Facts of the Case

The case before the Delhi High Court arose from an appeal filed by the Income Tax Department under Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT). The Assessing Officer had made certain additions/disallowances in the assessee’s assessment, which were partly deleted by the Commissioner of Income Tax (Appeals) and subsequently upheld by the ITAT in favour of the assessee. Aggrieved by the Tribunal’s findings, the Revenue approached the High Court contending that the ITAT had erred in law and that substantial questions of law arose from its order, while the assessee maintained that the Tribunal’s decision was based on proper appreciation of facts and evidence on record. 

Issues Involved

  1. Whether an assessee is entitled to receive compensation by way of additional interest for delayed payment of statutory interest under Section 244A?
  2. Whether “interest on interest” is permissible under the Income Tax Act?
  3. Whether the ratio of Sandvik Asia Ltd. survives after the Supreme Court’s decision in Gujarat Fluoro Chemicals?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT wrongly relied on Sandvik Asia Ltd.
  • It was argued that Section 244A is a complete code governing payment of interest on refunds and does not provide for any additional interest over and above statutory interest.
  • Reliance was placed upon the Supreme Court judgment in Gujarat Fluoro Chemicals, wherein it was clarified that no “interest on statutory interest” is payable.
  • It was submitted that only the interest specifically provided under Section 244A can be claimed by an assessee.

Respondent’s Arguments (Assessee)

  • The assessee argued that what was claimed was not “interest on interest” but the unpaid interest component which had become part of the refund due.
  • Reliance was placed on the Supreme Court judgment in HEG Ltd., wherein it was held that if the refund does not include the statutory interest component, then interest can be granted on the unpaid component.
  • Reliance was also placed on India Trade Promotion Organisation v. CIT, which followed HEG Ltd. and supported the assessee’s position.

Court Findings / Court Order

The Delhi High Court held that:

  • Section 244A specifically governs the payment of interest on tax refunds.
  • The judgment in Sandvik Asia Ltd. was rendered in the context of pre-Section 244A law and cannot govern cases under Section 244A.
  • The Supreme Court in Gujarat Fluoro Chemicals clearly clarified that only statutory interest under Section 244A is payable and no additional interest on such statutory interest can be claimed.
  • The larger bench ruling in Gujarat Fluoro Chemicals prevails over the interpretation in HEG Ltd.

Accordingly, the High Court set aside the ITAT order to the extent it directed payment beyond statutory interest under Section 244A and answered the question of law in favour of the Revenue and against the assessee. The matter was remanded to the Assessing Officer for passing appropriate orders.

Important Clarification

This judgment clarifies that under Section 244A of the Income Tax Act, an assessee is entitled only to statutory interest on delayed refunds and cannot claim “interest on interest.” Compensation beyond statutory interest is not permissible unless specifically provided by law.

The decision reinforces the binding nature of the Supreme Court ruling in Gujarat Fluoro Chemicals and limits the application of Sandvik Asia Ltd. in post-Section 244A cases.

Sections Involved

  • Section 244A, Income Tax Act, 1961 – Interest on Refunds
  • Section 143(1), Income Tax Act, 1961 – Processing of Return
  • Section 154, Income Tax Act, 1961 – Rectification of Mistake

 Link to download the order https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:2060-DB/RKG03032015ITA5422012.pdf 

 

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