Commissioner of Income Tax, Trivandrum v. State Bank of Travancore

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: K. Vinod Chandran
Ashok Menon
Judgment Date: 2018-11-01
Court Decision / Holding: Appeals allowed; set aside the Income Tax Appellate Tribunal’s orders on the sole issue of grant of interest on interest on refunds; following Gujarat Fluoro Chemicals, the court rules that interest on interest is not warranted in these cases; Revenue’s position is upheld; costs awarded to the appellant in accordance with the court’s directions.
Final Disposition: Appeals Allowed; Tribunal’s order on interest on interest set aside; revenue’s position upheld; costs

Parties to the Case

Appellants / Petitioners

Commissioner of Income Tax, Trivandrum

Respondents

State Bank of Travancore

Legal Representation & Advocates

Counsels for Petitioners

• Sri P.K.R. Menon, Senior Counsel, GOI (Taxes)
• Sri Jose Joseph, Standing Counsel for GOI (Taxes)

Counsels for Respondents

• Sri P. Balakrishnan (E)

Case Synopsis & Summary

These connected Income Tax Appeals were heard by a Division Bench of the Kerala High Court on 1 November 2018. The central issue was whether the Tribunal could grant 'interest on interest' on refunds due for multiple assessment years. The Tribunal had allowed interest on interest relying on the Supreme Court’s two-judge decision in Sandvik Asia Ltd. v. CIT (2006) 280 ITR 643, which was subsequently clarified by a three-judge bench in Commissioner of Income Tax v. Gujarat Fluoro Chemicals (2013) 358 ITR 291. The respondent in these cases is the State Bank of Travancore, now part of SBI, while the appellant is the Commissioner of Income Tax, Thiruvananthapuram. The court notes that the admitted facts for years 1989-90 to 2001-02 are identical except for dates and that refunds were issued with interest. The appellants argued that Sandvik Asia’s reasoning on compensation for delayed refunds does not justify interest on interest, a view reinforced by Gujarat Fluoro Chemicals. Relying on Gujarat Fluoro Chemicals, the High Court held that interest on interest on refunds is not warranted and allowed the appeals, reversing the Tribunal’s order. Costs were imposed against the parties as appropriate.

Submissions & Arguments

Contentions of Appellants / Petitioners

The appellants contend that the Tribunal erred in granting interest on interest on refunds. They rely on the later Supreme Court decision Gujarat Fluoro Chemicals, which clarified that interest on interest should not be awarded in such refund cases and that the Sandvik Asia decision (upon which the Tribunal relied) is no longer binding on this issue. The appellants urge the Court to reverse the Tribunal’s order and follow Gujarat Fluoro Chemicals, thus denying interest on interest.

Contentions of Respondents

The respondents previously benefited from the Tribunal’s order granting interest on interest, relying on Sandvik Asia. They argue that refunds with interest were due to the assessees and that interest on interest properly compensated for prolonged delays; they contend that Sandvik Asia supported such interest as a remedy for delayed refunds.

Cited Precedents (2)

Case Name	Citation	Treatment	Explanation
Sandvik Asia Ltd. v. CIT	280 ITR 643 (SC)	Overruled	The court states that the two-judge Sandvik Asia decision was clarified by a three-judge bench in Gujarat Fluoro Chemicals; the present case does not follow Sandvik’s reasoning on interest on interest.
Commissioner of Income Tax v. Gujarat Fluoro Chemicals	358 ITR 291 (SC)	Positive	The Kerala High Court follows the Gujarat Fluoro Chemicals decision, which holds that there should be no 'interest on interest' in such refund cases.

Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:-** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940** ## **I.T.A.No.1054 of 2009** **AGAINST THE ORDER IN I.T.A.NO.25/COCH/2002 DATED 21-07-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 1995-96]** ## **APPELLANT/APPELLANT:** **THE COMMISSIONER OF INCOME TAX, TRIVANDRUM.** **BY SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES)** ## **RESPONDENT/RESPONDENT:** **STATE BANK OF TRAVANCORE, POOJAPURA, TRIVANDRUM.** **BY ADV. SRI.P.BALAKRISHNAN (E)** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, ALONG WITH ITA.1590/2009, ITA.1427/2009, ITA.1398/2009, ITA.1574/2009, ITA.1317/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **ITA.No.1054/2009 & - 2 - connected cases** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:-** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY, THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940 I.T.A.No.1590 of 2009** **AGAINST THE ORDER IN I.T.A.NO.13/COCH/2002 DATED 21-07-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 1989-90]** ## **APPELLANT/APPELLANT:** **THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM.** **BY ADVS. SRI.P.K.R.MENON, SENIOR COUNSEL, GOI (TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES)** ## **RESPONDENT/RESPONDENT:** **STATE BANK OF TRAVANCORE, POOJAPPURA, THIRUVANANTHAPURAM. BY ADV. SRI.P.BALAKRISHNAN (E)** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, ALONG WITH ITA.1427/2009, ITA.1398/2009, ITA.1574/2009, ITA.1317/2009, ITA.1054/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **ITA.No.1054/2009 & - 3 - connected cases** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:-** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY, THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940** **I.T.A.No.1427 of 2009** **AGAINST THE ORDER IN I.T.A.NO.14/COCH/2002 DATED 21-07-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 1990-91]** ## **APPELLANT/APPELLANT:** **THE COMMISSIONER OF INCOME TAX, TRIVANDRUM** **BY SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES)** ## **RESPONDENT/RESPONDENT:** **STATE BANK OF TRAVANCORE, POOJAPPURA, TRIVANDRUM.** **BY ADV. SRI.P.BALAKRISHNAN (E)** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, ALONG WITH ITA.1590/2009, ITA.1398/2009, ITA.1574/2009, ITA.1317/2009, ITA.1054/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **ITA.No.1054/2009 & - 4 - connected cases** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:-** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY, THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940** ## **I.T.A.No.1398 of 2009** **AGAINST THE ORDER IN I.T.A.NO.1189/COCH/2004 DATED 21-07-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 1997-98]** **APPELLANT/APPELLANT:** **COMMISSIONER OF INCOME TAX, TRIVANDRUM.** **BY ADVS. SRI.P.K.R.MENON, SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES)** ## **RESPONDENT/RESPONDENT:** **STATE BANK OF TRAVANCORE, POOJAPURA, TRIAVANDRUM.** **BY ADV. SRI.P.BALAKRISHNAN (E)** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, ALONG WITH ITA.1590/2009, ITA.1427/2009, ITA.1574/2009, ITA.1317/2009, ITA.1054/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **ITA.No.1054/2009 & - 5 - connected cases** # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:-** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY, THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940 I.T.A.No.1574 of 2009** **AGAINST THE ORDER IN I.T.A.NO.1187/COCH/2004 DATED 21-07-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 1991-92]** ## **APPELLANT/APPELLANT:** **THE COMMISSIONER OF INCOME TAX, TRIVANDRUM.** **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI(TAXES)** ## **RESPONDENT/RESPONDENT:** **STATE BANK OF TRAVANCORE, POOJAPPURA,TRIVANDRUM** **BY ADV. SRI.P.BALAKRISHNAN (E)** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, ALONG WITH ITA.1590/2009, ITA.1427/2009, ITA.1398/2009, ITA.1317/2009, ITA.1054/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **ITA.No.1054/2009 & - 6 - connected cases** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:-** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940 I.T.A.No.1317 of 2009** **AGAINST THE ORDER IN I.T.A.NO.1191/COCH/2004 DATED 21-07-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN [ASSESSMENT YEAR 2001-02]** ## **APPELLANT/APPELLANT:** **THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM.** **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES)** ## **RESPONDENT/RESPONDENT:** **STATE BANK OF TRAVANCORE, POOJAPURA, TRIVANDRUM.** **BY ADV. SRI.P.BALAKRISHNAN (E)** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, ALONG WITH ITA.1590/2009, ITA.1427/2009, ITA.1398/2009, ITA.1574/2009, ITA.1054/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **ITA.No.1054/2009 & connected cases** ## **- 7 -** ## **JUDGMENT** **[ ITA 1054/2009, ITA.1590/2009, ITA.1427/2009, ITA.1398/2009, ITA.1574/2009 & ITA.1317/2009 ]** ## **Vinod Chandran,J.** **The assessee-respondent in these cases is the State Bank of Travancore, which is now amalgamated with the State Bank of India. The question raised is as to whether the Tribunal was correct in having granted interest on interest with respect to the refund for the various periods. The Tribunal had granted the same on the basis of the decision in** _**Sandvik Asia Ltd.**_ **v.** _**CIT**_ **[** _**(2006) 280 ITR 643 (SC)**_ **]. The said two-Judge decision was clarified by a later three-Judge Bench** _**-**_ **in** _**Commissioner of Income tax**_ **v.** _**Gujarat Fluoro Chemicals**_ **[** _**(2013) 358 ITR 291 (SC)**_ **].** **2. The admitted facts, for the assessment years 1989-90, 1990-91, 1991-92, 1995-96, 1997-98 and 2001-02, which are identical** _**sans**_ **the dates; are the following. The assessments were completed and there were various proceedings, including rectification, appeals, revision and so on and so forth. When the statutory proceedings were completed, there was a refund due to the assessee in all these years. The refund was made with interest. The assessee** **ITA.No.1054/2009 & - 8 - connected cases** **claimed interest on interest, which the Tribunal permitted as per the afore-cited decision.** **3. We need only extract the following paragraph from** ## _**Gujarat Fluoro Chemicals**_ **(** _**supra**_ **):** **“7. As we have already noticed, in** _**Sandvik case**_ **(** _**supra**_ **) 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 clarification has put it in the proper perspective and the facts in the present case do not commend such a drastic measure of interest on interest. We, hence, allow the appeals and set aside the order of the Tribunal on the sole issue of grant of interest on interest on the refunds and answer the question of law in favour of the Revenue and against the assessee, following the decision in** _**Gujarat Fluoro Chemicals**_ **(** _**supra**_ **).** ## **ITA.No.1054/2009 & - 9 - connected cases** ## **Ordered accordingly. Parties are left to suffer** ## **their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE** **Sd/ASHOK MENON JUDGE** **Vku/-** **ITA.No.1054/2009 & - 10 - connected cases** ## **APPENDIX OF ITA 1054/2009** **APPELLANT'S ANNEXURES:** **ANNEXURE-A** **ANNEXURE-B** **TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 28/11/2001. TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 21/7/2006.** **ITA.No.1054/2009 & - 11 - connected cases** ## **APPENDIX OF ITA 1590/2009** ## **APPELLANT'S ANNEXURES:** **ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 14/5/97. ANNEXURE-B TRUE COPY OF THE ORDER OF THE CIT(A) DATED 28/11/2001** **ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 21/7/2006.** **ITA.No.1054/2009 & - 12 - connected cases** ## **APPENDIX OF ITA 1427/2009** ## **APPELLANT'S ANNEXURES:** **ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 31/3/2000 ANNEXURE-B TRUE COPY OF THE ORDER OF THE CIT (A) DATED 28/11/2001** **ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 21/7/2006.** **ITA.No.1054/2009 & - 13 - connected cases** ## **APPENDIX OF ITA 1398/2009** **APPELLANT'S ANNEXURES:** **ANNEXURE A** **TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 26.3.2002.** **ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 10.8.2004.** **ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 21.7.2006** **ITA.No.1054/2009 & - 14 - connected cases** ## **APPENDIX OF ITA 1574/2009** ## **APPELLANT'S ANNEXURES:** **ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 26.3.2004. ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT (A) DATED 10.8.2004.** **ANNEXURE C TRUE COPY OF THE ORDER OF THE GNOME TAX APPELLATE TRIBUNAL DATED 21.7.206.** **ITA.No.1054/2009 & - 15 - connected cases** ## **APPENDIX OF ITA 1317/2009** **APPELLANT'S ANNEXURES:** **ANNEXURE-A** **ANNEXURE-B** **TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 10/8/2004. TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 21/7/2006.** ## **[TRUE COPY]**