2023 (12) TMI 1045 - HC - Income Tax

Payment of interest u/s 244A to the deductor on the refund of tax made u/s 240 - Failure to release the undisputed refund due and determined by respondents themselves in the intimation/order issued u/s 168(1) - stand of the Revenue is interest is not provided for refund of amounts deposited under the equalisation levy and, therefore, the question of payment of any interest does not arise - HELD THAT - In Tata Chemicals Ltd. 2014 (3) TMI 610 - SUPREME COURT Apex Court also held that refund due and payable to the assessee is debt owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course In the present case, it is not in doubt that petitioner was entitled to refund of Rs. 4,23,60,940/- because the amount has been paid after the petition was filed. Since the excess amount has been paid over by petitioner on various dates during Financial Year 2017-2018, in our view, the refund ought to have been processed and paid latest by 31st July 2018. The interest, therefore, of course, will become payable from 1st April 2018 if we apply the principles prescribed in Section 244A of the Act. The amount, as noted earlier, has been paid only on 21st August 2023. Consequently, we are of the view that petitioner is entitled to interest on this amount of Rs. 4,23,60,940/- from 1st April 2018 upto 21st August 2023 at the rate of 6% p.a. which is the rate prescribed under Section 244A of the Act. Since we have awarded simple interest at 6%, we are not granting any cost in this case. This order shall be given effect to and the interest shall be paid over on or before 15th February 2024 - If not paid, with effect from 16th February 2024, the rate of interest payable will be at 9% p.a. until the date of payment. This will be in addition to other proceedings to hold the department and concerned officers to be in willful disobedience of the orders passed by this Court. The difference of 3% (9% - 6%) will be recovered from the Officer who will be responsible to have the interest paid.

Summary

Issues Involved:
1. Entitlement to interest on the undisputed refund amount.
2. Applicability of Section 244A of the Income Tax Act, 1961 for interest on refunds under the Equalisation Levy.

Summary:

Entitlement to Interest on the Undisputed Refund Amount:
The petitioner approached the court alleging failure by the respondents to release an undisputed refund of Rs. 4,23,60,940/- for the Financial Year 2017-2018, determined under Section 168(1) of the Income Tax Act, 1961. Although the refund was eventually paid on 21st August 2023, no interest was provided. The petitioner argued that interest should be paid, citing Section 170 of the Finance Act, 2016, which mandates interest for delayed payments by the assessee, and hence, the same principle should apply for refunds.

Applicability of Section 244A of the Income Tax Act, 1961:
The court considered precedents including the Apex Court's judgment in Union of India V/s. Tata Chemicals Ltd. and Universal Cables Ltd. V/s. Commissioner of Income Tax, which held that interest is a form of compensation for the use and retention of money collected unauthorizedly by the Revenue. The court noted that the Revenue's stand, which argued against the provision of interest due to the absence of explicit statutory provisions, was not tenable. The court emphasized that the obligation to refund money received and retained without right implies the right to interest, as a matter of course.

The court also referred to Circular No. 11/2016 issued by CBDT, which supported the view that interest should be paid on refunds of excess tax deducted at source. In the present case, the court concluded that the petitioner was entitled to interest on the refunded amount from 1st April 2018 to 21st August 2023 at the rate of 6% per annum, as prescribed under Section 244A of the Income Tax Act.

Conclusion:
The court ruled in favor of the petitioner, granting interest on the refunded amount at 6% per annum from 1st April 2018 to 21st August 2023. The court also mandated that the interest should be paid by 15th February 2024, failing which the interest rate would increase to 9% per annum from 16th February 2024. The difference of 3% (9% - 6%) would be recovered from the responsible officer.

Order:
Rule made absolute. The respondents are directed to pay the interest by 15th February 2024, failing which higher interest and additional proceedings will ensue.