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Jose T. Mooken Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberO.P. No. 5119 of 1974 and Income-tax Reference No. 84 of 1974
Judge
Reported in[1979]117ITR894(Ker)
ActsIncome Tax Act, 1961 - Sections 147, 148 and 256(2)
AppellantJose T. Mooken
RespondentCommissioner of Income-tax
Appellant Advocate T.L. Viswanatha Iyer,; E.R. Venkateswaran and; P.S. Nara
Respondent Advocate P.A. Francis and; P.K.R. Menon, Advs.
Cases ReferredWestminster Bank Ltd. v. Riches
Excerpt:
direct taxation - interest - sections 147, 148 and 256 (2) of income tax act, 1961 - whether tribunal justified in holding that interest on excess payment of income-tax made by deceased assessable in hands of deceased and does not become part of income of firm which had taken over assets and liabilities of business of deceased - interest due on refund is in nature of compensation which might represent profit which assessee could have made if he had use of money or which might represent loss - interest is separate from refund and firm not entitled to interest - question answered in affirmative. - - clause 4 of the partnership deed which is dated april 1, 1957, is as follows :amounts that may have to be paid and the obligations that may have to be answered on account of income-tax,.....chandrasekhara menon, j.1. one shri m.o. thomakutty was carrying on business as sole proprietor in the name and style of mooken devassy ouseph & sons during the accounting years relevant to the assessment years 1950-51 and 1951-52. during that time, he was working a salt factory taken on lease from the government of cochin. for these assessment years, shri thomakutty claimed as revenue expenditure amounts of rs. 51,499.76 and rs. 60,000, respectively. these amounts were said to have been expended for the maintenance, etc., of the salt factory concerned. the ito disallowed these claims for deduction. the disallowance was based on certain information received from the state government which, it would appear, had not been properly disclosed to the assessee. the matter ultimately came up in.....
Judgment:

Chandrasekhara Menon, J.

1. One Shri M.O. Thomakutty was carrying on business as sole proprietor in the name and style of Mooken Devassy Ouseph & Sons during the accounting years relevant to the assessment years 1950-51 and 1951-52. During that time, he was working a salt factory taken on lease from the Government of Cochin. For these assessment years, Shri Thomakutty claimed as revenue expenditure amounts of Rs. 51,499.76 and Rs. 60,000, respectively. These amounts were said to have been expended for the maintenance, etc., of the salt factory concerned. The ITO disallowed these claims for deduction. The disallowance was based on certain information received from the State Government which, it would appear, had not been properly disclosed to the assessee. The matter ultimately came up in reference before this court. By judgment dated June 12, 1958, this court held the assessments to be invalid. In the meanwhile, Thomakutty had paid the tax due as per the assessments for these two years. Consequently, on the order of this court the tax so paid becamerefundable. On a petition by the assessee, the CIT granted the refund and also passed an order under Section 66(7) of the Indian I.T. Act, 1922, sanctioning payment of simple interest at 4% per annum on the amount of refund from the date of payment till date of repayment. The amounts so paid as interest during the accounting year ended March 31, 1960, came to Rs. 12,353.

2. Before this refund had been received Shri Thomakutty had converted his proprietary business into a partnership with his three sons to carry on the business in the same name and style of Mooken Devassy Ouseph & Sons. Clause 4 of the partnership deed which is dated April 1, 1957, is as follows :

'Amounts that may have to be paid and the obligations that may have to be answered on account of income-tax, sales tax or otherwise in respect of the business of number-I shall be borne and discharged and refunds taken and enjoyed by the partners herein in proportion to the share held by them in this partnership.'

3. The assessment as regards Shri Thomakutty for the year 1960-61 was completed on a total income of Rs. 65,977. The interest received on the refund of tax as mentioned above was not shown in the return. Therefore, it was also not assessed. If it was assessable it should be in the assessment year 1960-61. The ITO reopened the assessment under Section 147(a) of the I.T. Act, 1961. A notice under Section 148 was served on Shri Thomakutty on March 20, 1969, the sanction for reopening the assessment having been obtained from the Commissioner on March 19, 1969. During the pendency of the reassessment proceedings Shri Thomakutty died on February 27, 1970, leaving behind him as his legal representatives, his wife and his four sons, namely, Jose T. Mooken, M. T. Ignatius, M. T. David and Kurian T. Mooken. After the death of the assessee, Shri Thomakutty, the assessment proceedings were continued against Shri Jose T. Mooken who is the petitioner in O. P. No. 5119 of 1974. He was treated as the legal representative of the assessee. He filed certain objections to the assessment of the interest on the refunds. These objections were however, rejected by the ITO and the assessment was completed taking into account the amounts concerned.

4. An appeal was filed in the matter to the AAC wherein it was contended that there was no justification for reopening the assessment under Section 147. It was also contended that the notice was served only on one of the legal representatives and not all of them. It was also submitted before the AAC that the interest did not form part of the income of the deceased. The AAC accepted the contentions of Shri Jose T. Mooken. He stated in his order that the assessment had been made 'without giving proper noticeand opportunity of being heard to all the legal heirs. Secondly, it is seen that the original assessment in this case was completed on a total income of Rs. 65,977. The refund had been granted by the Income-tax Officer, Trichur, to the same assessee. The assessment has been reopened under Section 147 by serving a notice after the expiry of the time limit prescribed for completing the assessment under Section 147(b). Therefore, the assessment must have been reopened under Section 147(a). The information on the basis of which the assessment has been reopened was available with the Income-tax Officer even when the original assessment was made. Therefore, it cannot be said that the escapement of income was as a result of the appellant's failure to disclose the relevant material. On the other hand, the escapement had taken place because of the Income-tax Officer's failure to consider the issue at the time of original assessment, even though from the records it was clear that the appellant had been given a refund on April 27, 1959'. Against this order of the AAC, the department went up in appeal to the Income-tax Appellate Tribunal, Cochin Bench. The Tribunal held that the proceedings taken against the legal representatives were valid. They relied on the decision of this court in the case of K.P. Mathew v. Agrl. ITO : [1974]96ITR121(Ker) . The following observations from that decision were quoted by the Tribunal I

'One of the questions considered by the Division Bench was whether, in the case of joint executors, an assessment made without notice to all of them is valid under law. The court held that such an assessment would be void, ineffective and without jurisdiction, as the estate cannot be represented by some of them alone. It also held that, if the Income-tax Officer bona fide believed that one of them was the only executor, served notice on him and made an assessment, it would be binding on all the executors and the assessment would be valid. Another question considered by the Division Bench was the validity of assessment without notice to all the legal representatives in the case of intestate succession. In that case also, the court held that the assessment would be invalid, if it was done without notice to all the legal representatives, including an intermeddler with any part of the estate, who under law is a legal representative. At the same time, it held that, if the Income-tax Officer bona fide believed that there was only one legal, representative and made an assessment after notice to him alone, the assessment would be binding on the whole estate and all the legal representatives, however numerous they may be......

There is real distinction in the matter of representation of the estate of a deceased person between a case where it vests jointly in more than one person as in the case of joint executors or joint administrators, and one where it vests in several persons as ten ants-in-common or in separate and definite parts. So long as the estate of a deceased person remains joint, orit vests in more than one person jointly, it can be represented only by all of them jointly. There is no question of any one of them representing part of it, since none of them has any separate interest in it. But if it has vested in several persons in separate shares or parts, each one of them can represent that part of the estate which has so vested in him, and all of them together can represent the whole estate.'

5. The Tribunal said that in the circumstances of the case it was quite reasonable for the ITO bona fide to believe that only Shri Jose T. Mooken was the legal representative, and, therefore, the notice was served on him to make the assessment. Shri Jose T. Mooken represented the estate and the other legal representatives impliedly by his representation. The Tribunal also accepted the contentions of the department that there was omission or failure on the part of the assessee to disclose fully and truly all the material facts relevant for the assessment in respect of the concerned period and the fact that the income-tax department allowed the interest was not relevant as far as proceedings for reopening were concerned. In support of this, they relied on the decision of the Supreme Court in Malegaon Electricity Co. P. Ltd. v. CIT : [1970]78ITR466(SC) . The Supreme Court had observed therein :

'It is true that if the Income-tax Officer had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realised by the assessee. It lean be said that the Income-tax Officer if he had been diligent could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the Income-tax Officer truly and fully all material facts necessary for the purpose of assessment.'

6. According to the Tribunal, this principle should apply in the instant case. The Tribunal also rejected the contention of the learned counsel for the assessee that the receipt of interest was not income, it being casual or non-recurring. On this point, they relied on the decision of the Madras High Court in Ramanathan Chettiar v. CIT : [1963]50ITR43(Mad) . The views of the Madras High Court, it was pointed out by the Tribunal, had been confirmed by the Supreme Court in Ramanathan Chettiar v. CIT : [1967]63ITR458(SC) . The other contentions raised by the counsel for the assessee that the interest did not form part of the income of the deceased, was also rejected by the Tribunal on the basis of the interpretation they gave to Clause 4 of the partnership deed which had been extracted earlier. It was pointed out by the Tribunal that by Clause 4 of the partnership deed the firm became liable for payment of income-tax or sales tax and also had a right in respect of the refunds due from the deceased but the clause refersonly to the refunds taken and it has no relevance as far as the interest payable on the refund. It was stated that the interest payable on refund was separate from the refund. For these findings also, the Tribunal relied on the decision of the Supreme Court in Ramanathan Chettiar v. C1T : [1967]63ITR458(SC) .

7. An application for reference was filed by Shri Jose T. Mooken before the Tribunal. According to him, the following questions of law arise out of order of the Appellate Tribunal, and these questions had to be referred to the High Court under Section 256(1) of the I.T. Act, 1961. The questions pointed out by the applicant were :

'(i) Whether the finding of the Appellate Tribunal that Jose T. Mooken represented the estate of late M. O. Thomakutty and that the other legal representatives impliedly accepted his representation, and that, therefore, the proceedings are valid is correct in law and supported by material or evidence ?

(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessment proceedings have been validly reopened and in upholding the reassessment ?

(iii) Whether, on the facts of this case, the Appellate Tribunal was right in holding that the interest received was not a casual income but assessable ?

(iv) Whether the inclusion of the amount of interest, namely,Rs. 12,353, in the income of late M. O. Thomakutty is justified and correct ?

(v) Whether the Appellate Tribunal should not have held that theentire assessment is illegal and invalid as the notice had been issued to, andassessment made, on a dead person ?'

8. However, the Tribunal drew up a statement of the case and referred only the following question for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest on excess payment of income-tax made by the deceased is assessable in the hands of the deceased and it did not become part of the income of the firm which had taken over the assets and liabilities of the business of the deceased ?'

9. It is this question which comes up for our answer in I.T.R. No. 84 of 1974.

10. The original petition, O.P. No. 5119 of 1974, had been filed by the assessee's legal representative for compelling reference of the following questions of law which, according to him, arise out of the order of the Appellate Tribunal:

'1. Whether the finding of the Appellate Tribunal that Jose T. Mooken represented the estate of late M. O. Thomakutty and that the other legal representatives impliedly accepted his representation, and that,therefore, the proceedings are valid is correct in law and supported by material or evidence ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessment proceedings have been validly reopened, and in upholding the reassessment ?

3. Whether, on the facts of this case, the Appellate Tribunal was right in holding that the interest received was not a casual income but assessable ?

4. Whether the Appellate Tribunal should not have held that the entire assessment is illegal and invalid as the notice had been issued to, and assessment made, on a dead person ?'

11. We heard the original petition and the reference together. In the circumstances, it is only proper that the original petition is disposed of first. The petition has been filed under Section 256(2) of the I.T. Act, 1961. Certainly, if we are not satisfied with the correctness of the decision of the Appellate Tribunal in refusing to refer the questions, we will have to require the Tribunal to state the case and refer those questions also.

12. In respect of the question, whether the petitioner in the original petition represented the estate of the deceased Thomakutty, the Tribunal had said that the ITO was acting on the various letters and correspondence he had with one of the legal representatives, namely, the petitioner and no other legal representative had come in the picture before him. The Tribunal was also of the opinion on the correspondence submitted before it by the departmental representative, that it was clear that only the petitioner was looking after the income-tax affairs of the deceased, and, therefore, it was quite reasonable for the ITO bona fide to believe that only he was the legal representative and hence the notice was served on him to make the assessment. The Tribunal concluded that it would be reasonable to infer that the petitioner represented the estate and the other legal representatives impliedly accepted his representation.

13. In rejecting the application for reference as regards this question is concerned, we do not think the Tribunal committed any error. Whether there was sufficient materials before the Tribunal for coming to the conclusion concerned, is really a dispute regarding facts.

14. Jurisdiction under Section 256 of the I.T. Act is conditional upon there being an order by the Appellate Tribunal and a question of law arising therefrom. To draw a line between what is a question of law and what is a question of fact is not always easy--it is difficult to define its distinction. Only such questions as relate to one or the other of the following matters can be questions of law : (1) the construction of a statute or document of title ; (2) the legal effect of the facts found where the point for determination is a mixed question of law and fact ; and (3) a finding of fact un-supported by evidence or unreasonable and perverse in nature (See G. Venkataswami Naidu & Co. v. CIT 0065/1958 : [1959]35ITR594(SC) .

15. In connection with this first question, we will quote the following passage from the decision of the Supreme Court in First Addl. ITO v. Mrs. Suseela Sadanandan : [1965]57ITR168(SC) :

'The definition of a legal representative under Section 2(11) of the Code of Civil Procedure also runs on the same lines : it means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased. It has been held that one who intermeddles with the estate of a deceased person, even though it may be only with a part thereof, is a legal representative within the meaning of Section 2(11) of the Code of Civil Procedure and is liable to the extent of property taken possession of by him. On the same analogy, it may be held that if all the executors or some of them administered the estate of a deceased without obtaining the probate, all of them or some of them who have administered the estate may be held to be the legal representatives of the deceased and liable to the extent of the property taken possession of by them. If it had been established that E. D. Sadanandan had alone been managing the entire estate, the court could have come to the conclusion that he was the legal representative of the deceased and, therefore, represented the estate in the assessment proceedings. But, unfortunately, as we have already indicated, no serious attempt was made by the parties to establish before the High Court by placing before it the necessary material that all or some of the executors, though they did not obtain probate of the will, had intermeddled with the estate wholly or in part.

16. There is also a large body of authority holding that if a party bona fide impleaded one of the legal representatives as representing the estate of a deceased party and the said representative represented the estate, the decree obtained therein is binding on the other legal representatives of the deceased. It is unnecessary to survey the wide field of decisions on this aspect of the case, as this court in a recent decision, in Daya Ram v. Shyam Sundari, : [1965]1SCR231 , 1054, has summarized the law. Rajagopala Ayyangar J., speaking for the court, said thus :

'When this provision speaks of 'legal representatives' is it the intention of the legislature that unless each and every one of the legal representatives of the deceased defendants, where these are several, is brought on record there is no proper constitution of the suit or appeal, with the result that the suit or appeal would abate The almost universal consensus of opinion of all the High Courts is that where a plaintiff or an appellant after diligent and bona fide enquiry ascertains who the legal representatives of a deceased defendant or respondent are and brings them on record within the time limited by law, there is no abatement of the suit or appeal, that theimpleaded legal representatives sufficiently represent the estate of the deceased and that a decision obtained with them on record will bind not merely those impleaded but the entire estate including those not brought on record.'

17. Though this principle was laid down in the context of suits or appeals, it is one of general application. We do not see why the said principle cannot be invoked in the case of assessment of income from the estate of a deceased person, in the hands of his legal representatives. Here again no material was placed before the High Court. The Income-tax Officer, who filed the affidavits, had no personal knowledge of what had happened at the time of the making of the assessment. Better material could have been placed to enable the court to come to a conclusion whether the Income-tax Officer acted bona fide in serving the notices only on E. D. Sadanandan, because he was the executor who intermeddled with the estate and was in actual management thereof.' (underlining is ours).

18. From this and also from the third point formulated by the Supreme Court in this case (at page 175), we do not think that the Tribunal made any mistake in stating that the Supreme Court had posed a third test whether one in fact represented the estate and other executors or representatives expressly or impliedly accepted his representation.

19. If the Tribunal, based on relevant materials, had come to such a conclusion, the fact that there may be a difference of opinion in regard to the sufficiency or adequacy of the materials, on the basis of which such a conclusion has been arrived at, may not pose a question of law for reference to the High Court under Section 256.

20. In respect of the second question sought to be got referred to by the petitioner, the Tribunal is quite right in stating that in the nature of the conclusion arrived at by the Tribunal on the necessity of showing the interest receipt in the return, materials necessary for making an assessment have not been furnished by the assessee. This is also essentially in the realm of facts and no need for a reference on the point arises. It might be noted that the comprehensive question, whether the inclusion of the amount of interest in the income of the deceased is justified, has been rightly referred to this court by the Tribunal. It was contended on behalf of the petitioner that the decision of the Tribunal in the matter is erroneous in law because the primary facts were within the knowledge of the ITO when he completed the reassessment. The escapement of income took place by reason of the failure of the ITO to take into account the interest portion of the refund and in such a situation the requirements of the section empowering the reassessment were not satisfied. He relied on the decision of the Supreme Court in CIT v. Hemchandra Kar : [1970]77ITR1(SC) , of thedecision of the Calcutta High Court in Dunlop Rubber Company Ltd. (London) v. ITO : [1971]79ITR349(Cal) and of this court in Sujir Ganesh Nayak & Co. v. ITO : [1976]104ITR524(Ker) .

21. In rejecting the contentions of the assessee, the Tribunal had placed reliance on the decision of the Supreme Court in Malegaon Electricity Co. P. Ltd. v. CIT : [1970]78ITR466(SC) the relevant extract from which had been extracted by us earlier. The Supreme Court had said that it can be said that the ITO if he had been diligent could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the ITO truly and fully all material facts necessary for the purpose of assessment. The Tribunal was of the view that the same principles should apply in the present case. We think the Tribunal was quite right in thus placing reliance on the Supreme Court decision.

22. The next question raised by the petitioner for reference, namely, whether the Tribunal was right in holding that the interest received was not a casual income but assessable, the Tribunal had relied on the decision of the Supreme Court in RM. AR. AR. RM. AR. AR. Ramanathan Chettiar v. CIT : [1967]63ITR458(SC) . The facts of the Supreme Court case as extracted in the headnote to the decision are :

'A, his three wives, V, L and N, and his son, B, were members of a Hindu undivided family. The undivided son, B, died in 1934, leaving his widow, U. A died subsequently in 1938, leaving him surviving his two widows, L and N, and his son's widow, U. U filed a suit for administration and partiti6n of A's estate claiming a half share therein. Pending the suit, receivers were appointed. Estate duty was demanded on the death of the undivided son, B, as well as on the death of A under Ceylon law. The receivers paid the estate duty under protest and filed a suit questioning the validity of the imposition of estate duty. This suit was ultimately decided by the Privy Council against the estate duty authorities and in consequence the estate duty authorities of Ceylon had to refund the estate duty and pay interest on the estate duty collected. In the meantime, at the stage when an appeal in the partition suit was pending before the Privy Council, the parties thereto compromised and, pursuant to the compromise, L, N and U each adopted a son and divided the estate into three equal shares, each widow and her adopted son taking a one-third share. Out of the interest refunded by the estate duty authorities, the assessee, who was adopted by N, received Rs. 1,93,328. The question was whether the interest receipt constituted income in the hands of the assessee and, if so, whether it was exempt under Section 4(3)(vii) of the Indian Income-tax Act, 1922, as a casual and non-recurring receipt; '

23. The Supreme Court confirming the decision of the Madras High Court which is reported in RM. AR. AR. RM. AR. Ramanathan Chettiar v. CIT : [1963]50ITR43(Mad) held that the amount received by the assessee was in the nature of a revenue receipt. In coming to the conclusion, the Supreme Court had said at pages 464 and 465 (63 ITR) :

'It was argued on behalf of the appellant that the amount in question was a lump sum payment awarded under the decree of the court and there was no quality of recurrence about it. We do not think that this submission is correct. It is true that the appellant received lump sum payment on account of interest. That does not, however, necessarily mean that the amount of interest is not a receipt of a recurring nature. On the other hand, the interest was granted under the decree of the court from the date of the institution of the proceedings in the District Court and was calculated upon the footing that it accrued de die in diem, and hence it has the essential quality of recurrence which is sufficient to bring it within the scope of the Act. It was also contended that the receipt of interest was casual in its character. The expression 'casual' has not been defined in the Act and must, therefore, be construed in its plain and ordinary sense. According to the Shorter Oxford English Dictionary, the word 'casual' is defined to mean : '(i) subject to or produced by chance ; accidental, fortuitous, (ii) coming at uncertain times; not to be calculated on, unsettled.' A receipt of interest which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again. When the action was commenced by way of a petition in the District Court of Ceylon, it was well within the contemplation and anticipation of the persons representing the estate that a successful termination of the action would not merely result in a decree for the tax illegally collected, but would also make the Crown liable to pay interest on that amount from the date of the petition till the date of the payment. The receipt of interest in the present case by virtue of the decree of the Supreme Court of Ceylon bears no semblance, therefore, to a receipt of a casual character. It is not, therefore, possible to accept the argument of the appellant that the receipt of interest obtained under the decree of the Supreme Court of Ceylon was of a casual or non-recurring nature. We, accordingly, reject the submission of the appellant on this aspect of the case.'

24. Nothing has been placed before us which would indicate that the principle of the Supreme Court decision should not be applicable in regard to the refund of interest in the instant case also. In the light of the Supreme Court case which clearly enunciates the law on the matter, the Tribunal rightly rejected the request for reference.

25. Now the question remains whether the Tribunal should have referred the question as regards the validity of the notice issued by the ITO in the matter of reopening the assessment. How the Tribunal dealt with the notice may be looked into. The Tribunal said :

'It was next argued by the learned counsel for the assessee that the entire assessment was illegal inasmuch as the notice was to a dead person, A full reading of the notice would show that although it starts with the name of the deceased, the notice was intended to the legal representative only.' (para 13)

26. We are of the view that the Tribunal had properly rejected the application for reference on this point, as no question of law arises there,

27. In the light of these, the original petition has only to be rejected. The original petition is dismissed. There will be no order as to costs.

28. We will now take up the reference and go into the question referred to us, namely, whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest on excess payment of income-tax made by the deceased is assessable in the hands of the deceased and it did not become part of the income of the firm which had taken over the assets and liabilities of the business of the deceased The question revolves round the interpretation of Clause 4 of the partnership deed, which we had extracted earlier. As per that, amounts that have to be paid and the obligations that have to be answered on account of income-tax, sales tax or otherwise, in respect of the business of Thomakutty has to be borne and discharged by the partners in proportion to the shares held by them in the partnership. The refunds due to him will have to be taken and enjoyed by the partners in the same proportion. The issue for consideration is whether this reference to 'refund' takes in the interest due on the refund as fixed by the department. The payment of interest, which under this case is under Section 66(7) of the 1922 Act, is at the discretion of the Commissioner. No doubt, the discretion will have to be exercised judicially. In a case where tax had been collected illegally and kept with the Government for a long period, interest payment cannot be denied. The discretion of the Income-tax Commissioner is coupled with the duty to pay interest in fit cases. What exactly is the nature of the interest on the refund, will it naturally attach itself to the 'refund' mentioned in the partnership deed The question is certainly not free from difficulty. It might be interesting in this connection to note that in Westminster Bank Ltd. v. Riches [1947] 28 TC 159; 15 ITR (Supp.) 86 an argument had been advanced that the amount received as interest awarded by the court in exercise of its discretionary power under Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934, was not interest proper but damages. Inmeeting this argument in the course of his judgment, Lord Wright observed at page 189 of the report as follows :

'The contention of the appellant may be summarily stated to be that the award under the Act cannot be held to be interest in the true sense of that word because it is not interest but damages, that is, damages for the detention of a sum of money due by the respondent to the appellant, and hence the deduction made as being required under rule 21 is not justified because the money was not interest. In other words the contention is that money awarded as damages for the detention of money is not interest and has not the quality of interest. Evershed J., in his admirable judgment, rejected that distinction. The appellant's contention is in any case artificial and is, in my opinion, erroneous, because the essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had had the use of the money, or conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation. From that point of view it would seem immaterial whether the money was due to him under a contract express or implied, or a statute, or whether the money was due for any other reason in law. In either case the money was due to him and was not paid or, in other words, was withheld from him by the debtor after the time when payment should have been made, in breach of his legal rights, and interest was a compensation, whether the compensation was liquidated under an agreement or statute, as for instance under Section 57 of the Bills of Exchange Act, 1882, or was unliquidated and claimable under the Act as in the present case. The essential quality of the claim for compensation is the same, and the compensation is properly described as interest.' (underlining* is ours)

29. From this it is clear that really the interest that is due on the refund is in the nature of a compensation which might represent the profit which the assessee could have made if he had had the use of money or which might represent the loss which he suffered because he had not that use. It is compensation for the deprivation of the money for the period. In that view (and that view has been accepted in Lord Wright's passage which has been quoted with approval by the Supreme Court in Ramanathan Chettiar v. CIT : [1967]63ITR458(SC) and also in Dr. Shamlal Narula v. CIT : [1964]53ITR151(SC) ) it cannot be said that because the firm had been allowed to take and enjoy the refund it became automatically entitled to the interest on the refund. We do not think the Tribunal committed any error of law in holding that Clause 4 of the partnership deed refers only to refunds and it makes no reference to the interest payable on the refund. On the interpretation and on the basis of the Supreme Court decision inRamanathan Chettiar v. C1T : [1967]63ITR458(SC) , it was only a reasonable inference that the Tribunal had made in the matter that the interest is separate from the refund and the firm had not become entitled to the interest. Shri. T. L. Viswanatha Iyer, the learned counsel for the assessee, sought to support his argument that the expression 'refund' in Clause 4 will take in the interest also by referring to the dictionary meaning of the word 'refund'. As per Webster's Third New International Dictionary, the word 'refund' has been given the meaning, to reimburse, to pay back, to return (money in restitution). In the light of the dictum laid down by Lord Wright, we do not however think that the Tribunal had committed any error of law in the matter. The question in the reference is answered in the affirmative, that is, in favour of the department and against the assessee. The reference is answered as indicated above. There will be no order as to costs.

30. A copy of this judgment shall be sent under the seal of the court and the signature of the Registrar to the Appellate Tribunal, Cochin Bench, under Section 260(1) of the I.T. Act, 1961.


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