Interest on tax refund is confined to the accounting period actually covered by the reference, not other affected periods.

On a reference under section 66(7) of the Indian Income-tax Act, 1922 read with the Excess Profits Tax Act, 1940, interest on refund is confined to the assessment or accounting period actually comprised in the reference. The proviso to section 66(7) applies only where that very assessment is reduced and the overpaid sum becomes refundable with interest. Even though the legal principle decided in the reference may affect other accounting periods, refunds arising in those periods are not refunds directly resulting from the reference. Interest is therefore payable only on the refund relating to the particular accounting period covered by the reference.

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Issues: Whether, on a reference under section 66(7) of the Indian Income-tax Act, 1922 read with the Excess Profits Tax Act, 1940, interest on refund is payable only for the accounting period actually covered by the reference or also for other accounting periods affected by the principle decided in the reference.

Analysis: The proviso to section 66(7) applies where the assessment that is the subject-matter of the reference is reduced and the overpaid amount on that assessment becomes refundable with interest. The language and scheme of the provision show that both the substantive part and the proviso are confined to the same assessment that was directly before the High Court. Although the Excess Profits Tax Act treats the overall chargeable period as a larger statutory frame, each accounting period remains a separate unit for assessment. Refunds arising in later or earlier periods because the legal principle settled in the reference is followed are not refunds that result directly from the reference itself. The reference cannot be extended to generate interest on refunds outside the accounting period actually comprised in it.

Conclusion: The petitioner was entitled to interest only on the refund relating to the particular accounting period covered by the reference, not on refunds for other accounting periods.

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