Court holds that Section 244A(1)(b) of the Income Tax Act applied to refund arising from quashed TDS demand; Finance Act, 2017 amendment could not take away vested right to interest
The Gujarat High Court has held that an assessee is entitled to interest on refund under Section 244A(1)(b) of the Income Tax Act, 1961, even though Section 244A(1B) was inserted later by the Finance Act, 2017. The Court ruled that the later amendment was prospective and could not defeat a right to interest that had already accrued under the existing law.
The judgment was delivered by a Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati in a writ petition filed by Maharashtra Border Check Post Network Ltd., which had sought interest at 6% and additional interest at 3% on a refund of Rs. 2.5 crore.
The dispute arose from a TDS-related demand raised by the Income Tax Department. The petitioner was treated as an assessee-in-default under Sections 201(1) and 201(1A) of the Income Tax Act, and a total demand of Rs. 12.60 crore was raised. Under protest, the petitioner deposited Rs. 2.5 crore in instalments. The company challenged the demand before the High Court, which quashed the notices and order on 23 February 2016, relying on its earlier ruling in Tata Teleservices v. Union of India. The Commissioner of Income Tax (Appeals) also allowed the petitioner’s appeal on 23 June 2016.
Despite these favourable orders, the refund was granted only on 3 February 2017, and no interest was paid. When the petitioner sought interest, the Revenue rejected the claim by relying on Section 244A(1B), inserted by the Finance Act, 2017 with effect from 1 April 2017. The Department argued that since the refund order had been passed earlier, the petitioner was not entitled to interest under the new provision.
The High Court rejected this argument. It held that the petitioner’s right to interest was already available under Section 244A(1)(b), which applies to “any other case” where refund becomes due. The Bench observed that once the petitioner succeeded before the High Court and the appellate authority, the Revenue ought to have refunded the amount promptly along with interest. The Court emphasized that interest on refund is compensation for unauthorized retention of money by the State.
Relying on the Supreme Court’s ruling in Union of India v. Tata Chemicals Ltd., the High Court reiterated that when the Government retains money without authority, the obligation to refund it carries with it the right to interest. The Court said the Revenue had overlooked the clear language of Section 244A(1)(b) and could not deny interest by invoking a later amendment.
Accordingly, the writ petition was allowed. The Court directed the Revenue to pay interest on the refund of Rs. 2.5 crore under Section 244A(1)(b) within four weeks. It further ordered that if payment was delayed beyond that period, the amount would carry further interest at 9% per annum. The Court also imposed costs of Rs. 10,000 on the Revenue, directing that the amount be deposited with the High Court Legal Services Authority within two weeks.
Bottom Line :
Income Tax - Assessee entitled to interest on refund under Section 244A(1)(b) of the Income Tax Act, 1961, even when Section 244A(1B) introduced later by Finance Act, 2017.
Statutory provision(s): Section 201(1), Section 201(1A), Section 244A(1)(b), Section 244A(1A), Section 244A(1B), Section 250(6), Section 154, Section 156, Section 143(1), Section 139(1), Section 240, Section 153(5)
Maharashtra Border Check Post Network Ltd. v. C.B.D.T., (Gujarat)(DB) : Law Finder Doc id # 2981965
