Facts of the Case

The petitioners were notified under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992, resulting in attachment of their assets. Consequent tax assessments led to substantial tax and interest liabilities. The Income Tax Department recovered tax dues and interest under Section 220(2) by adjustment of refunds and through recovery from attached accounts.

Subsequently, the petitioners filed applications under Section 220(2A) seeking waiver of interest. After nearly seven years, the Chief Commissioner of Income Tax passed an order granting waiver of the eligible interest amounts.

After refund of the waived interest amount, the petitioners claimed statutory interest under Section 244A on the refunded sums. However, the Assessing Officer rejected the claim, holding that refund arising from waiver of interest did not qualify for interest under Section 244A. Aggrieved, the petitioners approached the Delhi High Court.

 Issues Involved

  1. Whether the expression “in any other case” under Section 244A(1)(b) includes refund arising from waiver of interest under Section 220(2A)?
  2. Whether the assessee is entitled to interest on refund of amounts representing waived interest?
  3. Whether payment of such interest amounts to “interest on interest”?

 Petitioner’s Arguments

  • The petitioners argued that the language of Section 244A(1)(b) is broad and covers refund of “any amount” due under the Act.
  • The refunded amount after waiver was a quantified amount wrongly retained by the Department.
  • Once such amount becomes refundable, statutory interest must follow.

 Respondent’s Arguments

  • The Department contended that Section 244A applies only to tax or penalty refunds and not to amounts refunded due to discretionary waiver under Section 220(2A).
  • It was argued that waiver of interest is discretionary and does not automatically attract statutory interest.

 Court Findings / Observations

The Delhi High Court held:

1. Broad Interpretation of Section 244A

The phrase “refund of any amount” under Section 244A is broad enough to include refund arising out of waiver of interest.

2. “In Any Other Case” Has Wide Scope

The Court rejected the narrow interpretation suggested by the Department and held that Section 244A(1)(b) is not confined only to tax and penalty refunds.

3. Refund Carries Interest as a Matter of Right

The Court reiterated the principle that if money has been retained without authority, refund must carry interest.

4. Not Interest on Interest

Payment of interest on refunded waived interest is not “interest on interest”; it is compensation for wrongful retention.

 Court Order / Final Decision

The Delhi High Court:

  • Set aside the Assessing Officer’s order rejecting interest on refund.
  • Directed the Income Tax Department to pay interest under Section 244A(1)(b) on the refunded amount.
  • Held that such interest shall be calculated from the date of recovery till the date of payment.
  • Directed compliance within four weeks.

 Important Clarification

This judgment clarifies that:

  • Refund under Section 244A is not restricted to tax and penalty only.
  • Refund of waived interest under Section 220(2A) also attracts statutory interest.
  • The principle of restitution applies where Revenue retains money without authority.
  • Such payment does not amount to compound interest or interest upon interest.

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:2293-DB/SMD01052017CW10112016.pdf

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