Delhi HC: Interest on Tax Refunds Must Accrue Until Payment Date, Upholding Time Value of Money Principle.

In a case before the Delhi HC, the petitioner sought interest on a tax refund until the actual payment date, 18.10.2019, rather than the earlier refund order date. The court ruled that under Section 244A of the Income Tax Act, interest should be calculated until the refund is actually paid, emphasizing the time value of money. The court directed the Assessing Officer to recalculate interest up to the payment date and release the additional amount within four weeks. The court did not address the issue of refund adjustments against other dues, as it is pending separately.

---

---

In the case before the Delhi High Court, the petitioner sought a writ of mandamus to direct the respondents to release a refund of INR 1,81,06,76,400/- along with applicable interest for the Assessment Year 2017-18. The refund amount has already been released, but the dispute remains over the interest calculation on the refund amount, which was initially computed by the respondents as INR 5,65,83,638/- up to 30.03.2019. The petitioner contends that interest should be computed until the actual date of refund payment, 18.10.2019, not the earlier date when the refund order was passed.

The court held that the term "refund is granted" under Section 244A of the Income Tax Act, 1961, should be interpreted to mean the date when the refund amount is actually paid to the assessee, not the date of the order granting the refund. The court emphasized that interest compensates for the time value of money, and accepting the respondents' interpretation would allow the Revenue to avoid paying interest while withholding the refund. Consequently, the court directed the Assessing Officer to recalculate the interest up to 18.10.2019 and release the additional amount to the petitioner within four weeks.

The court clarified that it did not address the validity of adjusting the refund against other dues, as that issue is pending in a separate petition. The decision focused solely on whether interest is payable until the refund order date or the actual payment date. The petition and any pending applications were disposed of accordingly.

---