Refund Under Vivad Se Vishwas Act Entitled to Interest Under Section 244A for Delayed Payment

Issue:

Whether an assessee, who has opted for and received a refund as part of a settlement under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSVA), is entitled to interest on the delayed payment of that refund under Section 244A of the Income-tax Act, 1961.

Facts:

For the assessment year 2010-11, the assessee-trust filed its return of income declaring nil income. The Assessing Officer (AO) passed an assessment order disallowing various claims, including corpus donations, unsecured loans, unexplained liabilities, and depreciation, primarily on the ground that the assessee lacked registration under Section 12A(a) of the Income-tax Act.

Subsequently, the assessee opted for resolution under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSVA). As a consequence of this opt-in, the designated respondent authority issued Form No. 5, which served as evidence of the full and final settlement of tax arrears and, crucially, confirmed that a refund was payable to the assessee. The refund was accordingly disbursed, but apparently with a delay. The assessee filed the instant petition seeking directions to grant interest on this delayed refund payment under Section 244A.

Decision:

Yes, the court held that the assessee was entitled to interest on the amount of refund until the same was paid to the assessee. The decision was in favor of the assessee.

Key Takeaways:

Purpose of DTVSVA: The Direct Tax Vivad Se Vishwas Act, 2020, was enacted to reduce pending income tax litigation by providing a mechanism for settlement of tax disputes. A key aspect of this settlement is the payment of agreed-upon tax arrears and the issuance of refunds where applicable.
Nature of Refund Under DTVSVA: While the DTVSVA provides a settlement mechanism, any refund arising from such a settlement is still a “refund of tax” for the purposes of the Income-tax Act.
Interest Under Section 244A: Section 244A mandates the payment of interest by the Income-tax Department on refunds due to an assessee. This interest is payable for delays beyond a certain period, usually from the date of payment of excess tax.
No Exclusion of Section 244A for DTVSVA Refunds: The judgment implies that the DTVSVA, while a special enactment for dispute resolution, does not implicitly exclude the applicability of Section 244A for interest on refunds arising from its operation, unless explicitly stated otherwise within the DTVSVA itself. The spirit of the DTVSVA is to provide a comprehensive and final resolution, which should include all ancillary benefits like interest on refunds.
Right to Interest: The right to interest on a refund is a statutory right, and it generally accrues when the tax department holds onto money that is rightfully due to the assessee.
Favor of Assessee: This decision is significant for taxpayers who opted for DTVSVA, confirming their entitlement to interest on any delayed refunds arising from the scheme, ensuring they are fully compensated for the time value of their money.

HIGH COURT OF GUJARAT

Samarpan Foundation

Commissioner of Income-tax (Exemption)

BHARGAV D. KARIA and D.N. Ray, JJ.

R/SPECIAL CIVIL APPLICATION NO. 3655 of 2024

MAY 2, 2025

Sudhir M. Mehta and Ms. Shailee S. Mehtafor the Petitioner. Ms. Maithili D. Mehtafor the Respondent.

JUDGMENT

D.N. Ray, J. – Heard learned advocate Mr.Sudhir M. Mehta for the Petitioner and learned Senior Standing Counsel Ms.Maithili D. Mehta for the Respondent.

2. Rule returnable forthwith. Learned Senior Standing Counsel Ms.Maithili D. Mehta waives service of notice of rule for the Respondent. With the consent of learned advocates for the respective parties, the matter is taken up for hearing, as the issue involved is quite brief.

3. The brief facts of the case are as follows:

3.1 The Respondent has passed the order with reference to letter dated 28.12.2023, not entertaining the request for payment of interest Rs. 4,39,010/- on delayed payment of refund amount of Rs. 36,51,389/- under Section 244A of the Income Tax Act, 1961 which is arising from the provisions of Direct Tax Vivad Se Vishwas Act, 2020.

3.2 The Petitioner is a trust and duly filed its return of income under Section 139 of the Income-tax Act, 1961, declaring a total income of ‘NIL’ for the relevant assessment year on 29.10.2010.

3.3 It is the case of the Petitioner that although refund amounts were disbursed by the Respondent on various dates, no interest was paid on account of delayed refunds. In this regard, the Petitioner made representations to the Respondent on 05.01.2023, 21.08.2023, and 28.12.2023, seeking interest of Rs.4,39,010/- on the delayed refund of Rs.36,51,398/-.

3.4 Alleging undue delay in the grant of refund, the Petitioner approached this Court by filing Special Civil Application No. 4023 of 2022. During the pendency of the said petition, the Respondent remitted refund amounts aggregating Rs.33,26,389/- in two tranches Rs.20,70,347/- on 18.08.2022 and Rs.12,56,042/- on 23.12.2022. Additionally, penalty amounts imposed under Section 271(1)(c) of the Act were also refunded, viz., Rs.2,20,000/- and Rs.1,05,000/- on 23.12.2022. In view of the said payments, the Petitioner was momentarily satisfied and accordingly, the writ petition was withdrawn pursuant to the order dated 20.03.2023.

3.5 For the Assessment Year 2010-11, the assessment was completed under Section 144 of the Act, determining the total income at Rs.3,16,01,300/-. The assessing authority disallowed various claims including corpus donations, unsecured loans, unexplained liabilities, and depreciation on the ground that the Petitioner lacked registration under Section 12A(a) of the Act.

3.6 Aggrieved thereby, the Petitioner preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] via Form No. 35 dated 18.04.2013, which came to be dismissed. Thereafter, an appeal was filed before the Income Tax Appellate Tribunal (ITAT), Surat Bench. Meanwhile, the Petitioner also challenged the imposition of penalty under Section 271(1)(c) before the CIT(A), but subsequently withdrew the said appeal on 10.12.2020 upon opting for resolution under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSVA). In furtherance thereof, the Petitioner submitted a declaration in Form No. 1 dated 10.06.2020 and an undertaking in Form No. 2, indicating that the appeal was pending before ITAT Surat in Samarpan Foundation v. ITO [IT Appeal No. 1652 (Srt.) of 2015].

3.7 The designated Respondent Authority issued a certificate in Form No. 3 on 07.12.2020, specifying the quantum of tax arrears and indicating that a refund amounting to Rs.33,26,389/- was payable on or before 31.03.2021. The Petitioner, in compliance thereof communicated payment details in Form No. 4.

3.8 On 09.12.2020, the Petitioner moved an application before the ITAT, Surat for withdrawal of the appeal. Consequent to the same, Form No. 4 was filed on 10.12.2020 under the DTVSVA. The Tribunal allowed withdrawal of the appeal vide order dated 16.12.2020.

3.9 Subsequently, a revised Form No. 3 was issued by the Respondent on 11.01.2021, and the Petitioner responded by filing a revised Form No. 4 on 12.01.2021. The Respondent thereafter issued Form No. 5, which is an order evidencing full and final settlement of tax arrears, confirming refund payable to the Petitioner at Rs.33,26,389/-. The refund was accordingly disbursed, thereby bringing the dispute under DTVSVA to an end.

4. Aggrieved thereby, the Petitioner has instituted the present writ petition under Article 226 of the Constitution of India, seeking the directions to the Respondent to grant the interest of Rs. 4,39,010/- on the refund amount of Rs. 36,51,389/- under Section 244A of the Income Tax Act, 1961, along with consequential reliefs:

“(a)

This Hon’ble Court be pleased to issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ, Order or direction, directing the Respondents, its servants, subordinates, agents and successors in office; to grant the interest of Rs. 4,39,010/- on refund amount of Rs. 36,51,389/- u/s 244A of the Income Tax Act, 1961.

(b)

Pending the admission, hearing and final disposal of this petition, this Hon’ble Court be pleased to direct Respondents to grant the interest of Rs. 4,39,010/-on refund amount of Rs. 36,51,389/- u/s 244A of the Income Tax Act, 1961.

(c)

This Hon’ble Court may be pleased to grant such order and further ad-interim relief as may be deemed fit by this Hon’ble Court, in the interest of justice.”

5. Mr.Sudhir M. Mehta, learned Counsel for the Petitioner has submitted that the Respondent had erred in not granting interest on the amount of refund which was paid belatedly. According to Mr. Mehta, learned Counsel for the petitioner once Form No.5 has been issued on 18.01.2021, the Petitioner became entitled for the amount of refund. There is no explanation on the part of the Respondent as to why the refund was granted belatedly on 18.08.2022 and 23.12.2022 and therefore, the delay of almost 18 to 22 months in refunding the amount must bear interest. In support of his contentions, Mr. Sudhir Mehta, learned Counsel for the Petitioner has relied upon the following decisions:

Union of India v. Tata Chemicals Ltd. [2014] .

Mrs. Anjul v. Office of Pr. CIT

Dwejesh Acharya v. ITO

6. Ms.Maithili Mehta, learned Senior Standing Counsel appearing on behalf of the Department submits that there is no provision in the DTVSVA, 2020 which authorizes the payment of interest. However, Ms.Mehta, learned Senior Standing Counsel is unable to controvert the applicability of the aforesaid decisions cited by the learned Counsel for the Petitioner to the facts of the present case.

7. DISCUSSION & FINDINGS :-

7.1 In the case of Tata Chemicals Limited (supra), it has been held as under : –

“37. A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/ deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company.

38. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, therebeing no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course.”

7.2 The aforesaid decision in the case of Tata Chemicals Limited (supra) has been followed in several decisions cited by the learned Counsel for the Petitioner. Further, in a recent decision of this Court in the case of M/s. Sahil Total Infratech Pvt. Ltd. v. Assistant Commissioner of Income Tax Circle 2(1)(2), Surat & Ors. reported in Sahil Total Infratech (P.) Ltd. v. Asstt. CIT , after placing the reliance upon Paragraph No. 37 of Tata Chemicals Limited (supra), this Court had proceeded to hold as under :-

“12. It is true that the Petitioner is not entitled to interest under Section 244A of the Income Tax Act, 1961, however, when the Petitioner has opted for direct tax for Vivad se Visvas Scheme 2020 and filed the application which was approved by the designated authority and refund order is also passed as per the said scheme on 12/05/2022 by the Jurisdictional Assessing Officer, the Petitioner was entitled to the interest on the amount of refund till the same was paid to the Petitioner. The Respondents are therefore liable to pay the interest on the amount of refund which is withheld in view of the decision of the Hon’ble Supreme Court as reproduced herein above.”

7.3 The aforesaid decision of this Court in the case of Sahil Total Infratech Pvt. Ltd. (supra) is squarely applicable to the facts of the Petitioner ‘s case. Consequently, the present petition succeeds and the Respondent is directed to pay a sum of Rs.4,39,010/- to the Petitioner within a period of Twelve (12) weeks from the date of receipt of a copy of this judgment. If the same is not paid within the time prescribed in this judgment, the said sum shall bear an interest of 12% from the date of this judgment till the date of actual payment of the sum. Rule is made absolute to the aforesaid extent. No order as to costs.