Refund-interest under the 1961 Act applies when the claim arises after commencement, and no interest follows if statutory timing is satisfied.

A refund-interest claim arising only after commencement of the Income-tax Act, 1961 was held to fall under Section 244(1) read with Section 297(2)(i), not Section 66(7) of the Income-tax Act, 1922. The Court reasoned that the decisive factor was when the right to refund arose; because the claim matured after the 1961 Act came into force, the later statutory regime applied. It also rejected reliance on the Income-tax (Removal of Difficulties) Order, 1962, since its deeming fiction applied only to claims already arising before commencement. As the refund was made within the period prescribed by Section 244, no interest was payable.

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Issues: (i) Whether the assessee's claim for interest on refund was governed by Section 66(7) of the Indian Income-tax Act, 1922 or by Section 244(1) read with Section 297(2)(i) of the Income-tax Act, 1961; (ii) whether any interest was payable on the refunded tax amount.

Issue (i): Whether the assessee's claim for interest on refund was governed by Section 66(7) of the Indian Income-tax Act, 1922 or by Section 244(1) read with Section 297(2)(i) of the Income-tax Act, 1961.

Analysis: The decisive question was which statutory regime applied to a refund arising after the commencement of the 1961 Act, although the original assessment related to an earlier year. The Court held that the later Act governed because the refund claim arose only after the assessee became entitled to refund pursuant to the later judicial determination, and the claim was not one pending before the commencement of the 1961 Act. The earlier view treating such matters as governed by the 1922 Act was considered displaced by the later Supreme Court position.

Conclusion: The claim was governed by Section 244(1) read with Section 297(2)(i) of the Income-tax Act, 1961, and not by Section 66(7) of the Indian Income-tax Act, 1922.

Issue (ii): Whether any interest was payable on the refunded tax amount.

Analysis: Once the 1961 Act was held applicable, the refund had been made within the statutory period contemplated by Section 244 of the 1961 Act. The Court also rejected reliance on the Income-tax (Removal of Difficulties) Order, 1962, because its deeming fiction assisted only where the refund claim had arisen before the commencement of the 1961 Act. The binding effect of the later Supreme Court ruling was applied, and the assessee's claim for interest could not be sustained.

Conclusion: No interest was payable on the refund amount.

Final Conclusion: The appeal failed on the merits because the assessee's refund claim fell under the Income-tax Act, 1961, and the statutory conditions for interest were not satisfied; the suit also stood dismissed.

Ratio Decidendi: A refund claim arising only after commencement of the Income-tax Act, 1961 is governed by that Act, and where the refund is made within the period prescribed by Section 244, no interest is payable under the earlier law.

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