Facts of the Case

The petitioners, namely Preeti N. Aggarwala, Naresh Kumar Aggarwal, and Brisk Capital Market Services Ltd., were subjected to income tax assessments for various assessment years. Their assets had earlier been attached under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992.

Pursuant to assessment proceedings, substantial tax demands along with interest under Section 220(2) of the Income Tax Act were recovered by the Department, including through adjustment of refunds due for earlier assessment years.

Subsequently, the petitioners filed applications under Section 220(2A) seeking waiver of interest charged for delayed payment. After prolonged delay, the Chief Commissioner of Income Tax allowed waiver of substantial amounts of interest.

Following such waiver, the petitioners claimed statutory interest under Section 244A on the refunded amount, contending that the Department had retained their money and therefore interest was payable on the refunded sum.

The Assessing Officer rejected the claim, holding that refund arising from waiver of interest under Section 220(2A) did not attract Section 244A.

Aggrieved by such rejection, the petitioners approached the Delhi High Court under Article 226 of the Constitution.

 Issues Involved

  1. Whether refund arising from waiver of interest under Section 220(2A) falls within the scope of “any amount becomes due” under Section 244A(1)?
  2. Whether the phrase “in any other case” under Section 244A(1)(b) includes refund of waived interest?
  3. Whether grant of interest on such refund amounts to impermissible “interest on interest”?

 Petitioner’s Arguments

The petitioners contended that:

  • The expression “in any other case” under Section 244A(1)(b) has a wide and inclusive scope.
  • Once the Chief Commissioner waived interest under Section 220(2A), the amount became refundable and therefore fell within Section 244A.
  • Such refund represented a quantified sum wrongly retained by the Department.
  • Payment of interest on refund would not amount to payment of “interest on interest,” but rather compensation for wrongful retention of money.
  • Reliance was placed upon judicial precedents including Union of India v. Tata Chemicals Ltd., India Trade Promotion Organization v. CIT, and CIT v. Sutlej Industries Ltd.

 Respondent’s Arguments

The Revenue argued that:

  • Waiver under Section 220(2A) is discretionary and not automatic.
  • Refund arising from discretionary waiver cannot be treated as statutory refund under Section 244A.
  • Section 244A primarily applies to refund of tax and penalty, not waived interest.
  • Granting interest on refunded interest would effectively amount to “interest on interest,” which is not permissible under law.
  • Reliance was placed upon CIT v. Engineers India Ltd. and CIT v. Gujarat Fluoro Chemicals.

 Court Findings

The Delhi High Court held:

  • Section 244A uses the expression “refund of any amount”, which is broader than merely tax or penalty.
  • The phrase “in any other case” under Section 244A(1)(b) cannot be interpreted narrowly.
  • The Explanation to Section 244A(1)(b) clarifies only the date of payment and does not restrict the scope of refundable amounts.
  • Once interest charged under Section 220(2) is waived under Section 220(2A), the amount becomes refundable and falls within the ambit of Section 244A.
  • The Department’s retention of such amount creates a corresponding obligation to pay interest.
  • Such payment is not “interest on interest” but interest on a principal sum refundable to the assessee.

 Court Order / Final Decision

The Delhi High Court:

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

 Important Clarification

This judgment clarifies that:

  • Refund under Section 244A is not restricted only to tax or penalty.
  • Waived interest refunded under Section 220(2A) also qualifies for statutory interest.
  • Revenue cannot retain money without compensating the taxpayer for the period of retention.
  • Payment of such interest does not constitute 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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