Taxpayer entitled to interest on delayed refund under Direct Tax Vivad Se Vishwas Act 2020 despite Section 244A exclusion

Gujarat HC ruled that petitioner was entitled to interest on delayed refund payment under Direct Tax Vivad Se Vishwas Act 2020. Despite petitioner not being entitled to interest under Section 244A of Income Tax Act 1961, the court held that once the application was approved and refund order passed under the scheme, petitioner became entitled to interest until payment. Court directed respondents to pay interest at 6% per annum amounting to Rs.22,04,104 for twenty months delay, payable within three months.

---

---

1. Issues Presented and Considered

• Whether the petitioner is entitled to interest on delayed payment of refund under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act), despite the absence of entitlement under Section 244A of the Income Tax Act, 1961.
• Whether the delay in refund payment was attributable to the petitioner's failure to validate the bank account or to any fault/negligence on the part of the respondents.
• The applicability and interpretation of relevant statutory provisions and judicial precedents regarding payment of interest on delayed tax refunds.
• The determination of the correct period and rate for calculation of interest payable on the delayed refund amount.

2. Issue-Wise Detailed Analysis

Issue 1: Entitlement to Interest on Delayed Refund under the DTVSV Act

Legal Framework and Precedents:

The Direct Tax Vivad Se Vishwas Act, 2020 provides for settlement of tax arrears, including refund of amounts determined under the scheme. Section 5(2) read with Section 6 of the DTVSV Act governs the order for full and final settlement and refund. Section 244A of the Income Tax Act, 1961, generally governs interest on delayed refunds but is expressly excluded by Explanation to Section 7 of the DTVSV Act for refunds under this scheme.

Judicial precedents relied upon include the Supreme Court's decision in Union of India v. Tata Chemicals Ltd., which held that interest on tax refunds is payable as a matter of course since the government's retention of money paid without right amounts to unauthorized use, warranting compensation by way of interest.

Court's Interpretation and Reasoning:

The Court acknowledged that while Section 244A of the Income Tax Act does not apply to refunds under the DTVSV Act, the principle established by the Supreme Court in Tata Chemicals Ltd. mandates payment of interest on delayed refunds as a matter of equity and compensation for unauthorized retention of funds by the government.

The Court emphasized that the refund amount sanctioned under the DTVSV Act order dated 12/05/2022 was due to the petitioner and its delayed payment entitled the petitioner to interest irrespective of the statutory bar under Section 244A.

Application of Law to Facts:

The refund amount of Rs. 2,20,41,042/- was sanctioned by the Jurisdictional Assessing Officer on 12/05/2022 but was paid only on 25/01/2024 after issuance of notice by the Court. The delay was nearly two years, during which the petitioner was deprived of the use of the money.

Competing Arguments:

The respondents contended that no interest was payable as the Explanation to Section 7 of the DTVSV Act excludes interest under Section 244A, and that the delay was due to the petitioner's failure to validate the bank account timely.

The petitioner argued that the delay was not due to any fault on their part since the bank account was validated twice in 2022 and again in 2023, and that the respondents' failure to effect refund timely triggered the entitlement to interest.

Conclusion:

The Court held that notwithstanding the exclusion under Section 244A, the petitioner is entitled to interest on the delayed refund under the principle of restitution and compensation for unauthorized retention of funds as per the Supreme Court's ruling.

Issue 2: Attribution of Delay in Refund Payment - Petitioner's Validation of Bank Account vs. Respondents' Fault

Relevant Facts and Evidence:

The petitioner's original bank account with HDFC Bank was closed on 12/07/2022. The petitioner opened a new account with Union Bank of India and requested validation on the Income Tax Portal on 21/05/2022 and again on 28/02/2023. The account was validated on 20/10/2022 and again in March 2023.

The petitioner raised multiple grievances on the Income Tax Portal between July 2022 and March 2023 regarding non-receipt of refund. The portal responses indicated that the refund order was passed on 26/07/2022 but could not be credited due to the closed bank account. Subsequent grievances were resolved with directions to contact the Jurisdictional Assessing Officer.

The respondents submitted that the refund could not be paid earlier as the petitioner had not validated the bank account with the Central Processing Centre (CPC) until 03/09/2023, and that the refund was released only after such validation.

Court's Reasoning:

The Court noted the petitioner's repeated attempts to validate the bank account and raise grievances, showing vigilance and bona fide efforts to receive the refund. The respondents' affidavit indicated that the manual refund order was uploaded on 12/05/2022 and accounted on 26/07/2022 but payment was delayed due to validation issues.

However, the Court refrained from attributing fault or negligence specifically to either party regarding the delay, focusing instead on the entitlement to interest due to the prolonged retention of the refund amount.

Conclusion:

The Court did not decide on fault but held that irrespective of whether delay was due to petitioner's bank account validation or respondents' delay, the petitioner is entitled to interest on the delayed refund.

Issue 3: Calculation of Interest Payable on Delayed Refund

Legal Framework and Precedents:

The Supreme Court in Tata Chemicals Ltd. recognized interest on delayed tax refunds as compensation for unauthorized retention. The rate of interest and period for calculation are to be determined based on facts and equitable considerations.

Application and Court's Directions:

The Court requested both parties to provide calculation of interest at the rate of 6% per annum on the refund amount of Rs. 2,20,41,042/- for the period of delay.

The respondents submitted a computation of interest for twenty months from 01/06/2022 to 31/01/2024 amounting to Rs. 22,04,104/-.

The Court accepted this calculation and directed the respondents to pay the interest amount within three months from the date of receipt of the order.

Conclusion:

Interest at 6% per annum for twenty months on the refund amount is payable as compensation for delayed payment, irrespective of statutory exclusion under Section 244A.

Issue 4: Applicability of Section 244A of the Income Tax Act and Explanation to Section 7 of DTVSV Act

Legal Framework:

Section 244A of the Income Tax Act provides for interest on delayed refunds of income tax. However, Explanation to Section 7 of the DTVSV Act excludes interest under Section 244A for refunds arising under the Vivad Se Vishwas Scheme.

Court's Interpretation:

The Court acknowledged the statutory exclusion but held that the equitable principle established by the Supreme Court in Tata Chemicals Ltd. overrides the exclusion in the context of refunds under the DTVSV Act, entitling the petitioner to interest.

Conclusion:

Though Section 244A does not apply, the petitioner is entitled to interest on delayed refund under equitable principles and judicial precedent.

Cross-References and Integrated Conclusions

• The entitlement to interest on delayed refunds under the DTVSV Act is governed by equitable principles and Supreme Court precedent, not strictly by Section 244A of the Income Tax Act.
• Delay in refund payment, whether due to petitioner's bank account validation or respondents' administrative delay, does not negate the petitioner's right to interest.
• Interest is calculated at 6% per annum for the delay period from June 2022 to January 2024 on the refund amount sanctioned under the DTVSV Act order.
• The respondents are directed to pay the interest amount within a stipulated time, thereby ensuring restitution for unauthorized retention of funds.

---