Delayed refunds unreasonable

T.N. Pandey | Updated on: Jun 24, 2011

The Revenue Secretary, Mr Sunil Mitra, had reportedly said at the annual conference of chief Commissioners and Director Generals of income-tax, “the board's (CBDT) proposal to clear all refunds of A.Ys. 2010-11 and 2011-12 will require to be moderated in keeping with the actual performance in direct tax collections”.

In essence, the suggestion is to go slow in refunds due to taxpayers because of drop in collections in current year's collections. Prima-facie, the proposal is strange and contrary to the provisions of the I-T Act, 1961.

Under Section 237 of the Act, a person is entitled to claim a refund if the tax paid by him or on his behalf for any assessment year exceeds the tax, which he is liable to pay for a year. The Government holds in trust the excess amount paid by the assessee. The right to a refund of tax comes into existence on the April 1 the A.Y. and the Revenue has to refund, adjust or credit such amount to the assessee, as the case may be.

Court ruling

In a socialistic State of democratic set-up, the public officers have to act at least with similar alacrity in making refunds as they are coaxed to act in collecting and recovering taxes, as observed by Mr.Justice V.R. Krishna Iyer in Shiv Shanker Dal Mills v. State of Haryana [AIR 1980 SC 1037, 1038].

“…Where public bodies, under colour of public laws, recover people's money, later discovered to be erroneous levies, the Dharma of the situation admits of no equivocation. There is no law of limitation, especially for public bodies, on the virtue of returning what was wrongly recovered to whom it belongs. Nor is it palatable to our jurisprudence to turn down the prayer for high prerogative writs, on the negative plea of ‘alternative remedy' since the root principle of law married to justice, is ubi jus ibi remedium”.

The preponderance of cases in treatises on Income-tax simply shows that it is the I-T. Department where much more attention needs to be given for refundsIn this context, a reference needs to be made to an old Circular of the Central Board of Revenue [CBDT's predecessor] No.32 of 1944 C.No.43(18)-IT/44 dated December 8, 1944, where the sanctity of returning the taxpayers' money has been stated to be paramount.

The decision of the Finance Ministry (supra) is in utter disregard of taxpayers' rights. The refund due to a taxpayer is his money and he has a right to get it back with interest for delays in refunding the same and cannot be held back for the reason given. Rather, delay in issuing refunds would cause financial burden on the Government by way of interest.


The decision shows the Government's insensitivity for taxpayers and its inability to collect tax revenue from those who have avoided paying it by evasion, indulged in black money transactions and have deposited their undisclosed incomes in foreign territories, causing undue hardship to honest taxpayers.

Such decisions bring down the credibility of the Government, discourage honest taxpaying and give a serious blow to voluntary compliance.

There is no emergency – external or internal – in the country. No drought, cyclones, tsunami, earthquakes, floods, etc., causing concern for the Government. In such situation, delaying refunds of monies due to taxpayers would be grossly unjust and unfair.

(The author is a former chairman of CBDT.)

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Published on June 18, 2011
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