The Hindu Business Line : Interest on refunds

A recent High Court ruling that interest on refund due to an assessee is admissible only up to the date of signing of the refund order and not up to the date of the service of the refund order is controversial.

The Rajasthan High Court, in Rajasthan State Electricity Board vs CIT & Anr. (2006 194 Taxation 523 Rajasthan), held that under Section 244A of the Income-Tax Act, 1961, interest on refund due to an assessee is admissible only up to the date of signing of the refund order and not up to the date of the service of the refund order.

Issues raised

The following questions of law were raised by the appellant in this appeal:

Whether the expression `the date on which the refund is granted' in clause (a) of sub-section (1) of Section 244A, as was applicable in the relevant assessment year, need to be construed to be the date of service of the refund order and whether the Tribunal acted contrary to law in modifying the order of the CIT (Appeals)?

Whether the belated despatch of refund order is against the legislative intendment as contemplated under Section 244A of the Act and entitles the assessee for interest on the refund amount under the Section and also on equitable consideration till the date of service of refund order?

The controversy in this appeal was whether the interest should be granted till the date of the dispatch of the refund order or till the date when the order regarding payment of interest has been signed.

Court's decision

The Rajasthan High Court held that in clause (a) the words used are "refund is granted". Refund is granted the moment the officer concerned has signed the order regarding payment of the interest under Section 244A. Hence, the court did not find any error in the order of the Tribunal and dismissed the appeal at the admission stage.

A similar phrase, "is granted", is used in Section 243 of the Act regarding interest on delayed refunds. Hence, the view taken over Section 244A would apply to this section too.

Critiques of the judgement

This interpretation by the High Court can cause considerable hardship to assessees. Interest is given to assessees as a recompense for the use of their money by the Government. Then why should the taxpayer be deprived of the interest till the refund reaches him? Why should the taxpayer be deprived of the interest for the period starting from the time of signing the refund order till the same reaches the assessee? During this period, the money remains with the department and it is only equitable that for this period, too, the assessee should get interest.

The court's interpretation of the word `granted' is, prima facie, literal and not purposive — the approach normally followed in interpretation of statutes. The mere `grant' would be meaningless till there is transfer of property to the grantee.

The Supreme Court, in Organo Chemical Industries vs UOI (AIR 1979 SC 1802), has said that a bare mechanical interpretation of the words and application of a legislative intent devoid of concept of purpose will reduce most of the remedial and beneficent legislation to futility.

To allow interest only till the date of signing the refund order is unfair. The CBDT should issue instructions under Section 119 of the Act that if the refund order is not received within seven days of its being signed, the Department would be liable to pay interest till the date of receipt of the order by the assessee. If that is not possible, then the law may be amended to provide for this.

(The author is a former chairman of CBDT.)

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