I-T - No interest on interest - clarifies Supreme Court
IN the famous Sandvik case - , the Supreme Court held that the department is liable to pay interest on the interest which it had to pay the assessee and which it withheld. This judgement had serious repercussions not only in the Income Tax Department but also in the Customs and Central Excise Department. Several High Courts have granted interest based on the Sandvik judgement.
Recently a Larger Bench of the Supreme Court reconsidered the Sandvik case and observed, "the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue. They are of the view that in Sandvik case (supra) this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment. In other words, the interpretation placed is 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."
The Supreme Court clarified, "in Sandvik case this 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 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."
The Supreme Court emphatically clarified, "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."