2025 (1) TMI 641 - AT - Income Tax

Court Rules Assessee Entitled to Interest on Tax Refund Until Funds Credited, Aligns with Nokia Solutions Case.

M/s. TVS Upasana Limited Versus ITO Corporate Ward-6 (1) Chennai.

The court determined that the assessee is entitled to interest on a tax refund until the date the funds are actually credited to their account, rather ... Computation of interest on refund - Intimation appear to have been made u/s 143(1) - CIT(A) denied the same on the ground that refund is granted the moment the concerned officer has signed the order regarding the payment of interest u/s 244A - HELD THAT:- Refund has ultimately been granted to the assessee only after an order u/s 154 was passed by CPC on 30-01-2024. The Hon’ble High Court of Delhi in the case of Nokia Solutions and Networks India (P) Ltd [2024 (9) TMI 1683 - DELHI HIGH COURT] has held that interest on refund is to be calculated till the date the funds are released to the assessee and not till the date of order accepting the assessee’s claim for grant of refund. The expression ‘refund is granted’ would necessarily mean refund of payment of the amount. The interest is paid to compensate the payee for time value of money. Therefore, it is difficult to accept that the date on which refund is granted as used in Sec. 244A is to be read as the date on which an order accepting the assessee’s claim of grant of refund is passed and not the date on which the funds are released. Applying the same principle, we direct Ld. AO / CPC to grant the interest to the assessee in accordance with law till 30-01-2024. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question in this judgment is whether the interest on the refund of excess tax paid by the assessee should be computed up to the date when the refund order was signed or until the date when the refund was actually credited to the assessee's bank account.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework revolves around Section 244A of the Income Tax Act, which governs the interest on refunds. The case also references the precedent set by the Hon'ble Rajasthan High Court in Rajasthan State Electricity Board vs. CIT, and the Hon'ble High Court of Delhi in Nokia Solutions and Networks India (P) Ltd. vs. Addl. CIT.Court's Interpretation and ReasoningThe court examined the interpretation of the term 'refund is granted' as used in Section 244A. The court leaned towards the interpretation that the refund is considered granted not on the date when the order is signed but when the refund is actually credited to the assessee's account, as this compensates for the time value of money.Key Evidence and FindingsThe evidence included the timeline of events: the assessee filed the return on 15-02-2021, claimed a refund of Rs. 40.09 Lacs, and raised grievances regarding non-receipt of the refund. The CPC rectified the intimation on 30-01-2024, and the refund was credited on 31-01-2024. The court noted that the intimation under Section 143(1) was never issued to the assessee, and the refund was delayed until the order under Section 154 was passed.Application of Law to FactsThe court applied the legal principles from the Nokia Solutions case, which emphasized that interest should be calculated until the actual release of funds to the assessee. The court found that the CPC's action of granting interest only until the signing of the order was inconsistent with this principle.Treatment of Competing ArgumentsThe respondent's argument, supported by the Rajasthan High Court decision, was that the refund is granted when the order is signed. However, the court favored the interpretation from the Nokia Solutions case, which was more aligned with the principle of compensating the payee for the time value of money.ConclusionsThe court concluded that the assessee is entitled to interest on the refund until the date the funds were actually credited to their account, i.e., 31-01-2024, and not merely until the date the order was signed.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning'The expression 'refund is granted' would necessarily mean refund of payment of the amount. The interest is paid to compensate the payee for time value of money.'Core Principles EstablishedThe judgment establishes that for the purposes of calculating interest under Section 244A, the date of granting a refund is the date on which the refund amount is actually credited to the assessee's account, not the date of the order.Final Determinations on Each IssueThe court directed the Assessing Officer/CPC to grant interest to the assessee up to 31-01-2024, thereby allowing the appeal in favor of the assessee.