Delayed tax refund after Vivad Se Vishwas settlement: assessee awarded 6% interest plus "interest on interest" for late payment.

Whether an assessee settling under the Direct Tax Vivad Se Vishwas Act, 2020 is entitled to interest for a substantially delayed refund, and to "interest on interest," was determined by applying the binding ratio in SC precedent and consistent HC authority holding that statutory interest on refund is compensatory and accrues for the period of wrongful retention, and that consequential interest on the delayed payment of such interest is payable where the refund is not released in time. A writ of mandamus was issued directing the revenue to pay interest at 6% p.a. on the delayed refund from 25-05-2021 until actual payment on 10-01-2024, and to pay interest on the interest for the same period.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether an assessee is entitled to interest on a refund amount determined under the Direct Tax Vivad Se Vishwas Act, 2020, when the refund is credited substantially after the date of determination and beyond the time contemplated for issuance/payment.

(ii) Whether, upon such delay, the assessee is also entitled to "interest on the interest" for the same delayed period, on the footing that the accrued interest partakes the character of an "amount due" forming part of the refundable corpus.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Entitlement to interest on delayed refund determined under the Vivad Se Vishwas scheme

Legal framework (as discussed by the Court): The Court proceeded on the admitted position that the refund was determined under the Direct Tax Vivad Se Vishwas Act, 2020 through the settlement process culminating in issuance of the relevant form/order determining the refundable amount. The dispute before the Court was confined to the consequences of delay in crediting that determined refund to the assessee.

Interpretation and reasoning: The Court treated the determination of the refund amount as crystallising the assessee's entitlement, and found as a matter of record that, although the refund stood determined on 24-02-2021, it was actually credited only on 10-01-2024. The Court held that this constituted a clear delay (about 35 months) in giving the assessee the benefit of a refund already determined by the department. On that delay, the Court concluded that interest on the refund "ought to have been granted". The Court accepted that the relevant starting point for interest was after the period of 90 days from the determination date, and fixed the commencement at 25-05-2021, with interest running until the actual date of payment/credit of refund (10-01-2024), at 6% per annum.

Conclusion: The assessee was held entitled to interest at 6% per annum on the delayed refund amount from 25-05-2021 up to 10-01-2024, and a mandamus was issued accordingly.

Issue (ii): Entitlement to "interest on interest" for the period of delay

Legal framework (as applied by the Court): The Court relied on the principle that, where a refund is delayed, the interest component can partake the character of the "amount due" and thus be treated as integral to what is payable to the assessee. The Court applied this principle to the case at hand in the context of a refund determined under the Vivad Se Vishwas scheme.

Interpretation and reasoning: The Court framed the subsidiary question as whether the interest that becomes payable due to delayed refund forms part of the principal/corpus so as to attract further interest when not paid. The Court held that the issue was "completely answered" by binding and persuasive authority placed before it, and therefore it was unnecessary to "delve deep" further. On that basis, it accepted the assessee's contention that the accrued interest becomes a component of the amount due, and that continued non-payment attracts interest on such interest for the relevant delayed period.

Conclusion: The Court granted not only interest on the delayed refund but also "interest on the interest" for the aforesaid period, and allowed the writ petition with a direction to pay both components.

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