Petitioner entitled to interest on delayed refund despite opting for Direct Tax Vivad Se Vishwas Scheme 2020 under Section 244A

Gujarat HC ruled that petitioner who opted for Direct Tax Vivad Se Vishwas Scheme 2020 was entitled to interest on delayed refund payment despite provisions under Section 244A of Income Tax Act, 1961. Court relied on precedent from M/s. Sahil Total Infratech Pvt. Ltd. and directed respondent to pay Rs. 4,39,010/- within twelve weeks, failing which 12% interest would apply from judgment date until actual payment.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the Petitioner, having received a refund under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSVA), is entitled to interest on the delayed payment of the refund amount under Section 244A of the Income Tax Act, 1961;

(b) Whether the provisions of the DTVSVA exclude or preclude the payment of interest on delayed refunds;

(c) The applicability and interpretation of Section 244A of the Income Tax Act, 1961, in the context of refunds arising from settlements under the DTVSVA;

(d) The effect of judicial precedents, particularly the Supreme Court decision in Union of India v. Tata Chemicals Ltd. and subsequent case law, on the entitlement to interest on delayed tax refunds;

(e) The appropriate relief and consequences if interest is found payable on the delayed refund amount.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (c): Entitlement to interest under Section 244A on delayed refund under DTVSVA

The legal framework revolves around Section 244A of the Income Tax Act, 1961, which mandates payment of interest on delayed refunds of income tax. The Petitioner contends that since the refund was delayed by approximately 18 to 22 months beyond the date specified in the certificate issued under the DTVSVA, interest is payable on the delayed refund amount of Rs. 36,51,389/-.

The Court examined the statutory provisions and the nature of the refund under the DTVSVA, which is a special scheme for resolution of direct tax disputes. The Petitioner had filed the requisite declarations and undertakings under the scheme, leading to issuance of Form No. 3 (certificate of tax arrears), Form No. 4 (payment details), and Form No. 5 (order evidencing full and final settlement). Despite this, the refund was disbursed belatedly in two tranches in August and December 2022.

The Respondent argued that the DTVSVA does not expressly provide for payment of interest on refunds under the scheme and thus no interest is payable. However, the Court noted that the absence of express provision does not necessarily exclude the operation of Section 244A, especially since the refund arises under the Income Tax Act framework.

Issue (b): Whether DTVSVA excludes payment of interest

The Respondent's contention that the DTVSVA excludes interest payment was considered but found unpersuasive. The Court observed that the DTVSVA aims to provide a mechanism for speedy dispute resolution and does not explicitly bar interest on delayed refunds. The Court relied on judicial precedents to clarify that the statutory right to interest under Section 244A survives even in the context of refunds under the DTVSVA.

Issue (d): Precedents and their application

The Court extensively relied on the Supreme Court decision in Union of India v. Tata Chemicals Ltd., which held that interest on delayed tax refunds is a form of compensation for the Government's unauthorized retention and use of the taxpayer's money. The Court quoted:

"Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies."

The Court also noted that this principle has been consistently followed in subsequent decisions, including recent rulings of this Court itself, which have held that even under the DTVSVA, interest on delayed refunds is payable.

Issue (e): Relief and consequences

Applying the law to the facts, the Court found the Petitioner entitled to interest on the delayed refund amount of Rs. 4,39,010/-. The delay of approximately 18 to 22 months in refunding the amount after issuance of Form No. 5 was unjustified and warranted compensation by way of interest.

The Court directed the Respondent to pay the interest amount within twelve weeks from the date of the judgment, failing which the sum would bear interest at 12% per annum from the date of the judgment till actual payment.

The Court considered the Respondent's inability to controvert the applicability of the cited precedents and found no merit in the argument that DTVSVA excludes interest payment.

3. SIGNIFICANT HOLDINGS

The Court held:

"Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies."

"Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute."

"Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course."

The Court concluded that the Petitioner is entitled to interest under Section 244A on the delayed refund amount arising from the DTVSVA settlement, notwithstanding the absence of an express provision in the scheme itself. The Respondent was directed to pay the interest amount of Rs. 4,39,010/- within twelve weeks, with 12% interest on delayed payment thereafter.

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