Statutory interest under Section 244A doesn't survive settlement under Direct Tax Vivad Se Vishwas Act 2020

Delhi HC held that statutory interest under Section 244A of Income Tax Act does not survive settlement under Direct Tax Vivad Se Vishwas Act, 2020. The court ruled that when appeals are settled under VSV, all disputes including potential outcomes are closed and governed exclusively by VSV provisions. However, due to unexplained delay by revenue authorities in releasing settlement amounts between 2021-2023, the court directed payment of interest at 5% per annum for the delay period as compensation to the petitioner.

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Issues Involved:

1. Whether the statutory interest under Section 244A of the Income Tax Act, 1961, survives post-settlement under the Direct Tax Vivad Se Vishwas Act, 2020.
2. The interpretation of "disputed tax" and "tax arrears" under the VSV.
3. The applicability of interest for delayed refund under the VSV.

Detailed Analysis:

1. Interest under Section 244A:

The petitioner argued that the statutory interest under Section 244A of the Income Tax Act, 1961, accrued before the submission of forms under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV), should survive despite the settlement. The petitioner contended that the interest was due because the Assessing Officer failed to pass an appeal effect order by the statutory deadline, thus violating Section 153(2)(a) of the IT Act. The petitioner asserted that the Explanation to Section 7 of the VSV should be limited to determinations under the VSV and not affect interest accrued prior. However, the court concluded that once the petitioner opted for settlement under the VSV, which included both its appeal and the Revenue's appeal, the claim for interest under Section 244A was eclipsed by the settlement, as the VSV aimed to close all disputes comprehensively.

2. Interpretation of "Disputed Tax" and "Tax Arrears":

The court examined the definitions of "disputed tax" and "tax arrears" under the VSV. It noted that the VSV allowed an appellant to seek closure of disputes from both its own appeal and the Revenue's appeal. The court emphasized that the VSV enabled an applicant to avoid the potential adverse outcomes of both its appeal being dismissed and the Revenue's appeal succeeding. The court rejected the petitioner's argument that relief granted by the CIT (A) should not form part of "disputed tax" since the VSV entitles an applicant to seek a comprehensive settlement of all disputes, including those arising from cross-appeals.

3. Interest for Delayed Refund:

The petitioner sought interest for the delay in the refund of INR 39,85,83,552/- determined under the VSV. The court acknowledged the delay in refunding the amount, which was ultimately released on 13 February 2023, despite Form 5 being issued much earlier. The court referred to previous judgments, including Mrs. Anjul vs Office of Principal Commissioner of Income Tax-12, where interest was awarded for delayed refunds under the VSV. The court ruled that the respondents were obligated to pay interest at 5% per annum for the delay in releasing the refund from February 2021 to February 2023.

Conclusion:

The court dismissed the claim for interest under Section 244A of the IT Act, as the VSV settlement covered all disputes. However, it directed the respondents to pay interest at 5% per annum for the delay in refunding the amount determined under the VSV. The writ petitions were disposed of on these terms.

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