For payment of interest on refund, amount paid as tax is different from amount seized

For payment of interest on refund of amounts paid as tax is quite different from amount seized from the possession of a person –High Court 

In a recent judgment, Hon’ble High Court has held that for payment of interest, refund of amounts paid as tax or deemed tax or advance tax is quite different from amount seized from the possession of a person.

ABCAUS Case Law Citation:
ABCAUS 4139 (2024) (07) HC

In the instant case, the Petitioner/assessee had filed a Writ Petition seeking a direction for release of cash amount seized by the Income Tax Department at Airport. However the issue was limited to payment of interest on the amount refunded.

However, during pendency of the writ petition, the Income Tax Department raised different demands under section 220(2) pertaining to three assessment yea and the said demands were deducted from the amount seized. The remaining amount was paid to the Petitioner.

According to the Income Tax Department, the balance amount paid to the Petitioner shall carry interest only upto the date of assessment u/s 143(3) of the Income Tax Act, 1961 (the Act) as provided under section 132B(i).

The Revenue submitted that the interest upon the excess amount paid or recovered by an assessee shall be calculated only till the date of passing of the assessment order under section 143(3) of the Income Tax Act, 1961.

On the other hand, the petitioner refered to the decision of the Hon’ble Supreme Court to submit that the payment of interest should be till the date of actual payment made by the Income Tax Department. The petitioner placed reliance on the observation of the Hon’ble Supreme Court that 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.

The Hon’ble Supreme Court had also observed that in the absence of an express provision as contained in clause 244A(a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under Section 156 of the Act, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to as “in any other case”, the interest is payable from the date of payment of tax.

The Hon’ble High Court observed that refund of amounts paid as tax or deemed tax or advance tax shall be quite different from an amount seized from the possession of a person in respect thereof the assessment shall be carried in terms of section 143 of the Income Tax Act. The Hon’ble High Court observed that as per 1st proviso to section 132B(i) if an application for release is not made within 30 days from the date of authorization no interest shall be payable to the assessee. In the context of 1st proviso to section 132B(i)

The ITD reiterated the stand that interest on the seized amount shall be payable to the assessee till the date of assessment under section 143(3) of the Income Tax Act.

In view of the provisions, the Hon’ble High Court held that the petitioner failed to make out a case for payment of interest till final payment is made and the judgment of Hon’ble Supreme Court did not support the case of the petitioner.

Accordingly, the Petition was dismissed.

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