Refund interest on pre-1961 assessments applies under the 1961 Act when entitlement arises after appellate proceedings end.

Where a pre-1961 assessment was completed under the 1922 Act but the assessee became entitled to refund only after appellate proceedings ended after commencement of the 1961 Act, section 297(2)(i) applies so that the refund carries interest under section 244. The expression "under this Act" in sections 240 and 244 is read harmoniously with section 297(2)(i), and orders passed in pending appeal, reference or revision proceedings under section 297(2)(c) are treated as orders under the 1961 Act for refund and interest purposes. Rectification notices issued under section 35 of the 1922 Act were therefore not maintainable.

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Issues: Whether, where assessments had been completed under the Indian Income-tax Act, 1922 before the commencement of the Income-tax Act, 1961 but the assessee became entitled to refund only after appellate proceedings were disposed of under the 1961 Act, the refund carried interest under section 244 of the Income-tax Act, 1961 and whether rectification notices issued under section 35 of the Indian Income-tax Act, 1922 were maintainable.

Analysis: The governing provisions were read harmoniously. Section 297(2)(i) of the Income-tax Act, 1961 applies where an assessment was completed before commencement of the new Act and a refund falls due after such commencement. The Court held that the expression 'under this Act' in sections 240 and 244 cannot be read literally so as to defeat section 297(2)(i). Orders passed in pending appeal, reference, or revision proceedings after the commencement of the 1961 Act, though disposed of according to the old Act under section 297(2)(c), are to be treated as orders under the new Act for the purpose of refund and interest. The Court relied on the settled view that the completion of assessment is distinct from its finality, and that the entitlement to refund arising after commencement attracts the interest provisions of the new Act.

Conclusion: The refund interest was rightly granted under section 244(1) of the Income-tax Act, 1961, and the rectification notices issued under section 35 of the Indian Income-tax Act, 1922 were not maintainable. The writ petitions succeeded in favour of the assessee and the notices were quashed.

Ratio Decidendi: Where a completed pre-1961 assessment results in a refund only after post-commencement appellate proceedings, section 297(2)(i) brings the case within the refund-interest provisions of the Income-tax Act, 1961, and pending orders disposed of under section 297(2)(c) are to be treated as orders under the new Act for that limited purpose.

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