2025 (3) TMI 657 - HC - Income Tax

Department must pay interest on delayed refunds under Direct Tax Vivad se Vishwas Act 2020

Kerala HC upheld entitlement to interest on refund under Direct Tax Vivad se Vishwas Act, 2020. Department accepted declaration on 24.11.2021 but delayed ... Entitlement to interest on the refund amount under the Direct Tax Vivad se Vishwas Act, 2020 - HELD THAT:- Appellants were clearly under fault in not releasing the amount in due time. The declaration was accepted by Ext.P3 on 24.11.2021. Going by Section 5, if any amount was liable to be paid by the assessee, the assessee was bound to pay the same within fifteen days. We are inclined to think that, since an obligation is created on the assessee to pay the amount within fifteen days, though not expressly provided, the Department is also equally bound under law to refund the excess amount within a reasonable time. In the present case, the fifteen-day period calculated from Ext.P3 order expired on 8.12.2021. ACIT, Central Circle-I, Kozhikkode, unreasonably sat over the matter after Ext.P3 order and took consequential action only on 29.11.2023. The power of the court to grant interest is always available under the provisions of Section 3 of the Interest Act, 1978. Notwithstanding the provisions of the Income Tax Act, 1961 and also the Direct Tax Vivad se Vishwas Act, 2020, the Court can always grant reasonable interest if it is satisfied that the delay occurred is solely due to the fault of the Revenue. We are fortified in our views in the light of the provisions contained under Section 4 of the Interest Act, 1978. As decided in UPS Freight Services India Pvt. Ltd. [2023 (9) TMI 34 - BOMBAY HIGH COURT] held that interest is leviable since the State having received the money without right and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. We are in respectful agreement with the view expressed by the Division Bench of the Bombay High Court and therefore, cannot find fault with the findings of the learned Single Judge in the impugned judgment. Hence, we see no reason to interfere with the findings rendered by the learned Single Judge. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:1. Whether the assessee is entitled to interest on the refund amount under the Direct Tax Vivad se Vishwas Act, 2020, despite the exclusion of Section 244A of the Income Tax Act, 1961.2. Whether the court has the power to grant interest under the provisions of the Interest Act, 1978, in cases where the delay in refund is attributable to the Revenue.ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to Interest under the Direct Tax Vivad se Vishwas Act, 2020Relevant Legal Framework and Precedents:The Direct Tax Vivad se Vishwas Act, 2020, specifically excludes the application of Section 244A of the Income Tax Act, 1961, which provides for interest on refunds. Section 7 of the 2020 Act states that any amount paid in pursuance of a declaration under Section 4 shall not be refundable under any circumstances, and the assessee is not entitled to interest on such excess amount under Section 244A.Court's Interpretation and Reasoning:The Court interpreted that while Section 7 excludes interest under Section 244A, it does not provide an absolute prohibition against granting interest. The Court emphasized that the accountability of the Department and recompense for the assessee who was deprived of their money are important considerations.Key Evidence and Findings:The facts established that the Revenue delayed the refund process beyond a reasonable time. The declaration was accepted on 24.11.2021, yet consequential actions were only taken on 29.11.2023, indicating an unreasonable delay by the Revenue.Application of Law to Facts:The Court applied the principles of accountability and fairness, finding that the Department's delay justified the granting of interest, even if Section 244A was excluded by the 2020 Act.Treatment of Competing Arguments:The Revenue argued for a strict interpretation of the 2020 Act, asserting that the exclusion of Section 244A precludes any interest on refunds. The Court rejected this argument, emphasizing that the exclusion does not equate to an absolute prohibition against interest.Conclusions:The Court concluded that the assessee is entitled to interest on the refund due to the Revenue's delay, notwithstanding the exclusion of Section 244A by the 2020 Act.Issue 2: Court's Power to Grant Interest under the Interest Act, 1978Relevant Legal Framework and Precedents:The Interest Act, 1978, provides the Court with the power to grant interest if it is satisfied that the delay in refund is due to the Revenue's fault. This is independent of the provisions under the Income Tax Act, 1961, and the 2020 Act.Court's Interpretation and Reasoning:The Court held that it possesses the authority to award reasonable interest under the Interest Act, 1978, when the delay is solely attributable to the Revenue.Key Evidence and Findings:The Court found that the Revenue's inaction and delay in processing the refund were unjustified, warranting the exercise of its power to grant interest.Application of Law to Facts:The Court applied the Interest Act, 1978, to the facts, determining that the Revenue's delay in refunding the amount justified the granting of interest to the assessee.Treatment of Competing Arguments:The Revenue's argument against the granting of interest was countered by the Court's reliance on the Interest Act, 1978, which allows for interest in cases of delay caused by the Revenue.Conclusions:The Court concluded that it is within its power to grant interest under the Interest Act, 1978, due to the Revenue's delay in refunding the amount.SIGNIFICANT HOLDINGSThe Court held that:'The requirement of imposing interest on delayed refunds is a matter of accountability of the Department and a measure of recompense for the person who was deprived of the money.'Core principles established include the Court's authority to grant interest under the Interest Act, 1978, and the importance of departmental accountability in refund processes.Final determinations on each issue were that the assessee is entitled to interest on the refund due to the Revenue's delay, and the Court has the power to grant such interest under the Interest Act, 1978.