Petitioner entitled to 6% interest on Rs. 4.23 crore equalisation levy refund under Section 244A principles

Bombay HC held that petitioner was entitled to interest on refund of Rs. 4,23,60,940/- under equalisation levy. Despite Revenue's contention that no interest provision exists for equalisation levy refunds, court applied Section 244A principles, citing Tata Chemicals Ltd. precedent that refund constitutes debt owed by Revenue. Court awarded 6% p.a. interest from April 1, 2018 to August 21, 2023, directing payment by February 15, 2024, failing which interest would increase to 9% p.a. with personal liability for responsible officers.

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Issues Involved:
1. Entitlement to interest on the undisputed refund amount.
2. Applicability of Section 244A of the Income Tax Act, 1961 for interest on refunds under the Equalisation Levy.

Summary:

Entitlement to Interest on the Undisputed Refund Amount:
The petitioner approached the court alleging failure by the respondents to release an undisputed refund of Rs. 4,23,60,940/- for the Financial Year 2017-2018, determined under Section 168(1) of the Income Tax Act, 1961. Although the refund was eventually paid on 21st August 2023, no interest was provided. The petitioner argued that interest should be paid, citing Section 170 of the Finance Act, 2016, which mandates interest for delayed payments by the assessee, and hence, the same principle should apply for refunds.

Applicability of Section 244A of the Income Tax Act, 1961:
The court considered precedents including the Apex Court's judgment in Union of India V/s. Tata Chemicals Ltd. and Universal Cables Ltd. V/s. Commissioner of Income Tax, which held that interest is a form of compensation for the use and retention of money collected unauthorizedly by the Revenue. The court noted that the Revenue's stand, which argued against the provision of interest due to the absence of explicit statutory provisions, was not tenable. The court emphasized that the obligation to refund money received and retained without right implies the right to interest, as a matter of course.

The court also referred to Circular No. 11/2016 issued by CBDT, which supported the view that interest should be paid on refunds of excess tax deducted at source. In the present case, the court concluded that the petitioner was entitled to interest on the refunded amount from 1st April 2018 to 21st August 2023 at the rate of 6% per annum, as prescribed under Section 244A of the Income Tax Act.

Conclusion:
The court ruled in favor of the petitioner, granting interest on the refunded amount at 6% per annum from 1st April 2018 to 21st August 2023. The court also mandated that the interest should be paid by 15th February 2024, failing which the interest rate would increase to 9% per annum from 16th February 2024. The difference of 3% (9% - 6%) would be recovered from the responsible officer.

Order:
Rule made absolute. The respondents are directed to pay the interest by 15th February 2024, failing which higher interest and additional proceedings will ensue.

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