Interest on refund of wrongly levied interest is payable when the Act allows refund interest under the governing provision.

Interest under section 244(1A) was held payable on refund of interest earlier levied under section 217. The Tribunal followed binding High Court authority and accepted that, where the Revenue retains interest not lawfully due and later refunds it, the assessee is entitled to interest on that refund. The Revenue's reliance on the definitions of "tax" and "interest" to argue that section 244(1A) covers only tax or penalty refunds was rejected. The assessee therefore succeeded on the claim for interest on the refunded interest amount.

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Issues: Whether interest under section 244(1A) of the Income-tax Act, 1961 is payable on refund of interest earlier levied under section 217 of the Income-tax Act, 1961.

Analysis: The refund arose from interest levied under section 217 and was repaid without interest. The assessee relied on binding High Court authority holding that the benefit of interest on refund extends to such a refund, while the Revenue relied on the language of section 244(1A) and the definitions of "tax" and "interest" in section 2(43) and section 2(28A) to contend that interest is not covered. Following the Madras High Court decision relied upon, the Tribunal held that the claim was covered and that the Revenue's objection did not prevail.

Conclusion: Interest under section 244(1A) is payable on the refund of interest levied under section 217, and the assessee succeeded.

Ratio Decidendi: Where a refund represents interest unlawfully retained under the Act, interest on such refund is admissible under section 244(1A) notwithstanding the Revenue's contention that the provision applies only to refund of tax or penalty.

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