The writ petition, filed by Devkala Consultancy Services, Bangalore, had named besides the banks, and RBI, the Indian Banks' Association also as a respondent.

The amount, as stated by the petitioner, is a whopping Rs 723.29 crore annually collected by all the banks since 1994. The respondents justified the extra amount charged under the Interest Tax Act, effective from October 1, 1991 when banks were allowed to charge three per cent every year over andabove the interest on any borrowings.

The banks were thus allowed to pass on the burden of tax payable by them on interest charged, to the borrower. The IBA apparently advised banks that the rate of interest be loaded with the interest tax of three per cent and rounded upto the higher 0.25 per cent.

The petitioner claimed the action of the banks was illegal, arbitrary, violative of Section 26C of the Interest Tax Act and amounted to an unfair trade practice.

The IBA argued that the rounding off to a higher of 0.25 per cent is a recognised practice in banking, and is not unjust enrichment. Besides, it argued it was sound to compute the cum-tax interest rates in steps of higher 0.25 per cent.

The IBA's advise of October 9, 1991 was struck down by the High Court on the grounds that it was not backed by any statute, was without jurisdiction and exceeded the sanction given by 26C of the Interest Tax Act. The judges also held that it amounted to a violation of Article 265 of the Constitution which bars thecollection of any tax without the authority of law.

The judges, however, did not grant the prayer of the petitioner that the amounts be refunded, as it would be impractical. Besides directing the banks to deposit the excess amounts charged with the RBI for the credit of the Union of India, the judges have also awarded Rs 10,000 as costs to the petitioner, payable by the IBA.