Interest on refund of self-assessment tax entitled to interest under section 244A(1)(b) from payment to refund

Where refund arises from taxes paid, the assessor is entitled to simple interest under the interest provision; refunds out of pre-paid taxes follow the clause (a) computation and other tax refunds follow clause (b) computation, and self-assessment tax paid under section 140A qualifies as "refund of any amount" so is payable with interest. The computation period for self-assessment tax refunds is from payment to actual refund and entitlement is grounded in the principle of compensation for monies wrongfully retained, supported by prior judicial authority applying statutory liability to pay interest on refunds.

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Issues: Whether section 244(1)(b) read with the Explanation thereto excludes payment of interest on refund of self-assessment tax?

Analysis: Section 244A provides entitlement to interest on "refund of any amount" and prescribes separate modes of computation in clauses (a) and (b). Clause (b) applies where refund is not out of pre-paid taxes covered by clause (a) and calculates interest from the date(s) of payment to the date of grant of refund; the Explanation defines "date of payment of tax" for this purpose. Legislative history and Circular No. 549 show that section 244A was enacted to remove gaps and ensure compensation by way of interest for monies belonging to the assessee and wrongfully retained. Judicial precedents interpreting earlier and amended provisions have treated self-assessment tax paid under section 140A as a payment of tax for purposes of entitlement to interest where such amount is subsequently found refundable; the computation for self-assessment tax follows the period prescribed in clause (b).

Conclusion: The self-assessment tax refunded falls within the expression "refund of any amount" and attracts interest computed under section 244A(1)(b) from the date of payment of the self-assessment tax to the date on which the refund is granted. The question is answered in favour of the assessee and against the Revenue.

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