2025 (12) TMI 1181 - HC - Income Tax

Income-tax refund delays and s.244A interest: interest runs till actual payment; extra interest due on unpaid 244A(1A) interest

Interest on income-tax refunds under s.244A(1) and additional interest under s.244A(1A) were held to run up to the actual date of refund payment, not ... Payment of interest u/s 244A(1A) and 244A(1A) - Computation of interest on refund - HELD THAT:- As not disputed that while calculating interest in the respective orders giving effect for all the years, all dated 23.08.2023, the interest u/s 244A(1) and 244A(1A) was calculated only till August 2023. However, such refund was paid only in May 2024 (for AY 2007-08) and in July 2024 (for AY 2013-14 and AY 2014-15). It is not disputed that interest has to be calculated till the date of payment and not till the date of passing of the order giving effect. Therefore, the Petitioner has to be granted further interest u/s 244A(1) of the I. T. Act and under Section 244A(1A) of the I. T. Act on the amount of refund for the aforesaid Assessment Years till the date of payment of the refund amount. Interest under Section 244A(1A) for three years combined, though determined on 23.08.2023, has not been paid till date and more than 2 years have elapsed. We are of the view that the Petitioner is entitled to interest even on such delayed payment of interest. Very recently, a Division Bench of this Court in case of Tata Communications Ltd. [2024 (5) TMI 701 - BOMBAY HIGH COURT] following the decision in case of India Trade Promotion Organisation [2013 (9) TMI 451 - DELHI HIGH COURT] of the Delhi High Court, has directed the Department to grant interest on delayed payment of interest already determined. Either by way of interest or by way of compensation, the Petitioner should be entitled to interest on a sum which interest was not paid for two years. Such interest should be calculated in accordance with the provisions of Section 244A of the I. T. Act, from 1st August 2023 till the date of payment at the rate of 6% per annum which comes to Rs. 1,10,02,215/- till 31st December 2025 (assuming the payment is made to the Petitioner in the month of December 2025). 1. ISSUES PRESENTED AND CONSIDERED i) Whether interest under Section 244A(1A), already determined as payable in the orders giving effect for the relevant assessment years, had to be released to the assessee when it remained unpaid. ii) Whether interest under Section 244A(1) and Section 244A(1A) on the refund had to be computed and paid up to the actual date of refund payment (and not merely up to the date of the order giving effect), requiring rectification of the orders giving effect. iii) Whether the assessee was entitled to interest/compensation for delayed payment of the interest component (i.e., delay in paying interest already determined), and if so, the applicable rate and period. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Non-payment of interest under Section 244A(1A) despite determination in orders giving effect Legal framework (as discussed): The Court proceeded on the basis that interest under Section 244A(1A) had been determined as payable in the orders giving effect for the relevant assessment years. Interpretation and reasoning: The Court noted that the revenue did not dispute the factual position that the orders giving effect had determined interest under Section 244A(1A) for the concerned years, but that this determined interest remained unpaid. Since the amount stood determined as payable and no justification for non-payment was established, the relief had to follow. Conclusion: The Court directed the revenue to pay the entire unpaid Section 244A(1A) interest amounting to Rs. 7,58,77,348/- as determined in the orders giving effect for the three assessment years. Issue (ii): Whether interest under Sections 244A(1) and 244A(1A) must run till the date of actual refund payment, and rectification of the orders giving effect Legal framework (as discussed): The Court addressed the computation of statutory interest on refunds under Sections 244A(1) and 244A(1A), in the context of the admitted timing mismatch between (a) computation in the orders giving effect and (b) the actual dates of refund payment. Interpretation and reasoning: The Court found it undisputed that the orders giving effect computed interest only up to August 2023, whereas the refunds were actually paid later (May 2024 for one year and July 2024 for the other years). The Court held that interest is required to be calculated up to the date of payment of the refund and not merely up to the date of passing the order giving effect. Since the existing orders computed interest only till the order date, the Court accepted the necessity of rectification so as to extend the interest computation period to the date of actual refund payment. Conclusion: The Court directed the revenue to rectify the orders dated 23.08.2023 to grant and pay (a) further interest under Section 244A(1) and (b) further interest under Section 244A(1A), in each case computed up to the actual date of refund payment for the respective assessment years. Issue (iii): Entitlement to interest/compensation for delayed payment of the determined interest amount Legal framework (as discussed): The Court considered whether interest/compensation could be awarded for delay in paying the interest component that had already been determined as payable, and referred to judicial principles treating refund dues (including the interest element) as amounts retained by the revenue warranting compensation for undue retention. Interpretation and reasoning: The revenue contended that no provision permitted 'interest on delayed payment of interest.' The Court rejected this objection. It held that where statutory interest has been determined as payable but remains unpaid for a prolonged period, the assessee is entitled to further interest/compensation for the delay. The Court reasoned that the unpaid interest forms part of the total amount refundable due to the assessee, and non-payment results in wrongful retention by the revenue. The Court adopted the approach that such payment is not impermissible 'compounding,' but compensation for non-payment of the full refundable amount. It further held that, even assuming a lack of express provision, interest is payable as compensation for use and retention of money that is debt-owed and payable by the revenue. Conclusion: The Court directed payment of interest/compensation at 6% per annum on the delayed payment of the determined interest amount of Rs. 7,58,77,348/-, for the period from 01.08.2023 until the date of payment of that interest amount, to be calculated in accordance with Section 244A. Compliance direction material to relief: All monetary directions (payment of unpaid Section 244A(1A) interest, rectification and payment of further interest under Sections 244A(1) and 244A(1A), and interest/compensation for delayed payment of interest) were ordered to be complied with on or before 30 January 2026.