Interest under s.234D applies prospectively from 1.6.2003; Commissioner lacks s.263 power to impose interest retrospectively

HC held that interest under s.234D on excess refund is chargeable only prospectively from 1.6.2003, and not from the original date of refund. In this case, refund was granted on 28.6.2000 under s.143(1) and converted into a tax demand on completion of regular assessment on 22.1.2004. HC upheld the Assessing Officer's levy of interest only for the period 1.6.2003 to 22.1.2004 and ruled that the Commissioner had no authority under s.263 to give retrospective effect to s.234D. While rejecting the Commissioner's order, HC also held the Tribunal erred in limiting applicability of s.234D to AY 2004-05 onwards. The appeal was dismissed and the original assessment with interest from 1.6.2003 restored.

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Issues: Whether interest under Section 234D of the Income-tax Act, 1961 is payable on an excess refund from the date of grant of refund or only from the statutory commencement date of Section 234D (1 June 2003).

Analysis: Section 234D imposes simple interest on excess refunds granted under Section 143(1) where no refund is due on regular assessment or the refund exceeds the refundable amount on regular assessment. Section 234D was introduced by the Finance Act, 2003 and made effective from 1 June 2003. The provision is not tied to an assessment year and does not state retrospective operation to earlier dates. Interest liability therefore arises only for the period on or after the provision's commencement date. Revisionary powers under Section 263 cannot be lawfully used to confer retrospective operation on a substantive provision creating an interest liability for periods prior to the statutory commencement.

Conclusion: Interest under Section 234D is payable only from 1 June 2003 and not from the earlier date of grant of refund.

Ratio Decidendi: A substantive tax provision creating an interest liability (Section 234D) operates only from its statutory commencement date (1 June 2003) and cannot be given retrospective effect by revisionary action under Section 263.

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