Court rules Revenue liable to pay interest on delayed tax refund, clarifies not interest on interest

The court held that the Revenue was liable to pay interest on the total refundable amount, including the interest accrued on the delayed refund of taxes. The court clarified that this was not interest on interest but payment of interest on the entire amount due under Section 244A. The appellant was entitled to interest on the amounts claimed, and the court ruled in favor of the appellant, disposing of the appeals.

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Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in denying interest of Rs.1,60,30,495/- for Assessment Year 1989-90.
2. Whether the Income Tax Appellate Tribunal was right in denying interest of Rs.41,11,644/- for Assessment Year 1990-91.

Issue-wise Detailed Analysis:

Assessment Year 1989-90:

(a) The appellant was entitled to interest under Section 244A of the Income Tax Act, 1961, as per the tribunal's order dated 22nd June 2007. This order had attained finality and was not challenged by the Revenue. Therefore, the issue was the quantification of interest payable under Section 244A.

(b) The appellant was entitled to a refund of Rs.2,06,52,845/-. Part payments of Rs.1,70,01,266/- and Rs.36,51,579/- were made on 28th March 1995 and 1st June 1999, respectively. Interest accrued on these amounts was Rs.1,60,30,495/-, which was paid on 11th June 2008.

(c) The appellant claimed interest on Rs.1,60,30,495/- from the date it was due until the date of refund. The Revenue contended that this would amount to payment of interest on interest, which is forbidden.

Assessment Year 1990-91:

(a) Similar to the previous year, the tribunal's order dated 22nd June 2007 had become final, and the question was the quantification of interest payable under Section 244A.

(b) The appellant was entitled to a refund of Rs.53,01,570/-. Part payments of Rs.38,12,810/-, Rs.10,87,686/-, and Rs.4,01,074/- were made on 28th March 1995, 31st March 1997, and 19th March 1999, respectively. Interest accrued on these amounts was Rs.41,11,644/-.

(c) The appellant claimed interest on Rs.41,11,644/- from the date it was due until the date of refund. The Revenue contended that this would amount to paying interest on interest, which is contrary to Section 244A.

Decision:

1. There was no dispute on the initial interest payable by the Revenue, which should have been paid along with the refund of taxes. The dispute arose because the Revenue did not pay the interest accrued on the tax amount refundable when making the refund.

2. The interest payable on the refund was quantified on the date when the refund was issued. Interest stopped accruing on the said day and became part of the capital or principal amount due.

3. If the Revenue does not pay the interest accrued on the date of the refund, they would be liable to pay interest under Section 244A on the said amount. This is not interest on interest but payment of interest on the total amount refundable, including the interest accrued on the delayed refund of the tax.

4. Section 244A provides that where a refund of any amount becomes due to the assessee, they are entitled to receive simple interest calculated in the manner stipulated. The words "any amount" include the interest element accrued and payable on the date of the refund.

5. The Delhi High Court in Commissioner of Income Tax vs Goodyear India Limited and other cases had held that interest should be awarded on the interest component of the unpaid refund.

6. The Supreme Court in CIT vs HEG Limited clarified that the interest component becomes an integral part of the amount due under Section 244A. Therefore, the Revenue is liable to pay interest on the shortfall if the refund does not include the interest due.

7. The interpretation ensures that the Assessing Officer/Revenue refunds the entire amount due, including interest payable under Section 244A, and discourages part payment.

8. The court concluded that the appellant was entitled to interest on the amounts claimed, and the Revenue's contention of interest on interest was incorrect. The questions of law were answered in favor of the appellant, and the appeals were disposed of.

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