Time-barred assessment makes deducted tax refundable, with statutory interest also payable on the refund

Where an income-tax assessment had become time-barred under section 153 of the Income-tax Act, 1961, and no demand had been raised, continued retention of deducted tax was treated as unjustified and the refundable portion was payable to the assessee. The Delhi High Court also held that statutory interest followed on the refund under section 244A. The writ petition was therefore allowed, with refund of the admitted TDS amount and interest.

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Issues: (i) whether the tax deducted at source was refundable once the assessment had become time-barred; (ii) whether interest was payable on the refund.

Issue (i): whether the tax deducted at source was refundable once the assessment had become time-barred.

Analysis: The assessment was found to have become barred by limitation under section 153 of the Income-tax Act, 1961, and no demand had been created against the petitioner. In these circumstances, the continued retention of the deducted amount by the Revenue was held to be unjustified, and the undisputed refundable portion was treated as payable to the petitioner.

Conclusion: The deducted amount of Rs. 2.88 lakhs was held refundable to the petitioner.

Issue (ii): whether interest was payable on the refund.

Analysis: Once the refund was directed on account of the time-barred assessment and absence of any demand, the statutory consequence of refund interest followed under the applicable provision.

Conclusion: Interest under section 244A of the Income-tax Act, 1961 was directed to be paid on the refund.

Final Conclusion: The writ petition succeeded, and the petitioner was granted refund of the admitted TDS amount together with statutory interest.

Ratio Decidendi: Where assessment is barred by limitation and no tax demand has been raised, tax deducted at source attributable to the assessee becomes refundable, with statutory interest where the governing provision so provides.

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