Tax refund interest for AY 1957-62 u/s244 despite repealed assessment regime; revenue ordered to refund with 12% interest.

The dominant issue was whether interest on tax refund for AYs 1957-58 to 1961-62 was payable under s. 244 of the Income-tax Act, 1961, having regard to the transitional provision in s. 297(2)(i), despite the original assessments being under the repealed Act. The HC held that the right to refund, once arising, could not be defeated by a procedural transition, and that s. 297 could not be construed to deny substantive entitlement to interest merely because assessments related to the earlier regime. Treating the refund mechanism as procedural, the HC directed the Revenue to issue refund and pay interest at 12% within six months.

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Issues:
Claim for refund of interest under section 244 of the Income-tax Act for assessment years 1957-58 to 1961-62. Interpretation of section 297(2)(i) of the Income-tax Act, 1961. Applicability of interest provisions under the old Act and the new Act. Classification of assessments pre and post the introduction of the 1961 Act.

Analysis:

The writ petitioner sought a mandamus for the issuance of refund vouchers for interest under section 244 of the Income-tax Act for the assessment years 1957-58 to 1961-62. The petitioner claimed interest at 12 per cent totaling Rs. 26,76,146. The petitioner argued that the Assessing Officer should have issued the refund vouchers along with interest as per the relevant provisions of the Act. The petitioner contended that the provisions of section 297(2)(i) of the Income-tax Act, 1961, allowed for the claim of interest even for assessments completed under the old Act. The petitioner relied on case law to support their position, distinguishing cases where fresh assessments were made versus cases involving refunds under existing assessments.

The Revenue authorities contended that the assessments were completed under the old Act, and the claim was made under the provisions of the old Act, not the new Act. They argued that no specific rate of interest was provided for in the old Act for the relevant assessment years. The Revenue authorities emphasized the procedural nature of section 297(2)(d)(i) and asserted that the charging of interest at a specified rate was a substantive issue. They argued that the classification between assessments pre and post the introduction of the 1961 Act was reasonable and within the legislative discretion. The Revenue authorities maintained that interest under section 244 does not arise until a fresh computation of tax is made through a fresh assessment.

Upon considering the arguments from both sides and reviewing the case law cited, the court found that a case for refund was established for the relevant assessment years. The court held that the claim for refund could not be defeated after the promulgation of the 1961 Act. The court emphasized that procedural matters should not defeat substantive claims for refund. Therefore, the court ruled in favor of the petitioner, directing the Revenue authorities to refund the dues with 12 per cent interest within six months from the date of the order. The court did not find any impediment to granting the writ petition in this regard.

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