Gulbanu Razack vs Assistant Commissioner of Income Tax (Investigation)

This writ petition is filed by Smt. Gulbanu Razack for the issue of a writ of mandamus directing the respondent to pay a sum of Rs. 74,498 to the petitioner towards compensatory interest at the rate of per cent. per month on the sum of Rs. 1,00,000 (one lakh) which was refunded to the petitioner by the Income Tax Department. Interest is claimed for the period from September 26, 1986, the date of seizure, up to November 9, 1989, the date of refund.

For the purpose of appreciating the points arising in the case, it is necessary to state the following facts.

A search operation was conducted by the Income Tax authorities u/s 132 of the Income Tax Act, 1961 (hereinafter called "the Act"), on September 26, 1986, at the premises, House No. 6-3-629/1, Ravindernagar, Khairatabad, Hyderabad, belonging to the petitioner''s husband. During the course of the search, a sum of 1,80,000 was found and seized. It is stated, that, during the course of the search, it was represented to the officers that, out of the said amount, Rs. 1,00,000 (one lakh) belonged to the petitioner. It is also stated that the said sum of rupees one lakh was found in a small tin recovered from the kitchen. It was the petitioner''s case that the said amount of rupees one lakh was received as advance consideration by her from one Mohd. Ashraf under an agreement of sale dated September 25, 1986, in respect of her flat bearing No. 305, Shajahan Apartments, Khairatabad, Hyderabad. It is stated that, on September 26, 1986, the receipt of the said sum was recorded in the memorandum cash book. The said sum was not released immediately. Thereafter, an enquiry was conducted by the Income Tax Officer, B-Ward, Circle-I, u/s 132(5) of the Act. The petitioner made a claim and produced evidence for release of the said sum. The enquiry officer recorded statements from the petitioner, her husband and the purchaser, on oath in the enquiry conducted u/s 132(5) of the Act. During the course of the enquiry, the petitioner applied on November 24, 1986, before the Income Tax Officer, B-Ward, Circle-I, for investment/deposit of the sum of Rs. One Lakh in National Savings Certificates, VII Issue, in any post office so that she can earn interest and also avail of the benefit u/s 80C and section 80L of the Act. A reminder was sent on December 5, 1986. It is said that the said request was not acceded to. The Income Tax Officer passed an order dated January 22, 1987, u/s 132(5) of the Act rejecting the claim of the petitioner and retained the said sum for future adjustment towards estimated and probable tax demands against the petitioner''s husband. Aggrieved by the said order, the petitioner filed an application on February 12, 1987, u/s 132(11) of the Act before the Commissioner of Income Tax Act, A.P. -1, Hyderabad. Before the Commissioner also, the petitioner filed an application on February 13, 1987, for investment of the amount in National Savings Certificates, VII issue, but on directions were issued. The petitioner requested the respondent to dispose of her application u/s 132(11) of the Act by filing a further letter dated February 27, 1987. Initially, the Commissioner dismissed the petitioner''s application by an order dated December 29, 1988, holding that the petitioner, as a third party, cannot file such an application. The petitioner approached this court in W.P. No. 2288 of 1989 and this court, by orders dated July 20, 1989, quashed the orders of the Commissioner, holding that the petitioner''s application u/s 132(11) was maintainable and directed the same to be heard and disposed of within three months. Thereafter, the matter was heard and an order was passed on October 17, 1989, u/s 132(12) (served on the petitioner on October 25, 1989) allowing the petitioner''s application and holding that the said sum of rupees one lakh belonged to the petitioner and the amount was directed to be released to the petitioner. The petitioner and the amount was directed to be released to the petitioner. The petitioner filed an application on November 2, 1989, before the Assistant Commissioner of Income Tax (Investigation), Circle I(1) (the officer in whom the jurisdiction of the Income Tax Officer stood vested in law), for refund of Rs. One Lakh as well as for payment of interest at 2 per cent. per month from September 26, 1986, the date of seizure. Similar letters were filed before the Commissioner as well as the Deputy Commissioner of Income Tax enclosing a copy of the said application dated November 2, 1989. The amount of Rs. One Lakh was refunded by an order dated November 7, 1989, by the Assistant Commissioner and the same was received on November 9, 1989 by the petitioner. The respondent, however, did not award any compensatory interest.

The petitioner has, therefore, approached this court in the present writ petition seeking compensatory interest on the ground that her property was seized without the authority of law and that there was an infringement of article 300A of the Constitution of India. The petitioner also claims that she has been unlawfully deprived of the use and enjoyment of her own property and, therefore, entitled to be compensated in the same manner as interest is claimed by the Government from assessees under sections 234A and 234B of the Act. It is further alleged that, u/s 132(5), the enquiry is to be completed within 120 days and the respondent ought to have refunded the sum of Rs. one lakh to the petitioner but the same was unlawfully withheld. The petitioner cannot be deprived of the property without payment of interest.

A counter-affidavit has been filed by the Assistant Commissioner of Income Tax. It is contended that the sum of Rs. one lakh cannot be said to have been deliberately seized. It is pointed out that the money seized was deposited in the personal deposit account of the Commissioner of Income Tax and it could be withdrawn only for the purpose of appropriation towards the taxes due upon the completion of the regular assessment. The assessee''s request for investment of the amount in National Savings Certificates is not backed by any authority of law. The seizure was made following legal procedure and the refusal to invest or refund the amount cannot be treated as unlawful retention of money. It is further contended that the direction of the Commissioner for refund of Rs. One Lakh does not render the original order passed by the Income Tax Officer either illegal or invalid and, therefore, does not confer any right in favour of the assessee to receive interest. Whenever a claim for refund is made, the claimant does not have the right to immediate refund until the passing of an appropriate order for refund. It was only after the order of the Commissioner passed on October 17, 1989, that the right to receive the money accrued and refund was granted within one month. The present refund is not in the nature of the refunds falling u/s 234A or section 234B of the Act. But it is more in the nature of a refund granted u/s 243 of the act inasmuch as the Commissioner of Income Tax, acting u/s 132(12), is an "appellate authority" in respect of orders passed u/s 132(5). It is, therefore, prayed that the writ petition may be dismissed.

It is contended by Sri Habib Ansari, learned counsel for the writ petitioner, that the petitioner is entitled to interest. It is true that there is no specific provision in the Income Tax Act for grant of interest to claimants who are not assessees in regard to the particular enquiry against an assessee. But even so, interest is payable under the common law or equity jurisdiction of the court as also under the provisions of the Interest Act, 1978, and, in particular, section 4(1) of that Act which preserves the right of parties to claim interest outside the provisions of the Interest Act, if any such right existed in common law or equity. A large number of decisions have been cited by learned counsel before us in support of this contention.

On the other hand, it has been contended by learned standing counsel for Income Tax, Sri M. Suryanarayana Murthy, that the Income Tax Act, 1961, is a complete code in itself and provides for payment of interest in various contingencies. Inasmuch as it does not provide for payment of interest to third parties when claims are allowed, it must be deemed that the Legislature did not contemplate any payment of interest particularly in the cases of bona fide seizure of goods or money of third parties. The right to refund is not automatic but arises only upon the conclusion of the enquiry by the Competent Authority or by the Commissioner. For the period during which the money is in the custody of the officer for conducting a lawful enquiry contemplated by the Legislature, no interest is intended to be given under the statute. Alternatively, he contended that interest cannot be paid as damages or as compensation under the law as it stands in our country and relied upon the decisions of the Privy Council and the Supreme Court for the proposition that, even under the Interest Act, 1839 (now replaced by the Interest Act, 1978), no compensatory interest or damages can be awarded under the common law or on grounds of equity.

The points for consideration are :

(1) Whether a claim for grant of interest to a non-assessee-third party (in respect of monies seized during search operations and which are later decided as not belonging to the assessee), can be rejected for want of specific provision in the Income Tax Act, 1961 ?

(2) Whether, alternatively, interest is payable under common law or u/s 73, Contract Act, or in equity or u/s 4(1) of the Interest Act, 1978 ?

Point No. 1 :- The point is whether the absence of any provision in the Income Tax Act, 1961, for payment of interest on refunds to non-assessees is a valid defence to the claim for interest in the present case.

At the outset, we may state that no defence has been pleaded nor any contention specifically raised on the basis that the action of seizure is in the nature of a sovereign act and there is, therefore, no wrong committed in law which is liable to be compensated. Indeed, if such a defence of a sovereign act or an act of State is to be permitted, and the seizure is to be assumed to be lawful initially till the final decision of the Commissioner was given for refund, questions might, perhaps, arise as to payment of damages. Recently in 1980, in Reg. v. IRC, Ex parte Rossminster [1980] AC 952 (HL) which was a case of search and seizure by the Revenue, Lord Wilberforce (p. 1000), Viscount Dilhorne (p. 1007) and Lord Scarman (p. 1022) raised a point as to whether the person whose money was seized would not be entitled to damages. Lord Scarman (p. 1022), in fact, stated that "telling the victim (of seizure) that, long after the event, he may go to law and recover damages if he can prove that the Revenue acted unlawfully is cold comfort - even if he can afford it". However, as no defence of sovereign act or an act of State has been raised, it is not necessary for us to go into this aspect of the matter.

We shall now deal with the position under the Income Tax Act, 1961, and briefly refer to the statutory provisions. It is to be seen that section 132 deals with the powers and procedure "for search and seizure". The power can be exercised if the Competent Authority has, in consequence of information in his possession, reason to believe that any person is in possession of any money, etc., and such money either wholly or partly represents income or property which has not been, or would not be, disclosed for the purposes of the Act. In such cases, the authorised officer can enter and search any building, etc., where he has reason to suspect that such money, etc., is kept. He can "seize" such money, etc. The authorised officer may, u/s 132(4) examine on oath any person who is found to be in possession or control of any money, etc. u/s 132(4A), there is a statutory presumption, though rebuttable, that such money, etc., found in the possession and control of any person belongs to such person. u/s 132(5), the Income Tax Officer shall, after such seizure, afford a reasonable opportunity to the person concerned of being heard and after making such inquiry as may be prescribed, make an order within 120 days of the seizure, estimating the undisclosed income, calculating the tax, interest or the amount that will be required to satisfy any existing liability under the Act and retain custody do such assets or part thereof as are, in his opinion, sufficient to satisfy the aggregate of the amounts stated above and "forthwith" release the remaining portion, if any, of the assets to the person from whose custody they were seized. The assets retained u/s 132(5) shall be dealt with in accordance with section 132B. Section 132(7) further declares that if the Income Tax Officer is satisfied that the seized assets or any part thereof were held by such persons for or on behalf of any other person, the Income Tax Officer may proceed under sub-section (5) against such other persons and all the provisions of this section shall apply accordingly. Section 132B deals with the application of retained assets. It says that the assets retained u/s 132(5) shall be applied towards the liabilities as stated in section 132(5). Section 132(11) provides that, if "any person" objects to an order made u/s 132(5), he may, within 30 days, make an application to the Chief Commissioner stating the reasons for such objection and requesting for appropriate relief and the latter has to pass an order u/s 132(12) "as he thinks fit". Section 132B(3) states that any assets or proceeds which remain after the liabilities are discharged shall be "forthwith" made over or paid to the person or persons from whose custody the assets were seized. Section 132B(4)(a) states that "simple interest" shall be paid at 15 per cent. per annum on the amount by which the aggregate of money retained u/s 132 exceeds the aggregate amount required to meet the liabilities. u/s 132B(4)(b), such interest shall run from the date immediately following the expiry of the period of six months from the date of the order u/s 132(5) to the date of the regular assessment or reassessment referred to in section 132(1)(i) or, as the case may be, to the date of the last of such assessments or reassessments.

In our view, the above provisions in section 132B(4) apply only to cases where the amount is retained for clearing liabilities and does not, in terms, cover a refund directed u/s 132(11). Therefore, the petitioner cannot be awarded any interest in a case falling u/s 132(11).

Again, the Act no doubt contains, in Chapter XVII relating to collection and recovery of tax, certain provisions in sections 234A, 234B and 234C for payment of interest for default "by" an assessee and those provisions are, therefore, not applicable. Coming to Chapter XIX, it no doubt deals with "refunds" and section 244A deals with ''interest''on refunds. Section 244A provides that where refund is due to an "assessee" under the Act, he shall recover the amount with simple interest calculated in the manner then mentioned. Reading the said provisions along with section 237 which defines "refund", it is clear that section 244A also is not attracted to a case like the present one where a person other than the assessee is claiming interest.

The Supreme Court has held that the Income Tax Act, being an Act to consolidate and amend the law relating to Income Tax and super-tax, is a complete Code by itself. Ravula Subba Rao and Another Vs. The Commissioner of Income Tax, Madras, . This principle was, in fact, applied by the Supreme Court in Panchanathan Chettiar Vs. Commissioner of Income Tax, Madras, . There, the claim for interest was rejected by the Supreme Court on the ground that the facts did not come within section 243 of the Act, and that there was no other provisions under which, on facts, interest could be awarded. In that case, the assessment order was passed under the Indian Income Tax Act, 1922, and a refund was ordered consequent upon decision of the Supreme Court rendered after April 1, 1962. The question arose under the new Act of 1961, in the context of the provisions in sections 243 and 297(2)(i), as to whether interest was payable. It was held that the new Act did not provide for payment of interest in such circumstances as the case did not fall within section 243 of the new Act. It is, therefore, clear that no interest is payable unless provision is made in the Act.

It is argued that whatever may be the position regarding interest payable by the assessee, interest could be awarded in favour of non-assessees even if there is no provision in the Act. We cannot agree. When the Legislature has laid down the procedure in the 1961 Act for claims being preferred by third parties and their adjudication by the departmental authorities u/s 132(5) or section 132(11), the Legislature cannot be said to be unaware of the possibility of consequential claims for interest by such third parties in cases of refund. When no provision is contained in the Act to cover the cases of non-assessees, the court cannot, in our view, make an award of interest.

Reliance is, however, placed for the petitioner on the decision of the Gauhati High Court in Jwala Prasad Sikaria, Satya Narayan Sikaria, Banwarilal Sikaria, Basudeo Sikaria and Gangadhar Sikaria Vs. Commissioner of Income Tax and Others, . In that case, an assessment was made under the Indian Income Tax Act, 1922, after the commencement of the 1961 Act and refund was granted to the assessee. It was no doubt held, on a consideration of section 244 and section 297 of the 1961 Act, that, even if the case was not covered specificially by the statute, it must be presumed that the Legislature could not have taken the "illogical" step of allowing interest to those assessees whose assessments had been completed before the commencement of the new Act and not to those who were to be assessed under the old Act after the commencement of the new Act. After stating that it would be illogical, unjust and discriminatory not to award interest in such cases, the learned judges went on to say that the "general law of the land would allow interest" in such cases and based their decision on the rulings of the Supreme Court in some other contexts, viz., cases of delay in payment of terminal benefits to an employee State of Kerala and Others Vs. M. Padmanabhan Nair, ; cases of owners whose property was requisitioned under the provisions of the Requisitioning and Acquisition of Immovable Property Act, 1952 Abhay Singh Surana and Others Vs. Secretary, Ministry of Communication and Others, ; cases of appropriation of land (Inglewood Pulp and Paper Co., Ltd. v. New Brunswick Electric Power Commission AIR 1928 PC 287. In our view, the above decisions given under other statutes cannot be of any help for deciding whether interest is payable under the Income Tax Act. We are, therefore, unable to agree with the opinion of the Gauhati High Court. Inasmuch as the Income Tax Act, 1922 (or 1961), is a complete code in itself as held by the Supreme Court in Ravula Subba Rao and Another Vs. The Commissioner of Income Tax, Madras, , no interest can be awarded unless provision is made in the Act to cover the contingency.

Learned counsel for the petitioner then relied upon the decision of the Delhi High Court in Sardar Parduman Singh Vs. Union of India and others, . That was a case of search and seizure in which no documents or things were seized but the shop was sealed and the claimant was restrained from dealing with the shop. Damages of Rs. 10,000 were awarded to the claimant after holding that the action was mala fide. Apart from being distinguishable on the ground of the finding as to mala fides, we do not consider it as a precedent on the question of payment of interest under the Income Tax Act or even outside the said Act.

For the aforesaid reasons, we hold on point No. 1 against the petitioner.

Point No. 2 :- This point arises in the alternative. The point (i) : Whether u/s 4 of the Interest Act, 1978, there is any scope for awarding interest on the basis of common law or in equity. It is here necessary to go back briefly to the history of the legislation in England and India and certain recent developments in Australia and Canada.

The Interest Act, 1839, applicable in India was based upon Lord Tenterden''s Act, 1833, passed in England. The preamble to the Indian Act stated that the Act concerned itself with the "allowance of interest in certain cases". The Act contained a single section dealing with the power of the court to allow interest. It reads as follows :

"Section 4 : It is, therefore, hereby enacted that, upon all debts or sums certain payable at a certain time or otherwise, the court before which such debts or sums may be recovered may, if it shall think fit, allow interest to the creditor at a rate not exceeding the current rate of interest from the time when such debts or sums certain were payable, if such debts or sums be payable by virtue of some written instrument at a certain timeif payable otherwise, then from the time when demand of payment shall have been made in writing, so as such demand shall give notice to the debtor that interest will be claimed from the date of such demand until the time of payment :

Provided that interest shall be payable in all cases in which it is now payable by law."

The above said proviso to section 1 of the Interest Act is similar to the proviso to section 28 of the Lord Tenterden''s Act, 1833.

In cases where a person is not able to claim interest under the main part of section 1, a question will naturally arise as to whether he can claim interest by resorting to the proviso. That leads to an investigation as to the scope and meaning of the proviso. The proviso to the English Act of 1833 fell for consideration for the first time in London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] AC 429 (HL). In that case, after holding that the debt was not an ascertained debt and that there was no notice in writing claiming interest and that the main part of section 28 of Lord Tenterden''s Act was not applicable, the House of Lords considered the applicability of the proviso to section 28. After referring to the proviso, it was held that interest could not be awarded as damages for retention of a debt even under the proviso. While observing that it was an unsatisfactory position if interest could not be granted for retention of a debt, the House of Lords felt obliged to follow what they called the settled position under the Common law of England that such interest could not be granted. The authority under the Common law was, according to their Lordships, contained in Page v. Newman [1829] 9 B&C 378; 109 ER 140, which was heard by a court presided over by Lord Tenterden himself. In Page v. Newman [1829] 9 B&C 378; 109 ER 140, it was held by the King''s Bench that if the court should hold that interest was due wherever the debt had been wrongfully withheld after the plaintiff had endeavoured to obtain payment of it, it might frequently be made a question at nisi prius whether proper means had been used to obtain payment of the debt and such as the party ought to have used. That, it was held, would be productive of great inconvenience. Lord Tenterden further observed in that case that the king''s Bench ought not to depart from the long-established rule that interest was not due on money secured by a written instrument unless it appeared on the face of the instrument that interest was intended to be paid or unless it be implied from the usage of trade, as in the case of mercantile instruments. It is, therefore, clear that in London, Chatham and Dover Railway Co.''s case [1893] AC 429, the House of Lords held, following Page v. Newman [1829] 9 B&C 378; 109 ER 140, interest could not be awarded as damages for mere delay in repayment of the debt.

The abovesaid decision of the House of Lords was followed by the Privy Council in the well-known case of AIR 1938 67 (Privy Council) . There, the privy council, after holding that the main part of section 1 of the Indian Interest Act was not attracted, referred to the proviso in section 1. The Privy Council considered the matter first under equity and then under the Common law. Their Lordships stated that, under the proviso to section 1 of the Indian Interest Act of 1839, interest could be granted if a court of equity could grant interest but in order to invoke a rule of equity, it was necessary in the first instance to establish the existence of a state of circumstances which attracted the equitable jurisdiction of the court, such as the non-performance of a con-tract of which equity could give specific performance and relied upon Maine and New Brunswick Electrical Power Co., Ltd. v. Hart AIR 1929 PC 185, for the said proposition. Adverting to the right of the plaintiff alternatively under common law to claim interest, the Privy Council observed that section 73 of the Indian Contract, 1872, gave statutory recognition to the general rule that, in the event of a breach of a contract, the party who suffered by such a breach was entitled to recover from the party breaking the contract, compensation for any loss or damage thereby caused to him. Adverting to the illustration (n) to section 73 which gave an impression that interest could be claimed as damages, they held that it did not deal with the right of a creditor to recover interest from his debtor on a loan advanced to the latter by the former. They observed that the illustration only showed that if any person broke his contract to pay to another person a sum of money on a specific date and, in consequence of that breach, the latter was unable to pay his debts and was ruined, the former was not liable to make good to the latter anything except the principal sum which he promised to pay, together with interest up to the date of payment. He was not liable to pay damages of a remote character. The illustration, they clarified, did not confer upon a creditor a right to recover interest upon a debt which was due to him, when he was not entitled to such interest under any provision of law and that it did not have any effect of modifying the language of the section which alone formed the enactment. Referring to section 73 as declaratory of the common law, the Privy Council further observed as follows AIR 1937 PC 70 :

"As observed in Jamal v. Moolla Dawood Sons and Co. AIR 1915 PC 48, section 73 is merely declaratory of the common law as to damages, and it has been held by the House of Lords in London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] AC 429 that interest cannot be allowed at common law by way of damages for wrongful detention of debt.... The law has, however, been amended in England by section 3, Law Reform (Miscellaneous Provisions) Act, 1934, empowering a Court of Record to award interest on the whole or any part of any debt or damages, at such rate as it thinks fit, for the whole or any part of the period between the date when the cause of action arises and the date of the judgment. But there has been no such amendment of law in India."

The abovesaid view has been reiterated by several decisions of the Supreme Court including the latest case in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, where the Supreme Court also followed the earlier decision of the House of Lords in London, Chatham and Dover Railway Co.''s case [1893] AC 429.

Having referred to the position under the proviso to section 1 of the old Interest Act of 1893 that interest was not payable as damages under the common law for a mere retention of debt and that, for being paid in equity, specific circumstances for applying equitable rules must be present, we shall now deal with the position under the new Interest Act, 1978.

The Interest Act, 1978, has replaced the Interest Act, 1839. The provisions of the said Act of 1978 are wider than those of the 1839 Act and appear to some extent to be based upon the provisions of the Law Reform (Miscellaneous Provisions) Act, 1934. This Act is, as indicated in the preamble, an Act to "consolidate and amend the law relating to the allowance of interest in certain cases". As disclosed in the Statement of Objects and Reasons, it is based on the recommendations contained in the 63rd Report of the Law Commission of India. This Act of 1978 was not brought immediately into force but became effective only from August 19, 1981. Section 2(c) of the Act defines "debt" as "any liability for an ascertained sum of money and includes a debt payable in kind, but does not include a judgment debt" Section 3(1) of the Act contains certain provisions which are wider than the main part of section 1 of the 1839 Act and inasmuch as it is common ground before us that section 3 does not apply to the facts of the case, we do not propose to extract the same. We are, however, concerned with section 4 of the 1978 Act which corresponds to the proviso to section 1 of the Interest Act, 1839. Section 4(1) reads as follows :

"Section 4(1) Notwithstanding anything contained in section 3, interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law."

On a comparison of the proviso to section 1 of the old Act of 1839 and section 4 of the new Act of 1978, it will be seen that, in substance, there is not much of a difference. It is obvious that section 4(1) saves the rights, if any, to claim interest if such rights are traceable to any other statute, common law or equity, or mercantile usage, etc. In fact, section 4(2) enumerates certain situations in which equity would allow interest.

The decision of the Privy Council in AIR 1938 67 (Privy Council) , which has followed the decision of the House of Lords in London, Chatham and Dover Railway Co.''s case [1893] AC 429, read with the decision of the Supreme Court in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, , precludes, as stated earlier, any claim for interest as damages under the common law or u/s 73 of the Indian Contract Act. In fact, in AIR 1938 67 (Privy Council) , the Privy Council specifically referred to section 73 of the Contract Act as being declaratory of the common law. In our opinion, whatever may be the position if the provisions of section 3 are satisfied, the position however u/s 4(1) also is that no interest can be awarded as damages on the basis of the common law principles enshrined in section 73 of the Contract Act, 1872.

The position may be unfortunate for plaintiffs but unless and until the legal position as to the common law rule as falling u/s 4(1) of the Interest Act, 1978 (corresponding to the proviso u/s 1 of the Interest Act, 1839), is altered, it will be difficult to award interest as damages in cases not falling u/s 3 of the Interest Act, 1978.

It is true that the legal position has stood recently altered in Australia and Canada on the basis of the 1984 decision of the House of Lords in President of India v. La Pintada Cia Navegacion Sa [1984] 2 All ER 773 . It is useful to refer to these recent trends.

Some time before the decision of the House of Lords, before 1984, it was laid down in Trans Trust S.P.R.L. v. Danubian Trading Co. Ltd. [1952] 1 All ER 970 by Denning and Romer L. JJ. that the correct rule at common law was that interest could be awarded if claimed as "special damages", that is, in cases where a plaintiff pleads and proves that he has suffered special damage as a result of the defendant''s action. Cases of special damage are cases where the loss occasioned to the plaintiff by the defendant''s default could be treated as being reasonably within the contemplation of the parties. These are cases where the defendant could foresee that the plaintiff would incur such special damage. The above said view in Trans Trust S.P.R.L. v. Danubian Trading Co., Ltd. [1952] 1 All ER 970 was reaffirmed by the Court of Appeal in Wadsworth v. Lydall [1981] 2 All ER 401 . In President of India v. La Pintada Cia Navegacion SA [1984] 2 All ER 773, the House of Lords accepted the above view as correct in law and that, to that extent, the earlier decision in London, Chatham and Dover Railway Co.''s case [1893] AC 429 (HL) was wrongly decided. For coming to the said conclusion, they relied upon the second limb of the rule in Hadley v. Baxendale [1854] 9 Ex 341, 156 ER 145. This reversal in the law was indeed based upon the view mentioned in 1867 by Bullen and Leake but ignored by the House of Lords in 1893. Therefore, it has now been held that interest could be awarded as damages under the common law provided it could be awarded as special damages. The common law rule regarding interest is, therefore, the one in Hadley v. Baxendale [1854] 9 Ex 341; 156 ER 145 and not the one in page v. Newman [1829] 9 B&C 378; 109 ER 140.

Unfortunately, even though the House of Lords held in President of India v. La Pintada Cia Navegacion S.A. [1984] 2 All ER 773, as stated above, they did not feel inclined to bring English common law in conformity with the above said view but left it to the legislature to alter the law. One of the reasons for this was that the British Parliament which introduced various amendatory statutes regarding interest after 1833, i.e., in 1934, 1981, 1982, did not think of altering the law by providing for payment of interest as part of special damages. The English law, therefore, as stated by certain writers, continues to remain in "shackles" reluctantly imposed on it by the House of Lords in London, Chatham and Dover Railway Co. [1893] AC 429 (See F. A. Mann''s article, "On Interest, Compound Interest and Damages" [1985] 101 L.Q.R. 30).

Recently, the High Court of Australia has rid the Australian law of similar "shackles" earlier imposed in Australia. In their judgment in Hungerford v. Walker [1989] 63 ALJ 210, the majority of the Australian High Court authoritatively laid down that a court, when awarding damages at common law for breach of contract or negligence, could include an award for damages by way of interest for the loss of the use of money which the plaintiff paid or lost as a direct result of the defendant''s breach of contract or negligence and refused any longer to be bound by London, Chatham and Dover Railway Co.''s case [1893] AC 429. The court preferred the common law rule as enunciated in the second limb of Hadley v. Baxendale [1854] 9 Ex 341; 156 ER 145 and as accepted, in theory (rather than in practice) in President of India v. La Pintada Cia Navegacion SA [1984] 2 All ER 773 . The law was so enunciated u/s 30(c) of the Supreme Court Act, 1935 (SA) (the Australian Statute). There, sub-clause 4(e) of section 30(c) is on lines similar to section 4(1) of the Indian Interest Act, 1978, and that sub-section provides that the Act does not "limit the operation of any other enactment or rule of law providing for interest."

Mere retention of debt and delay in repayment could, the Australian High Court said, afford a separate cause of action. The Australian Court further referred to the altered position under the Canadian law :

"We note that the Canadian Federal Court of Appeal has recently stated that, in its view, there is no longer any reason to retain the common law rule against interest as damages, describing the rule as ''A judge-made limitation on the awarding of interest which is clearly on longer seen to be good public policy''" (Algonquin Mercantile Corporation v. Dait Industries Canada Ltd. [1987] 16 C.P.R. (3d) 193 ).

Thus, it is clear that the law has been almost reversed in Australia and Canada.

In the United States of America, Professor Williston, in his Law of Contracts (1968) (Vol. 11, s. 412), has stated that "interest may be awarded by the law of damages", and has adopted the law as stated by the pennsylvanian Court (See Mann''s article in [1985] 101 L.Q.R. 30). Mann also refers to the law in France that damages and interest are put there on the same level (articles 1146 to 1151); that, in Germany, the damages payable in default of debts are payable at a rate of interest higher than 4% (section 246 and 288) and may include compound interest (see also Professor Von Maydell, Geldschild and Goldwert [1974], page 140), that, in Switzewrland, rates higher than 5% are allowed when int erest is awarded as damages (articles 104 to 106) of the Code of Obligation); and that, in Scotland, interest is payable as damages as stated by Lord Kincairney in 1897 (Quoting from D. M. Walker, The Law of Damages in Scotland). Mann also points out that since the days of Roman law, interest was treated as a form of damages and that the same is reiterated by Prof. Kaser (a Roman lawyer) (See Das Romische Privatrecht, 1971, p. 516). He also states that the law was for granting interest in cases of tortious detention or damage to property, particularly in Admiralty cases.

It is, therefore, clear that English law continues to remain in "shackles" while the law now awards interest as damages in Australia, Canada, the United States of America, France, Germany and Switzerland. The law in India also continues to be in the same position as in 1938 so far as the award of interest as damages for retention of debt is concerned.

Lord Scarman and Lord Roskill have, in fact, said in President of India v. La Pintada Cia Navegacion SA [1984] 2 All ER 773 that the omission in the statutory law in England called for an immediate change as had been earlier recommended in the Report on Interest by the British Law Commission (Cmnd, 7229, 1978, Law Comm. No. 88). Though statutory amendments have been made in England and India, for award of interest in cases relating to personal injury, the position so far as payment of interest in cases of detention of debt continues to lag behind the law in various countries. It has to be seen whether the Indian law will be freed from the "shackles" of London, Chatham and Dover Railway Co.''s case [1893] AC 429 as has been done recently in Australia and Canada and so as to bring the law in conformity with the law in various other countries.

Learned counsel for the petitioner placed reliance on Inglewood Pulp and Paper Co., Ltd. v. New Brunswick Electric Power Commission AIR 1928 PC 287, and Abhay Singh Surana and Others Vs. Secretary, Ministry of Communication and Others, , to which we have already referred under point No. 1 while disagreeing with the judgment of the Gauhati High Court. As stated there, we cannot go by analogies once we have held that the Act is a complete code. For the same reasons, we cannot follow Satinder Singh and Others Vs. Amrao Singh and Others, , which is a case of land acquisition.

The case in Life Insurance Corporation of India and another Vs. Gangadhar Vishwanath Ranade (Dead) by LRs., related to the liability of the insurer to pay interest and not to the liability of the Income Tax department before which the insurer failed to raise certain objections. This decision cannot, therefore, help the petitioner. Nextly, Redihot Electricals v. Union of India, (1990)185 ITR 664 (Delhi) , related to a case u/s 11B of the Central Excises and Salt Act, 1944, and cannot be of any help. It is true that, in Hirachand Kothari v. State of Rajasthan AIR 1985 SC 998, the Supreme Court observed that interest is payable sometimes on equitable grounds. This decision cannot be of any help unless the petitioner, as stated earlier, establishes or proves that the case is one where equitable circumstances (some of which are enumerated in section 4(2), Interest Act, 1978) exist. Therefore, all these decisions do not also apply.

We hold, therefore, alternatively, that interest is not payable under the common law or in equity or u/s 4(1) of the Interest Act, 1978.

For the aforesaid reasons, this writ petition is dismissed, in the circumstances, without costs.