ors. Vs. Nirmala Devi and Ors., Civil Appeal Nos.4912-4913 of 2011 decided on July 4, 2011 has observed ;

45. We are clearly of the view that unless we ensure that wrong doers are denied profit or undue benefit from the frivolous litigation, it would be difficult to control frivolous and uncalled for litigations. In order to curb uncalled for and frivolous litigation, the Courts have to ensure that there is no incentive or motive for uncalled for litigation. It is a matter of common experience that courts otherwise scarce and valuable time is consumed or more appropriately wasted in a large number of uncalled for cases.

46. Usually the court should be cautious and extremely careful while granting ex-parte ad interim injunctions. The better course for the court is to give a short notice and in some cases even dasti notice, hear both the parties and then pass suitable biparte orders. Experience reveals that ex-parte interim injunction orders in some cases can create havoc and getting them vacated or modified in our existing judicial system is a nightmare. Therefore, as a rule, the court should grant interim injunction or stay order only after hearing the defendants or the respondents and in case the court has to grant ex-parte injunction in exceptional cases then while granting injunction it must record in the order that if the suit is eventually dismissed, the plaintiff or the petitioner will have to pay full restitution, actual or realistic costs and mesne profits.

National Consumer Disputes Redressal

1. Shri Dhanajay Nagesh Naik & Ors. vs Shri Sudam Gopal Pednekar on 27 April, 2012

REVISION PETITION NO. 144 OF 2012 

https://indiankanoon.org/doc/53029117/?type=print

Booking cancellation – can the builder forfeit Earnest Money?

In the excitement of  booking a property, most of us forget to read the fine print of the booking form itself. There may be a situation where you may want to walk out of deal at some stage. However, it may not be easy for you to surrender your apartment without losses. In the event of buyer initiated cancellation of property, the developer shall forfeit the earnest money, commonly referred as booking amount. 

Earnest Money 

A deposit made to a seller showing the buyer’s good faith in a transaction. Often used in real estate transactions, earnest money allows the buyer additional time when seeking financing. Basically, at the time of property (home, commercial etc) booking, buyers are required to pay upfront, the agreed booking amount. This booking amount is usually 10% of the property value. 

There is no standard norm that define the amount of earnest money. While some builders deduct 10 per cent of the booking amount, others quote the same figure on the ‘cost of property’. Others deduct up to 20 per cent, whereas smaller developers may forfeit the entire booking amount. To get the fair idea of the earnest money, one should carefully read the booking form and other agreements. It is advised to clarify with the developer if same is missing from the documents. Here is what the booking form of some of the developers say:- 

"In case, at any stage, the intending allottee seeks cancellation of allotment and refund of the amount deposited by him, the company may, at its discretion, forfeit the booking/registration amount, or earnest money, as the case may be."

"  A request for cancellation can be made at any time after allotment. It may, however, be noted that the earnest money (10 per cent of the total consideration) will be forfeited, as the same is non-refundable. 

   Can the Developer legally forfeit such amounts 

There is no guideline for refunds and most developers insist that once you have signed the sale agreement, you are legally bound to follow it. As per courts, in some of the cases developer are right in deducting the booking amount in the event of cancellation. Legal standing on forfeiture of Earnest Money varies from case to case and here are some examples. 

1) No Earnest Money / Booking Cancellation clause in Application Form / Agreements 

Most of the time, the application form has no material information to disclose. Later on when the developer finalizes the allotment process, the buyer is asked to sign a builder-buyer agreement. Some of the stringent one side clauses are included by developer in this agreement but not specifically emphasized. The buyer in most of the cases do not go much into detail of the agreement and signs it under pressure from agents that it is a standard document and nothing important is mentioned in it. Also they are pressurized that if they do not sign or withdraw the offer, the booking amount will be forfeited, so in fear and innocence the buyer signs the agreement without knowing its consequences. 

Case Study: The buyer/complainant had booked a flat in one of the residential projects Excelsior,Boulder Hills, Golf and Country club at Hyderabad of Emaar MGF. He paid the booking amount of Rs 9.52 lacs along with the application and later on when allotment was finalized the buyer signed the agreement and paid 19 lacs by cheque, but he was not informed by the developer regarding any clause relating to withdrawal of offer. After four months the buyer informed the company that as the flat was anti-vastu he had no interest in keeping it and instead showed intention of buying a villa. He requested the company to cancel the flat and refund the money deposited by him along with bank interest. The company refunded the amount but after deducting 10% of sale price of the apartment. Being aggrieved the buyer approached the National Consumer forum. There it was held that in a case where the terms & conditions agreed between the parties do not provide for the whole or partial forfeiture of the earnest money, in the event of default on the part of the buyer, the only remedy open to the builder is to prove the actual damages, if any, sustained by it on account of buyer backing out from his contractual obligations and only on proving such damages, it could seek to deduct those expenses from the money deposited by the buyer. In absence of any proof, the developer is bound to refund the full amount. 

2) Cancellation clause is mentioned in Agreement 

In this case the buyer deliberately delayed the payments of installment to developer and also delayed signing the agreement. The builder raised several demands for subsequent installments and also asked the complainant to sign the buyers’ agreement. However, the complainant did not pay the installments as demanded, nor sign the buyers’ agreement despite repeated letters and intimations from the builder. 

Case Study: The National Commission relied on the Supreme Court’s explanation regarding ‘earnest money’. Earnest money is that amount out of the total purchase consideration which is a token to bind the purchaser to the contract. Accordingly, earnest money can be forfeited if the transaction falls through by reason of the default or failure of the purchaser in performing his obligations – which basically concern payment of consideration, unless there is anything to the contrary in the terms of the contract. 

In this case, the complainant had defaulted in payment of installment as per the schedule of payment of the total price of his apartment. Also, the complainant had not signed the buyer’s agreement or returned the signed copy to the builder within the time stipulated for it despite repeated reminders for it. Thus, the Commission held that the builder was not liable to refund the earnest money as the transaction had fallen through due to default by the complainant. Thus, in the present case the National Commission decided in favor of the builder, upholding the forfeiture of earnest money as it was rightfully forfeited as per the agreement between the builder and complainant and the default in payment of installments as per the schedule of payment. This case highlights that the general perception of builders being wrong in all cases and that the right to forfeit earnest money depends on the conduct of the parties irrespective whether he is a builder or a buyer.

 3) Cancellation if Project approvals are not in place 

Even if there is a clause that empowers the developer to forfeit the earnest money, developer can not do so if the project approvals are not in place and buyer want to exit the project. NCDRC in case of Emaar Excelsior project observed that, As the opposite parties have not furnished the approvals or sanction and have not adhered to their own terms, forfeiture of 10% of the consideration amount is unsustainable as the opposite parties have committed an act of deficiency in service and unfair trade practice causing mental agony to the complainant whose money has been blocked with the opposite parties for more than four years time. 

 Clarification on Earnest Money: 

The question as to what would constitute earnest money which the seller of the property is entitled to forfeit, came up before this Commission in DLF Ltd. Vs. Bhagwanti Narula, Revision Petition No. 3860 of 2014, decided on 06.01.2015 and the following view was taken:- 

It would thus be seen that only a ‘reasonable amount’ can be forfeited as earnest money in the event of default on the part of the purchaser and it is not permissible in law to forfeit any amount beyond a reasonable amount, unless it is shown that the person forfeiting the said amount had actually suffered loss to the extent of the amount forfeited by him.   In our opinion, 20% of the sale price cannot be said to be a reasonable amount which the Petitioner Company could have forfeited on account of default on the part of the complainant unless it can show it had only suffered loss to the extent the amount was forfeited by it.  In our opinion, in absence of evidence of actual loss, forfeiture of any amount exceeding 10% of the sale price cannot be said to be a reasonable amount. 

    It was contended by the learned Counsel for the Petitioner Company that since the complainant had specifically agreed to treat 20% of the sale price as earnest money, the forfeiture to the extent of 20% of the sale price cannot be said to be unreasonable, the same being inconsonance with the terms agreed between the parties. This was also his contention that so long as the Petitioner Company was acting as per the terms and conditions agreed between the parties, it cannot be said to be deficient in rendering services to the complainant. We, however, find ourselves unable to accept the aforesaid contention, since, in our view, forfeiture of the amount which cannot be shown to be a reasonable amount would be contrary to the very concept of forfeiture of the earnest money.  If we accept the aforesaid contention, an unreasonable person, in a given case may insert a clause in Buyers Agreement whereby say 50% or even 75% of the sale price is to be treated as earnest money and in the event of default on the part of the Buyer; he may seek to forfeit 50% of the sale price as earnest money.  An Agreement for forfeiting more than 10% of the sale price, in our view, would be invalid since it would be contrary to the established legal principle that only a reasonable amount can be forfeited in the event of default on the part of the Buyer. 

For the reasons stated herein above, we hold that 

(i) an amount exceeding 10% of the total price cannot be forfeited by the seller, since forfeiture beyond 10% of the sale price would be unreasonable and

(ii) only the amount, which is paid at the time of concluding the contract can be said to be the earnest money.” 

When can you really challenge Forfeiture of Earnest Money 

As per our research, a home buyer can easily challenge the developer’s decision to forfeit the earnest money in following cases. 

If cancellation is sought at a stage when no agreement is signed which contains cancellation clause. 

Buyer is not happy with the terms and conditions of Builder Buyer Agreement which is not supplied on time by the developer. 

Developer does not have necessary approvals and buyer seek cancellation. 

In case of delay, if the buyer decides to stop the payments, builder has right to cancel the allotment and forfeit the earnest money. This was decided in DLF Southern Towns Pvt. Ltd. vs. Dipu C. Seminlal, 2015 in NCDRC

 How to go about getting refunds 

What if you want to cancel after the booking? Approach the builder with a ‘genuine’ reason for cancellation. While defining a ‘genuine’ reason is difficult, a developer is more open to concessions on humanitarian grounds rather than ones that highlight his shortcomings. So, even though a buyer thinks that a delay in delivery or change in original building plans is reason enough to seek cancellation, the builder is unlikely to see reason in the argument and is wont to cite the delay in all projects. Sometimes, the builder may not have the money if too many projects are being cancelled. However, some developers are willing to refund if a buyer faces a financial problem like an unapproved home loan or a job loss. 

Things to keep in mind 

Familiarize yourself with the sale deed before going to developer. 

Give a good reason for withdrawing from a project; financial problems work best. 

Consider shifting to another property by the same builder. 

Network with other buyers in the same project. 

Ask the developer for a written document specifying the deduction. 

Don’t pay cash while booking the property and ask for a receipt. 

Conclusion

 It is imperative that buyers clearly understand the true concept of earnest money and negotiate the terms with the developer at the time of signing the agreement. The buyer should negotiate on earnest money well in advance and also he should agree on conditions subject to clause that developer also has fulfilled his obligations.

Read more at The Logical Buyer's blog: Booking cancellation – can the builder forfeit Earnest Money? http://www.thelogicalbuyer.com/blog/?p=1382

Whenever money has been received by party which ex aequo et bono ought to be refunded, right to interest follows

Whenever money has been received by party which ex aequo et bono ought to be refunded, right to interest follows

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 6301 of 2011, 2534, 2535, 2536, 2537, 2539, 2540, 2541, 2542, 2543, 2944, 2945, 3445, 3446, 5408, 7596, 7772, 3436 and 3427 of 2012, 2589 of 2013, Civil Appeal No. 3508 of 2014 (Arising out of SLP (C) No. 14048/2012), Civil Appeal No. 3509 of 2014 (Arising out of SLP (C) No. 14050/2012), Civil Appeal No. 3510 of 2014 (Arising out of SLP (C) No. 14051/2012), Civil Appeal No. 3511 of 2014 (Arising out of SLP (C) No. 14049/2012), Civil Appeal No. 3512 of 2014 (Arising out of SLP (C) No. 20154/2012), Civil Appeal No. 3513 of 2014 (Arising out of SLP (C) No. 27453/2012), Civil Appeal No. 3514 of 2014 (Arising out of SLP (C) No. 27454/2012), Civil Appeal No. 3515 of 2014 (Arising out of SLP (C) No. 27455/2012), Civil Appeal No. 3516 of 2014 (Arising out of SLP (C) No. 27456/2012), Civil Appeal No. 3517 of 2014 (Arising out of SLP (C) No. 27457/2012), Civil Appeal No. 3518 of 2014 (Arising out of SLP (C) No. 27458/2012), Civil Appeal No. 3519 of 2014 (Arising out of SLP (C) No. 27459/2012), Civil Appeal No. 3520 of 2014 (Arising out of SLP (C) No. 27460/2012), Civil Appeal No. 3521 of 2014 (Arising out of SLP (C) No. 27461/2012), Civil Appeal No. 3522 of 2014 (Arising out of SLP (C) No. 27462/2012), Civil Appeal No. 3523 of 2014 (Arising out of SLP (C) No. 27463/2012), Civil Appeal No. 3524 of 2014 (Arising out of SLP (C) No. 27677/2012), Civil Appeal No. 3525 of 2014 (Arising out of SLP (C) No. 25727/2012), Civil Appeal No. 3526 of 2014 (Arising out of SLP (C) No. 14768/2012) and Civil Appeal No. 3527 of 2014 (Arising out of SLP (C) No. 5730/2013)

Decided On: 26.02.2014

Appellants: Union of India (UOI) Through Director of Income Tax
Vs.
Respondent: Tata Chemicals Ltd

Union of India (UOI) Through Director of Income Tax vs. Tata Chemicals Ltd. (26.02.2014 - SC) : MANU/SC/0213/2014

Ex aequo et bono (Latin for "according to the right and good" or "from equity and conscience") is a Latin phrase that is used as a legal term of art.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 6301 of 2011, 2534, 2535, 2536, 2537, 2539, 2540, 2541, 2542, 2543, 2944, 2945, 3445, 3446, 5408, 7596, 7772, 3436 and 3427 of 2012, 2589 of 2013, Civil Appeal No. 3508 of 2014 (Arising out of SLP (C) No. 14048/2012), Civil Appeal No. 3509 of 2014 (Arising out of SLP (C) No. 14050/2012), Civil Appeal No. 3510 of 2014 (Arising out of SLP (C) No. 14051/2012), Civil Appeal No. 3511 of 2014 (Arising out of SLP (C) No. 14049/2012), Civil Appeal No. 3512 of 2014 (Arising out of SLP (C) No. 20154/2012), Civil Appeal No. 3513 of 2014 (Arising out of SLP (C) No. 27453/2012), Civil Appeal No. 3514 of 2014 (Arising out of SLP (C) No. 27454/2012), Civil Appeal No. 3515 of 2014 (Arising out of SLP (C) No. 27455/2012), Civil Appeal No. 3516 of 2014 (Arising out of SLP (C) No. 27456/2012), Civil Appeal No. 3517 of 2014 (Arising out of SLP (C) No. 27457/2012), Civil Appeal No. 3518 of 2014 (Arising out of SLP (C) No. 27458/2012), Civil Appeal No. 3519 of 2014 (Arising out of SLP (C) No. 27459/2012), Civil Appeal No. 3520 of 2014 (Arising out of SLP (C) No. 27460/2012), Civil Appeal No. 3521 of 2014 (Arising out of SLP (C) No. 27461/2012), Civil Appeal No. 3522 of 2014 (Arising out of SLP (C) No. 27462/2012), Civil Appeal No. 3523 of 2014 (Arising out of SLP (C) No. 27463/2012), Civil Appeal No. 3524 of 2014 (Arising out of SLP (C) No. 27677/2012), Civil Appeal No. 3525 of 2014 (Arising out of SLP (C) No. 25727/2012), Civil Appeal No. 3526 of 2014 (Arising out of SLP (C) No. 14768/2012) and Civil Appeal No. 3527 of 2014 (Arising out of SLP (C) No. 5730/2013)

Decided On: 26.02.2014

Appellants: Union of India (UOI) Through Director of Income Tax

Vs.

Respondent: Tata Chemicals Ltd.

Hon'ble Judges/Coram:

H.L. Dattu and S.A. Bobde, JJ.

Counsels: 

For Appellant/Petitioner/Plaintiff: Rajiv Dutta and K. Radhakrishnan, Sr. Advs., Arijit Prasad, Gargi Khanna, Sriparana Chatterjee, Tanushri Sinha, Rahul Kaushik, Sadhana Sandhu, B.V. Balaram Das, S.A. Habeeb, S.W.A. Qadri, Anil Katiyar, Akshat Shrivastava, Manjeet Kirpal, Pritesh Kapur, Ashok Kulkarni, Mohit Chaudhary, Imran Ali, Damini, Harsh Sharma, Pragya Sharma, Puja Sharma, Priteesh Kapur, S.K. Kulkarni, Abhay A. Jena, Bina Gupta, Ranjit Raut, Vijay Ranjan, Bhargava V. Desai and Shreyas Mehrotra, Advs.

For Respondents/Defendant: Gopal Jain and M.S. Syali, Sr. Advs, Ashish Wad, Jayashree Wad, Kanika Baweja, Advs. for J.S. Wad and Co., Ruby Singh Ahuja, Neha Gupta, Pallav Mongia, Advs. for Karanjawala & Co., G.C. Srivastava, Preeti Bhardwaj, Shiv Kumar Suri, Sunil Kumar Jain, Vijay Kumar, Aditya Panda, Manoneet Dalal, Rustom B. Hathikhanawala, Ajay Vohra, Kavita Jha, Vijay Ranjan, Bhargava V. Desai and Shreyas Malhotra, Advs.

Subject: Direct Taxation

Catch Words

Mentioned IN

Acts/Rules/Orders: 

Income Tax Act, 1961 - Section 10, Income Tax Act, 1961 - Section 115O, Income Tax Act, 1961 - Section 115WE(1), Income Tax Act, 1961 - Section 155WJ, Income Tax Act, 1961 - Section 115O(1), Income Tax Act, 1961 - Section 119, Income Tax Act, 1961 - Section 143(1), Income Tax Act, 1961 - Section 154, Income Tax Act, 1961 - Section 156, Income Tax Act, 1961 - Section 195, Income Tax Act, 1961 - Section 195(1), Income Tax Act, 1961 - Section 195(2), Income Tax Act, 1961 - Section 199, Income Tax Act, 1961 - Section 200, Income Tax Act, 1961 - Section 206C, Income Tax Act, 1961 - Section 214, Income Tax Act, 1961 - Section 240, Income Tax Act, 1961 - Section 240(1), Income Tax Act, 1961 - Section 243, Income Tax Act, 1961 - Section 244, Income Tax Act, 1961 - Section 244A, Income Tax Act, 1961 - Section 244A(1), Income Tax Act, 1961 - Section 260, Income Tax Act, 1961 - Section 263, Income Tax Act, 1961 - Section 273A; Direct Tax Laws (Amendment) Act, 1987; Companies Act, 1956

Cases Referred: 

Gurudevdatta VKSSS Maryadit v. State of Maharashtra MANU/SC/0191/2001 : [2001] 4 SCC 534; Shyam Sunder v. Ram Kumar MANU/SC/0405/2001 : (2001) 8 SCC 24; UCO Bank v. CIT MANU/SC/0389/1999 : 237 ITR 889

Referred Notifications: 

MANU/CBDT/0005/2000

Prior History: 

From the Judgment and Order dated 18.06.2009 of the High Court of Judicature at Bombay in Tax Appeal No. 881 of 20081

Disposition: 

In Favour of Assessee

Citing Reference: 

Discussed 

 2

Mentioned 

 1

Industry: Chemicals

Head Note:

Income Tax Act, 1961

• Refunds - Interest under section 244A Refund of tax deducted to tax deduction--The resident/deductor had approached the assessing authority inter alia requesting him to determine the tax that requires to be deducted at source before the payment is made to a non-resident/foreign company. On such a request the AO had passed an order under section 195(2) directing the resident/deductor to deduct tax at a particular rate. The resident/deductor had appealed against the said order, but had deposited the tax as directed by the AO/ITO by the aforesaid order in accordance with the provisions of section 200. When the resident/deductor succeeded in the appeal, a direction was issued by the appellate authority for refund of tax so paid. In observance of the same, the assessing authority had granted the refund of the tax amount under section 240, but declined to grant interest on the said refund amount. The conclusion arrived at by the AO was accepted by the first appellate authority on the ground, inter alia, that the conjoint reading of section 156 and the explanation appended to section 244A(1)(b) would indicate that the amount refunded to the resident/deductor cannot be equated to the refund contemplated under Section 244A(1)(b), whereunder only the interest on refund of excess payment made under section 156 on account of post-assessment tax is contemplated and not the interest on refund of tax deposited under self-assessment. However, the Tribunal has rejected the aforesaid rationale of the assessing authority as well as the first appellate authority and granted the claim of the resident/deductor. The High Court has endorsed the view of the Tribunal and dismissed the appeals filed the Revenue. Held The amount paid by the resident/deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. The resident/deductor is entitled not only the refund of tax deposited under section 195(2), but has to be refunded with interest from the date of payment of such tax.

Section 240 provides for refund of any amount that becomes due to an assessee as a result of an order in appeal or any other proceedings under the Act. The phrase "other proceedings under the Act" is of wide amplitude. This Court has observed, that, the other proceedings under the Act would include orders passed under section 154 (rectification proceedings), orders passed by the High Court or Supreme Court under section 260 (in reference), or order passed by the CIT in revision applications under section 263 or in an application under section 273A. A "tax refund" is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the AO/ITO. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/foreign company. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductor lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course. In the present case, it is not in doubt that the payment of tax made by resident/depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. Tribunal has held the interest requires to be paid on such refunds. The catechize is from what date interest is payable, since the present case does not fall either under clause (a) or (b) of Section 244A. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under section 156, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to "as in any other case", the interest is payable from the date of payment of tax. The sequel of discussion is the resident/deductor is entitled not only the refund of tax deposited under Section 195(2), but has to be refunded with interest from the date of payment of such tax.

Income Tax Act, 1961 Sections 244A, 195(2), 156 & 240

Ratio Decidendi: 

Whenever money has been received by party which ex aequo et bono ought to be refunded, right to interest follows.

Subject Category :

DIRECT TAXES MATTERS - MATTERS UNDER INCOME TAX ACT, 1961

ORDER

1. Leave granted.

2. The issue that arise for our consideration and decision in this batch of appeals is, whether the revenue is legally responsible Under Section 244A of the Income Tax Act, 1961 (for short, "the Act") for payment of interest on the refund of tax made to the resident/deductor Under Section 240 of the Act.

3. At the outset, it is relevant to notice that the assessment years in all these appeals are on and after 01.04.1989, that is after the admittance of Section 244A of the Act by Direct Tax Laws (Amendment) Act, 1987 (4 of 1988) with effect from 01.04.1989, whereby provision for interest on refunds on any amount due to the Assessee under the Act was introduced.

FACTS:

4. We would refer to the facts in Civil Appeal No. 6301 of 2011. The Respondent is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the manufacture of nitrogenous fertilizer. During the assessment year 1997-98, the Respondent-company had commissioned its naptha desulphurization plant and to oversee the operation of the said plant it had sought the assistance of two technicians from M/s. Haldor Topsoe, Denmark. M/s. Haldor Topsoe had raised an invoice aggregating to US$ 43,290,06/- as service charges for services of the technicians (US$ 38,500/- ) and reimbursements of expenses (US$ 4,790/- ).

5. The resident/deductor had approached the Income Tax Officer Under Section 195(2) of the Act inter alia requesting him to provide information/determination as to what percentage of tax should be withheld from the amounts payable to the foreign company, namely, M/s. Haldor Topsoe, Denmark. On the request so made, the Assessing Officer/Income Tax Officer had determined and passed Special order Under Section 195(2) of the Act directing the resident/deductor to deduct/withhold tax at the rate of 20% before remitting aforesaid amounts to M/s. Haldor Topsoe. Accordingly, the resident/deductor had deducted tax of Rs. 1,98,878/- on the entire amount of US$ 43,290.00/- and credited the same in favour of the Revenue.

6. After such deposit, the resident/deductor had preferred an appeal before the Commissioner of Income Tax (Appeals) against the aforesaid order passed by the Assessing Officer/Income Tax Officer Under Section 195(2) of the Act. The appellate authority while allowing the appeal so filed by the resident/deductor, had concluded, that, the reimbursement of expenses is not a part of the income for deduction of tax at source Under Section 195 of the Act and accordingly, directed the refund of the tax that was deducted and paid over to the Revenue on the amount of US$ 4790.06/- representing reimbursement of expenses by order dated 12.07.2002.

7. After disposal of the appeal, the resident/deductor had claimed the refund of tax on US$ 4790/- (amounting to Rs. 22,005/- ) with the interest thereon as provided Under Section 244A(1) of the Act by its letter dated 09.12.2002.

8. The Assessing Officer/Income Tax Officer while declining the claim made, has observed, that, Section 244A provides for interest only on refunds due to the Assessee under the Act and not to the deductor and since the refund in the instant case is in view of the circulars viz. Circular No. 769 and 790 : MANU/CBDT/0005/2000 issued by the Central Board of Direct Taxes (for short "the Board") and not under the statutory provisions of the Act, no interest would accrue on the refunds Under Section 244A of the Act. Therefore, the Assessing Officer/Income Tax Officer while granting refund of the tax paid on the aforesaid amount has refused to entertain the claim for interest on the amount so refunded by order dated 29.07.2003.

9. Since the Assessing Officer/Income Tax Officer had declined to grant the interest on the amount so refunded, the resident/deductor had carried the matter by way of an appeal before the Commissioner of Income Tax (Appeals). The First Appellate Authority by its order dated 28.03.2005 has approved the orders passed by the Assessing Officer/Income Tax Officer and declined the claim of the deductor/resident on two counts: (a) that the refund in the instant case would fall under two circulars viz. Circular No. 769 and 790 : MANU/CBDT/0005/2000 issued by the Board which specifically provide that the benefit of interest Under Section 244A of the Act on such refunds would not be available to the deductor/resident and (b) that a conjoint reading of Section 156 and the explanation appended to Section 244A(1)(b) of the Act would indicate that the amount refunded to the deductor/resident cannot be equated to the refund of the amount(s) envisaged Under Section 244A(1)(b) of the Act, wherein only the interest on refund of excess payment made Under Section 156 of the Act pursuant to a notice of demand issued on account of post-assessment tax is contemplated and not the interest on refund of tax deposited under self-assessment as in the instant case.

10. The deductor/resident, aggrieved by the aforesaid order, had carried the matter before the Income Tax Appellate Tribunal (for short, "the Tribunal"). The Tribunal while reversing the judgment and order passed by the Commissioner of Income Tax (Appeals) has opined, that, the tax was paid by the deductor/resident pursuant to an order passed Under Section 195(2) of the Act and the refund was ordered Under Section 240 of the Act, therefore, the provisions of Section 244A(1) (b) are clearly attracted and the revenue is accountable for payment of interest on the aforesaid refund amount. Accordingly, the Tribunal has allowed the appeal of the deductor/resident and directed the Assessing Officer/Income Tax Officer to acknowledge the claim and allow the interest as provided Under Section 244A(1)(b) of the Act on the aforesaid amount of refund, by order dated 28.06.2008.

11. The Revenue being of the view that they are treated unfairly by the Tribunal had carried the matter by way of Income Tax Appeal before the High Court. The High Court has refused to accept the appeal filed by the Revenue by the impugned judgment and order, dated 18.06.2009. That is how the Revenue is before us in these appeals.

12. We have heard the learned Counsel appearing for the Revenue and the Respondent-Assessee in these appeals and also carefully perused the orders passed by the forums below.

RELEVANT PROVISIONS:

13. To appreciate the view point of the learned Counsel for the Revenue, we require to notice certain provisions of the Act prior to the insertion of Section 244A of the Act. The sections that require to be noticed are; Sections 156, 195(2), 240 and 244 of the Act. A perusal of these sections essentially would indicate the procedure whereby the tax amount is paid and the refund of excess amount is claimed by the Assessee. The relevant part of the said sections is sequentially reproduced:

Section 156. Notice of demand

When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the Assessee a notice of demand in the prescribed form specifying the sum so payable.

***

Section 195. Other sums-

(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries') shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:

Provided that in the case of interest payable by the Government or a public section bank within the meaning of Clause (23D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode:

Provided further that no such deduction shall be made in respect of any dividends referred to in Section 115O.

Explanation.-For the purpose of this section, where any interest or other sum as aforesaid is credited to any account, whether called 'Interest payable account' or 'Suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(2) Where the person responsible for paying any such sum chargeable under this Act other than salary to a nonresident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under Sub-section (1) only on that proportion of the sum which is so chargeable.

***

Section 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 any claim in that behalf.

***

Section 244. Interest on refund where no claim is needed

(1) Where a refund is due to the Assessee in pursuance of an order referred to in Section 240 and the Assessing 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 fifteen 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.

(1A) Where the whole or any part of the refund referred to in Sub-section (1) is due to the Assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this 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 the refund is granted:

Provided that where the amount so found to be in excess was paid in installments, such interest shall be payable on the amount of each such installment or any part of such installment, which was in excess, from the date on which such installment was paid to the date on which 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 appeal or other proceeding:

Provided also that where any interest is payable to an Assessee under this Sub-section, no interest under Sub-section (1) shall be payable to him in respect of the amount so found to be in excess.

(2) ***

(3) The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989, or any subsequent assessment years.

14. Section 156 of the Act talks about payment of tax, interest, penalty, fine or any other sum payable in consequence of any order passed under the Act on service of notice of demand issued by the assessing officer to the Assessee specifying the said amounts.

15. Section 195(1) casts an obligation upon every person in this Country to deduct tax at the prevailing rates from out of any sum which is remitted to a non resident/Foreign Company. Sub-section (2) of Section 195 provides that where a person responsible for paying any such sum chargeable under the Act to a non resident/Foreign Company considers that the whole of such sum would not be the income chargeable in the case of recipient, he may make an application to the assessing officer/income tax officer to determine, by general or special order, the appropriate proportion of such sum so chargeable. The assessing officer is expected to determine such sum/tax which are deductible out of remittance to be sent to the recipient and only after deduction and payment of such sum/tax, the balance amount is to be remitted to the non-resident. We clarify here that it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment, if such application is not filed.

16. Section 240 of the Act provides for refund on appeal etc. The Section envisages that if an amount becomes due to the Assessee by virtue of an order passed in appeal, reference, revision, rectification or amendment proceedings, the assessing officer is bound to refund the amount to the Assessee without the Assessee being required to make any claim in that behalf. The expression 'other proceedings under the Act' used in Section 240 of the Act, are wide enough to include any order passed in proceedings other than the appeals under the Act.

17. Section 244 of the Act provides for interest on refunds where no claim is made or required to be made by the Assessee. The said section envisages that where a refund is due to the Assessee in pursuance of an order passed Under Section 240 of the Act, and the assessing 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 a simple interest of 15% per annum on the amount of refund due from the date immediately following the expiry of the period of three months as aforesaid to the date on which the refund is granted.

18. Since there was disconcert in the minds of both the Assessee and the Revenue regarding the cases where payment of interest was required to be made to the Assessee by the Revenue, the Parliament has thought it fit to insert a new Section 244A in the place of Sections 214, 243 and 244 in respect of assessments for the assessment year 1989-90 and onwards. The Section is extracted:

244A. Interest on refunds.

(1) Where refund of any amount becomes due to the Assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:

(a) Where the refund is out of any tax paid Under Section 115WJ or collected at source Under Section 206C or paid by way of advance tax or treated as paid Under Section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted.

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under Sub-section (1) of Section 115WE or Sub-section (1) of Section 143 or on regular assessment;

(b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of tax or penalty to the date on which the refund is granted.

EXPLANATION.-For the purpose of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued Under Section 156 is paid in excess of such demand.

(2) ***

(3) ***

(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment year.

(Emphasis supplied)

19. The objects and reasons for introduction of the aforesaid Section is clarified by the Board in its Circular No. 549, dated 31.10.1989. Relevant paragraphs of which are as under:

11.2 Insertion of a new Section 244A in lieu of Sections 214, 243 and 244,-Under the provisions of Section 214, interest was payable to the Assessees on any excess advance tax paid by him in a financial year from the 1st day of April next following the said financial year to the date of regular assessment. In case the refund was not granted within three months from the date of the month in which the regular assessment was completed, Section 243 provided for further payment of interest. Under Section 244, interest was payable to the Assessee for delay in payment of refund as a result of an order passed in appeal, etc., from the date following after the expiry of three months from the end of the month in which such order was passed to the date on which refund was granted. The rate of interest under all the three sections was 15 per cent annum.

11.3. These provisions, apart from being complicated left certain gaps for which interest was not paid by the Department to the Assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new Section 244A in the Income Tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent annum to 1.5% per month or part of a month, comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended Sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years.

(Emphasis supplied)

SUBMISSIONS:

20. Shri Arijit Prasad, learned Counsel appearing for the Revenue would submit, that, if the tax is paid Under Section 195(2) of the Act, then while refunding the amounts so paid, the Revenue need not be burdened with payment of interest on the amount so refunded. He would submit that while Section 244A(1)(a) specifically provides for the four instances under specific provisions where the interest would be payable on the refund of tax paid, Section 244A(1)(b) does not provide for any specific instance but mentions "any other cases" and the explanation appended to the said Section requires payment of refund to be made in cases where notice of demand was issued Under Section 156 of the Act and since no demand notice was issued to the Assessee Under Section 156 of the Act the Assessee would not be covered even by the aforesaid provision and hence, no interest is payable to the Assessee by the Revenue. It is further submitted that interest Under Section 244A is to be granted in case where refund of any amount becomes due to an Assessee under this Act and the refund of tax deducted at source made to the deductor/resident is not under any statutory provisions of the Act, the deductor/resident is not entitled for interest on the amount of tax deducted and deposited with the revenue.

21. Per contra, learned senior Counsel appearing for the resident/deductor would submit that since the payment made Under Section 195(2) is payment made under the Act pursuant to an order passed by the assessing officer which in turn would be sheltered under the provisions of Section 156 of the Act, by virtue of Clause (b) of Sub-section (1) of Section 244A of the Act, the Revenue is obliged to refund the tax with interest.

DISCUSSION:

22. It is cardinal principle of interpretation of Statutes that the words of a Statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning unless such construction leads to some absurdity or unless there is something in the context or in the object of the Statute to the contrary. The golden rule is that the words of a Statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of a Statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning irrespective of the consequences. It is said that the words themselves best declare the intention of the law giver. The Courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a Statute as being inapposite surpluses, if they can have proper application in circumstances conceivable within the contemplation of the Statute (See Gurudevdatta VKSSS Maryadit v. State of Maharashtra MANU/SC/0191/2001 : [2001] 4 SCC 534).

23. It is also well settled principle that the courts must interpret the provisions of the Statute upon ascertaining the object of the legislation through the medium or authoritative forms in which it is expressed. It is well settled that the Court should, while interpreting the provisions of the Statute, assign its ordinary meaning.

24. This Court in Shyam Sunder v. Ram Kumar MANU/SC/0405/2001 : (2001) 8 SCC 24 has observed that in relation to beneficent construction, the basic rules of interpretation are not to be applied where (i) the result would be re-legislation of a provision by addition, substitution or alteration of words and violence would be done to the spirit of legislation, (ii) where the words of a Provision are capable of being given only one meaning and (iii) where there is no ambiguity in a provision, however, the Court may apply the rule of beneficent construction in order to advance the object of the Act.

25. Before the insertion of Section 244A as a composite Section by the Direct Tax Laws (Amendment) Act, 1987, the liability to pay interest on refund of pre-paid taxes was contained in Sections 214, 243 read with Section 244(1A) of the Act. The Parliament has introduced a new Section in the place of Sections 214, 243 and 244 in respect of assessment for the assessment year 1989-90 and onwards.

26. The language of the Section is precise, clear and unambiguous. Sub-section (1) of Section 244A speaks of interest on refund of the amounts due to an Assessee under the Act. The Assessee is entitled for the said amount of refund with interest thereon as calculated in accordance with Clause (a) and (b) of Sub-section (1) of Section 244A. In calculating the interest payable, the section provides for different dates from which the interest is to be calculated.

27. Clause (a) of Sub-section (1) of Section 244A talks of payment of interest on the amount of tax paid Under Section 155WJ, tax collected at source Under Section 206C, taxes paid by way of advance tax, taxes treated as paid Under Section 199 during the financial year immediately preceding the assessment year. Under this clause, the interest shall be payable for the period starting from the first day of the assessment year to the date of the grant of refund. No interest is payable if the excess payment is less than 10% of the tax determined Under Section 143(1) of the Act or on regular assessment. Clause (b) of Sub-section (1) of Section 244A opens with the words "in any other case" that means in any case other than the amounts paid under Clause (a) of Sub-section (1) of Section 244A. Under this clause, the rate of interest is to be calculated at the rate of one and a half per cent per month or a part of a month comprised in the period or the periods from the date or, as the case may be, either the dates of payment of the tax or the penalty to the date on which the refund is granted. An explanation is appended to Clause (b) of the aforesaid Sub-section to explain the meaning of the expression "date of payment of tax or penalty". It clarifies that the "date of payment of tax or penalty" would mean the date on and from which the amount of tax or penalty specified in the notice of demand issued Under Section 156 is paid in excess of such demand.

28. Having glanced through the relevant sections and the settled legal principles of interpretation of Statute, let us revert back to the factual situation placed before us in this appeal.

29. In the present case, the resident/deductor had approached the assessing authority inter alia requesting him to determine the tax that requires to be deducted at source before the payment is made to a non-resident/foreign company. On such a request the assessing officer had passed an order Under Section 195(2) of the Act directing the resident/deductor to deduct tax at a particular rate. The resident/deductor had appealed against the said order, but had deposited the tax as directed by the assessing officer/Income Tax Officer by the aforesaid order in accordance with the provisions of Section 200 of the Act. When the resident/deductor succeeded in the appeal, a direction was issued by the appellate authority for refund of tax so paid. In observance of the same, the assessing authority had granted the refund of the tax amount Under Section 240 of the Act, but declined to grant interest on the said refund amount. The conclusion arrived at by the assessing officer was accepted by the first appellate authority on the ground, inter alia, that the conjoint reading of Section 156 and the explanation appended to Section 244A(1)(b) of the Act would indicate that the amount refunded to the resident/deductor cannot be equated to the refund contemplated Under Section 244A(1)(b) of the Act, whereunder only the interest on refund of excess payment made Under Section 156 of the Act on account of post-assessment tax is contemplated and not the interest on refund of tax deposited under self-assessment. However, the Tribunal has rejected the aforesaid rationale of the assessing authority as well as the first appellate authority and granted the claim of the resident/deductor. The High Court has endorsed the view of the Tribunal and dismissed the appeals filed the Revenue.

30. The refund becomes due when tax deducted at source, advance tax paid, self assessment tax paid and tax paid on regular assessment exceeds tax chargeable for the year as a result of an order passed in appeal or other proceedings under the Act. When refund is of any advance tax (including tax deducted/collected at source), interest is payable for the period starting from the first day of the assessment year to the date of grant of refund. No interest is, however, payable if the excess payment is less than 10 percent of tax determined Under Section 143(1) or on regular assessment. No interest is payable for the period for which the proceedings resulting in the refund are delayed for the reasons attributable to the Assessee (wholly or partly). The rate of interest and entitlement to interest on excess tax are determined by the statutory provisions of the Act. Interest payment is a statutory obligation and non-discretionary in nature to the Assessee. In tune with the aforesaid general principle, Section 244A is drafted and enacted. The language employed in Section 244A of the Act is clear and plain. It grants substantive right of interest and is not procedural. The principles for grant of interest are the same as under the provisions of Section 244 applicable to assessments before 01.04.1989, albeit with clarity of application as contained in Section 244A.

31. The Department has also issued Circular clarifying the purpose and object of introducing Section 244A of the Act to replace Sections 214, 243 and 244 of the Act. It is clarified therein, that, since there was some lacunae in the earlier provisions with regard to non-payment of interest by the revenue to the Assessee for the money remaining with the Government, the said section is introduced for payment of interest by the Department for delay in grant of refunds. A general right exists in the State to refund any tax collected for its purpose, and a corresponding right exists to refund to individuals any sum paid by them as taxes which are found to have been wrongfully exacted or are believed to be, for any reason, inequitable. The statutory obligation to refund carried with it the right to interest also. This is true in the case of Assessee under the Act.

32. The question before us is, whether the resident/deductor is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source Under Section 195 of the Act.

33. We would begin our discussion by referring to circular No. 790 : MANU/CBDT/0005/2000, dated 20.04.2000, issued by the Board. Omitting what is not necessary, the material portion of the circular is extracted:

...

6. Refund to the person making payment Under Section 195 is being allowed as income does not accrue to the non-resident. The amount paid into the Government account in such cases, is no longer 'tax'. In view of this, no interest Under Section 244A is admissible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance with Circular No. 769.

34. What the deductor/resident primarily contend is that, what has been deposited by him is a tax, may be for and on behalf of non-resident/foreign company and when the beneficial circular provides for refund of tax to the deductor under certain circumstances, the refund of tax should carry interest.

35. The circular issued by Central Board of Direct Taxes ("the Board" for short) is binding on the department. Binding nature of the circular is explained by this Court in the case of UCO Bank v. CIT MANU/SC/0389/1999 : 237 ITR 889, wherein this Court has observed that the circulars issued by the Board in exercise of its powers Under Section 119 of the Act would be binding on the income tax authorities even if they deviate from the provisions of the Act, so long as they seek to mitigate the rigour of a particular Section for the benefit of the Assessee. Therefore, we cannot be taking exception to the reasoning and conclusion reached by the authorities under the Act. However, the Tribunal and the High Court, have granted interest on the amount of tax deposited by the resident/deductor from the date of payment on the ground, firstly, the refund of tax is directed by the first appellate authority in the appeal filed by the deductor/resident Under Section 240 of the Act and secondly, the Revenue for having retained the sum by way of tax has to compensate the person who had deposited the tax.

36. Section 240 of the Act provides for refund of any amount that becomes due to an Assessee as a result of an order in appeal or any other proceedings under the Act. The phrase "other proceedings under the Act" is of wide amplitude. This Court has observed, that, the other proceedings under the Act would include orders passed Under Section 154 (rectification proceedings), orders passed by the High Court or Supreme Court Under Section 260 (in reference), or order passed by the Commissioner in revision applications Under Section 263 or in an application Under Section 273A.

37. A "tax refund" is a refund of taxes when the tax liability is less than the tax paid. As per the old section an Assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/Assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the Assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an Assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an Assessee only without extending the similar benefit to a resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/foreign company.

38. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the Assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course.

39. In the present case, it is not in doubt that the payment of tax made by resident/depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held the interest requires to be paid on such refunds. The catechize is from what date interest is payable, since the present case does not fall either under Clause (a) or (b) of Section 244A of the Act. In the absence of an express provision as contained in Clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued Under Section 156 of the Act, Explanation to Clause (b) has no application. In such cases, as the opening words of Clause (b) specifically referred to "as in any other case", the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited Under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax.

40. In the result, the appeals fail. Accordingly, the appeals are dismissed. No order as to costs.

Union of India (UOI) Through Director of Income Tax vs. Tata Chemicals Ltd. (26.02.2014 - SC) : MANU/SC/0213/2014