RAJA RAM KUMAR BHARGAVA Vs. UNION OF INDIA

JUDGEMENT

(1.) THE facts in this case are simple and undisputed. The plaintiffs have instituted a suit for the recovery of Rs. 1,29,640.98 against the Union of India. In brief, the allegations of the plaintiffs are that they formed an HUF in respect of which assessment proceedings under the Indian IT Act, 1922, were taken for the year 1946 -47. The assessment was made for the asst. year 1946 -47 by the ITO under the IT Act and EPT Act some time in 1951. An appeal was preferred to the AAC in 1952, and the order of the ITO was partly varied and as a result the amount of tax was reduced. In March, 1955, the appeal of the plaintiffs to the Tribunal was dismissed. In September, 1955, the IT Department took coercive proceedings against the plaintiffs under S. 46(5A) of the Indian IT Act of 1922 and attached the immovable properties of the plaintiffs situated at Lucknow. The plaintiffs borrowed the amount from the Central Bank of India, Lucknow, and paid a sum of Rs. 2,57,583.87 to the IT Department on March 22, 1957. The plaintiffs allege that they paid interest to the Central Bank of India on this loan ranging between 6 per cent and 9 1/2 per cent. Dissatisfied with the order of the Tribunal (Delhi Bench), the plaintiffs under S. 66 of the Act of 1922 made a reference to the High Court of Allahabad in 1965 and this income -tax reference was registered as I T R No. 81 of 1960. The reference was decided by the High Court of Allahabad on the 7th of April, 1966. The reference was answered in favour of the plaintiffs and the Department was directed to refund the excess income -tax wrongfully realised by the IT Department from the plaintiffs. On the 16th of September, 1966, the Tribunal, Delhi, made a consequential order under S. 66(5) of the Indian IT Act of 1922. On the 9th of December, 1967, a sum of Rs. 19,126.16 was refunded to the plaintiffs on account of excess profits tax, and on the 17th of December, 1966, a sum of Rs. 2,01,146.62 was refunded to the plaintiffs on account of excess income -tax realised from them. On the 17th of October, 1966, the plaintiffs in their letter to the CIT U.P.II, Lucknow, made a claim for interest on the amount refunded to them under S. 66(7) of the Indian IT Act, 1922. The plaintiffs' claim for interest was, however, rejected by the CIT. The plaintiffs, thereupon, made a petition dated the 20th of August, 1967, to the Dy. Prime Minister of India who was also holding the portfolio of Finance then, claiming that interest be paid to the plaintiffs at the rate of 6 per cent from March 27, 1957, the date of payment, to the 17th of December, 1966, the date on which the refund under the Indian IT Act of 1922 was allowed. The Central Government also rejected this petition. On the 15th September, 1969, the plaintiffs brought the present suit and in this suit they have claimed the following amounts : A sum of Rs. 1,17,358.87 is claimed as interest on the amount of excess income -tax realised from the plaintiffs and Rs. 12,282.11 on account of interest regarding excess amount realised from the plaintiffs in respect of excess profits tax. The plaintiffs have also claimed pendente lite and future interest.

(2.) THE Union of India resisted the claim. It is pleaded that the plaint did not disclose any cause of action inasmuch as the plaintiffs' claim to interest was not allowed by the CIT. It was pleaded that, as the CIT, U. P. II, Lucknow, has not been impleaded as a party, Delhi Courts have no jurisdiction to try the suit. The suit was said to be barred by limitation. On merits it was contended that the relevant provisions of law applicable to the facts of this case were contained in the IT Act of 1961 and not in the Act of 1922. It was said that under S. 297(2)(i) of the present Act, as the assessment of the plaintiffs for the year 1946 -47 was completed prior to the commencement of the present Act the refund in respect of such assessment fell due only on the 16th of September, 1966, upon the passing of the order by the Tribunal (Delhi Bench) under S. 66(5) of the old Act. As the refund was paid to the plaintiffs within six months from the order of the Tribunal dated the 16th of September, 1966, the defendants submitted that they were not liable to pay any interest to the plaintiffs as claimed. It was also submitted that the plaintiffs cannot claim interest in the present suit under the S. 66(7) of the Act of 1922, inasmuch as interest under the said section can be allowed only by a statutory authority, namely, the CIT and the CIT has rejected the plaintiffs' claim to interest. In the replication filed by the plaintiffs it was submitted that S. 297(2)(i) of the IT Act of 1961 has no application to the present case inasmuch as the assessment was not completed before the commencement of the present Act and that in view of the provisions contained in S. 297(2)(a) and (c) of the Act of 1961 and those of paragraph 2 of the Income -tax (Removal of Difficulties) Order, 1962, the plaintiffs' claim to refund was governed by the provisions of the Indian IT Act of 1922.

(3.) THE sub -section, therefore, lays down that on the reduction of the amount of assessment as a result of reference, the amount overpaid shall be refunded to the assessee "with such interest as the CIT may allow." In the present Act the relevant sections are ss. 240 and 244 which read as under : 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 ITO shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf. 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 S. 240 and the ITO does not grant the refund within a period of six months from the date of such order, the Central Government shall pay to the assessee simple interest at nine per cent. per annum on the amount of refund due from the date immediately following the expiry of the period of six months aforesaid to the date on which the refund is granted.