Tax Court Grants Enhanced Interest Rate on Refunds, Emphasizes Original Order Date

The court ruled in favor of the assessee, determining that the enhanced rate of interest at 6 per cent per annum on tax refunds for the years 1956-57, 1957-58, and 1958-59 should be payable from the expiry of six months from the date of the order referred to in section 240 of the Income-tax Act, 1961. The judgment emphasized that the liability to interest is linked to the date of the original order for refund and not subsequent orders by the Income-tax Officer. The decision favored the assessee, awarding costs in their favor.

---

---

Issues:
Interpretation of section 244 of the Income-tax Act, 1961 regarding the payment of interest on tax refunds.

Analysis:
The judgment addressed the question of whether the interest payable on tax refunds for the years 1956-57, 1957-58, and 1958-59 should be at 6 per cent per annum, following an amendment to section 244 of the Income-tax Act, 1961, raising the rate from 4 per cent to 6 per cent. The court considered the submission by the revenue that the enhanced rate of interest would be payable only from April 1, 1965, as the law was changed from that date. However, the court examined the wording of section 244(1), which mandates interest payment to the assessee if the refund is not granted within six months from the date of the order, and concluded that the interest at 6 per cent would be payable from the expiry of six months from the date of the order referred to in section 240.

The court emphasized that the obligation under section 240 is for the Income-tax Officer to refund the excess tax collected, not to pass additional orders. Therefore, the liability to interest is linked to the date of the order referred to in section 240, not any subsequent order by the Officer. The judgment highlighted that a change in law can have retrospective effect if explicitly stated by the legislature, as seen in the case of the amendment to section 244. Accordingly, the court ruled that the assessee was entitled to 6 per cent interest for the periods specified, i.e., September 28, 1964, to September 22, 1965, for the assessment year 1956-57, and September 28, 1964, to October 6, 1965, for the assessment years 1957-58 and 1958-59. The decision favored the assessee, and costs were awarded in their favor.

---