Suspended employee loses bid for higher interest on tax refund under Section 89 IT Act

The MP HC dismissed a petition by a suspended employee seeking higher interest on tax refund. The petitioner, suspended from 1996-2007, received subsistence allowance and claimed relief under Section 89(1) of IT Act. The court held that Section 89 relief is a rebate/adjustment against tax liability, not a refundable amount. The IT Department correctly calculated the refund amount and paid interest at statutory rate of 0.5% per month under Section 244A(1). The court rejected the petitioner's claim for 18% interest, noting no legal provision supports such higher rate and the Department had already paid more interest than calculated by the petitioner's chartered accountant.

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Issues Involved:
1. Whether the amount of relief granted under Section 89 of the IT Act can be equated to the refund amount.
2. Whether the petitioner is entitled to interest at 18% p.a. despite statutory stipulation for payment of interest in Section 244(1)(b) of the IT Act.

Summary:

Issue 1: Equating Relief under Section 89 to Refund Amount
The petitioner, an ex-employee of Punjab and Sindh Bank, sought a refund of Rs. 2,81,797/- instead of Rs. 2,05,030/- and claimed interest at 18% p.a. The High Court examined whether the relief granted under Section 89 of the IT Act could be equated to a refund amount. The Court clarified that Section 89 provides relief when salary is paid in arrears or advance, allowing the spreading of income over relevant assessment years to avoid higher tax rates. The Court noted that relief under Section 89 is a rebate, not a refund. The total income for the assessment year was Rs. 20,87,089/-, and the relief granted under Section 89 was Rs. 2,81,797/-. After deducting TDS, the refundable amount was Rs. 2,05,030/-. The Court held that there was no mistake in the calculation by the respondents, as the relief under Section 89 was correctly extended.

Issue 2: Entitlement to Interest at 18% p.a.
The petitioner also claimed interest at 18% p.a. on the refundable amount. The Court referred to Section 244A(1) of the IT Act, which prescribes an interest rate of 0.5% per month (6% per annum) on refunds. The Court emphasized that payment of interest is a statutory obligation and non-discretionary. The respondents had calculated interest from 27.10.2010 to 25.04.2019 at 0.5% per month, resulting in an amount of Rs. 1,08,650/-. The Court found no error in this calculation and noted that the petitioner did not provide any legal basis for claiming interest at 18% p.a. Consequently, the Court concluded that the interest was correctly calculated as per statutory provisions.

Conclusion:
The petition was dismissed, with the Court affirming that the relief under Section 89 is not equivalent to a refund and that the interest was correctly calculated at the statutory rate of 0.5% per month. No further directions were issued for additional payments or higher interest rates.

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