JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that interest under Section 214 is not taxable in the hands of Travancore Tea Estates Co. Ltd. ?”
2. The respondent/assessee is a non-resident company. We are concerned with the assessment years 1979-80 and 1981-82. The assessee-company owned tea estates in India. The estates were sold to Messrs. Ram Bahadur Thakur (P.) Ltd. The document of transfer was executed on September 17, 1976 (annexure “A-5”). While making the assessment for the year 1979-80, dated December 26, 1985, the Income-tax Officer granted interest under Section 214 of the Act on May 2, 1978, in the sum of Rs. 11,890. Similarly, while effecting the assessment order for the year 1981-82, the Income-tax Officer included interest under Section 214 granted on October 22, 1980 (1977-78), in a sum of Rs. 2,52,180 and interest granted on February 18, 1980 (1976-77), in the sum of Rs. 42,166. On appeal, the Commissioner of Income-tax (Appeals), by order dated March 31, 1986, upheld the inclusion of interest received under Section 214 of the Act as valid. It was held that it was part of the assessee’s income to be included in the total income. In second appeal, at the instance of the assessee, the Appellate Tribunal, by its order dated November 17, 1987, in paragraph 16, held thus :
“16. The assessee for the assessment years 1979-80 and 1981-82 has taken an additional ground in respect of interest under Section 214. We are of the opinion that interest under Section 21(1 is not taxable in the hands of Travancore Tea Estates Ltd. (assessee) in view of the provision in Clause 5(c) of the agreement dated September 17, 1976, reproduced at page 9 of the paperbook filed by the Department and at page 17 of the paperbook filed by the assessee.”
3. It is aggrieved by the aforesaid conclusion of the Tribunal, that interest awarded to the assessee under Section 214 of the Act is not includible in its hands, the Revenue has got the question, formulated hereinabove, referred for the decision of this court.
We heard counsel.
4. Annexure “A-5” is the agreement dated September 17, 1976, executed between the respondent/assessee and Messrs. Ram Bahadur Thakur Private Limited. It is common ground that the tea estates owned by the respondent/assessee in India were sold to Messrs. Ram Bahadur Thakur Private Limited, as evidenced by the said agreement. The relevant clauses to which our attention was drawn in the said agreement are extracted hereinbelow :
“. . . . the vendor doth hereby assign and transfer unto the purchaser.
(a) ……
(b) ……
(c) all the benefits, advantages or licences and quota rights connected with or incidental to the said plantation, cultivation, manufacture, trade, business or sale ;
(d) all and singular the book and other debts now due and owing or hereafter to become due and owing to the vendor on account of the said plantation, cultivation, manufacture, trade, business, or sale and the benefit of all contracts and orders for the sale, supply or manufacture entered into by the vendor in respect of the said plantation, cultivation, manufacture, trade, business or sale, the particulars of which debts and
contracts are contained in the books of account of the vendor of the said plantation, cultivation, manufacture, trade, business or sale which have been handed over to the purchaser. . . .
5. The purchaser doth hereby covenant with the vendor as follows:
(a) ……
(b) ……
(c) The purchaser shall pay and discharge all tax liabilities on the income of the business hereby assigned and transferred (excluding liability in respect of capital gains in respect of this transfer, which is payable by the vendor) and shall keep the vendor indemnified from and against the same and from and against all actions, claims and demands in respect thereof and from and against all costs, charges and expenses which the vendor may incur or suffer or be put to by reason thereof. The purchaser shall be entitled to receive all refunds out of the monies paid to the tax authorities and ordered to be refunded at any time and the vendor hereby expressly authorises the purchaser to receive all such refunds from the tax authorities.”
5. The plea of the assessee which was accepted by the Appellate Tribunal was that the purchaser, Messrs. Ram Bahadur Thakur (P.) Ltd., became entitled to receive “all refunds out of the monies paid to the tax authorities and ordered to be refunded at any time” and so the respon-dent-assessee, Messrs. Travancore Tea Estates Ltd., Cochin, could not have been assessed on the interest awarded to them under Section 214 of the Income-tax Act. The short question that falls for consideration is, whether the interest awarded to the respondent/assessee under Section 214 of the Income-tax Act shall be considered to be a refund specified in Clause 5(c) of annexure “A-5” agreement. A Bench of this court in Jose T. Mooken v. CIT [1979] 117 ITR 894, at pages 907 and 908, stated thus :
“. . . . 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] 63 ITR 458 (SC) and also in Dr. Shamlal Nanda v. CIT [1964] 53 ITR 151 (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 in Ramanathan Chettiar v. CIT [1967] 63 ITR 458 (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.”
6. We are of the view that interest payable or paid on the excess amount under Section 214 of the Act will not amount to a “refund” of any amount paid as tax. It may be that such interest is liable to be assessed as income from “other sources”. But, such interest will not amount to “refund” of any amount paid as tax. The word “refund” has got a technical meaning in tax law. So construed, we are of the view that “interest” that accrued or was paid to the respondent/assessee cannot be claimed by the purchaser–Messrs. Ram Bahadur Thakur (P.) Ltd.–as per Clause 5(c) of the agreement dated September 17, 1976. The Appellate Tribunal was in error in holding that interest awarded to the assessee under Section 214 of the Act is not taxable in the hands of the assessee.
7. We answer the question referred to this court in the negative, against the assessee and in favour of the Revenue.
8. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.