Rajasthan High Court rules on interest for delayed tax refund in Dwejesh Acharya vs. ITO case under Vivad Se Vishwas Act. Legal insights on tax dispute settlement.
Introduction: This article discusses a recent judgment by the Rajasthan High Court in the case of Dwejesh Acharya S/o Late Kalyan Sharma versus Income Tax Officer (ITO). The petitioner sought a direction to the respondents for the payment of interest on the amount of refund as due against the respondents. The case revolves around the Vivad Se Vishwas Act, 2020 (VSV Act), which provides for the settlement of disputes related to income tax.
Background: The petitioner filed an application under the VSV Act on June 17, 2020, for the dispute related to the Assessment Year 2013-14. After necessary compliance, the petitioner received Form No. 3 of the VSV Act on January 25, 2021, indicating a refund of Rs. 3,47,03,505/-. Subsequently, after filing Form No. 4, the petitioner received Form No. 5 from the respondents under the VSV Act on March 8, 2021, indicating that a full and final settlement has been done in accordance with Form No. 3.
Despite receiving the refund amount, the petitioner claimed interest on the delayed payment. The respondents had adjusted certain amounts against demands but did not pay interest for the delayed payment.
Legal Submissions: The petitioner argued that, as per Section 244A(1) of the Income Tax Act, 1961, they are entitled to interest on the delayed refund. The petitioner relied on judgments in similar cases, including Anjul vs. PCIT and UPS Freight Services India Pvt. Ltd. vs. Deputy Commissioner of Income Act.
The respondents, in their reply, contended that the provisions of Section 244A of the Income Tax Act were not applicable. They cited the Explanation to Section 7 of the VSV Act, 2020, which specifically prohibits the grant of any interest.
Court’s Decision: The court considered the submissions from both parties and examined the relevant provisions of the VSV Act. The court observed that once the order in Form No. 5 had been issued on March 8, 2021, the petitioner became entitled to the refund amount. However, there was a delay in refunding the amount without any reason provided by the respondents.
The court referred to the Delhi High Court’s judgment in the case of Ms. Anjul, where it was held that the state, having received the money without right and having retained and used it, is bound to make the party good, implying the right to interest.
Citing the Bombay High Court’s decision in UPS Freight Services, the court ordered the payment of interest as per the rate prescribed under Section 244A of the Income Tax Act for the delayed payment.
The court rejected the respondents’ contention regarding the Explanation to Section 7 of the VSV Act, stating that it only pertains to the period before filing the declaration and has no bearing on the entitlement to interest after the issuance of Form No. 5.
Conclusion: The Rajasthan High Court’s decision highlights the principle that a party is entitled to interest on delayed refunds when the state has received and retained the money without a valid reason for the delay. The court’s interpretation of the relevant provisions of the VSV Act emphasizes the obligation to refund money received without right and the entitlement to interest in such cases.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
This writ petition has been filed by the petitioner seeking a direction to the respondents for payment of interest on the amount of refund as due against the respondents.
2. Submissions have been made that pursuant to Vivad Se Vishwas Act, 2020 (‘VSV Act’) for settlement of disputes, the petitioner filed an application on 17/6/2020 for the dispute relating to Assessment Year 2013-14 and after making necessary compliance got the Form No. 3 of the VSV Act on 25/1/2021 indicating a refund of Rs.3,47,03,505/-. Whereafter, on filing Form No. 4, the petitioner received Form No. 5 from the respondents under VSV Act on 8/3/2021 indicating that full and final settlement has been done in accordance with Form No.3.
3. Pursuant to the Form Nos. 3 & 5 as issued by the respondents under VSV Act, the petitioner made several representations for issuing refund of Rs.3,47,03,505/-. After making several requests, the petitioner received/got adjustment against demands for Rs.11,86,641/- on 10/1/2022, Rs.2,59,48,974/- on 30/5/2022, Rs.70,476/- on 22/10/2021 and Rs.74,97,414/- on 20/1/2022 totaling Rs.3,47,03,505/-, however, no interest was paid for the delayed payment.
4. Learned counsel for the petitioner made submissions that though the entire amount to which the petitioner was entitled on 8/3/2021 on issuance of Form No.5 (Annex.9) has been paid to the petitioner, after making several representations, for the period the refund has been kept by the respondents after petitioner’s entitlement, the petitioner is entitled to interest on the said amount.
5. Submissions have been made that the provisions of Section 244A (1) of the Income Tax Act,1961 are applicable and based on the said provision the petitioner is entitled to interest.
6. Reliance has been placed on Anjul vs. PCIT : WP (C) 1985/2022 decided on 23/8/2022 by Delhi High Court and UPS Freight Services India Pvt. Ltd. Vs. Deputy Commissioner of Income Act : WP (L) No.10314/2023 decided on 28/8/2023 by the Bombay High Court.
7. A reply to the writ petition has been filed inter alia denying the entitlement of the petitioner to seek any interest on the amount of refund.
8. Submissions have been made that the provisions of Section 244A of Income Tax Act have no application, on the other hand Explanation to Section 7 of the VSV Act, 2020 specifically prohibits grant of any interest and application of provisions of Section 244A of the Income Tax Act and, therefore, the petition deserves dismissal.
9. We have considered the submissions made by learned counsel for the parties and have perused the material available on record.
10. A perusal of Form No. 5 (Annex.9) clearly reveals that the order has been passed by the designated authority under the VSV Act, 2020 and Rules determining the amount of Rs.3,47,03,505/-refundable to the petitioner in accordance with the provisions of the Act. Once the order in Form No. 5 has been issued on 8/3/2021, the petitioner became entitled for the amount of refund. Admittedly, the said amount was refunded to the petitioner/adjustment towards the demands on 22/10/2021, 10/1/2022, 20/1/2022 and 30/5/2022. No reason worth the name has been indicated in response for the delay in refunding the amount to which the petitioner became entitled on passing of order in Form No.5 way back on 8/3/2021.
11. The Delhi High Court in the case of Ms. Anjul (supra) while relying on one judgment of Hon’ble Supreme Court in Union of India v. Tata Chemicals Limited : (2014) 6 SCC 335 held 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 do under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest.
12. Bombay High Court in the case of UPS Freight Services (supra) while following the order in the case of Ms. Anjul (supra) also ordered for payment of interest as per the rate prescribed under Section 244A of the Income Tax Act in similar circumstances.
13. So far as the plea raised by learned counsel for the respondents with reference to provisions of Explanation to Section 7 of VSV Act, 2020 is concerned, the same has been noticed for rejection only.
14. The provision of Section 7 of VSV Act, 2020 reads as under:
“7. Any amount paid in pursuance of a declaration made under section 4 shall not be refundable under any circumstances.
Explanation.- For the removal of doubts, it is hereby clarified that where the declarant had, before filing the declaration under sub-section (I) of section 4, paid any amount under the Income-tax Act in respect of his tax arrear which exceeds the amount payable under section 3, he shall be entitled to a refund of such excess amount, but shall not be entitled to interest on such excess amount under section 244A of the Income-tax Act.”
15. A bare perusal of the Explanation would reveal that the Explanation pertains to payment of any amount under the Income Tax Act for the period before filing the declaration under subsection (1) of Section 4 of the VSV Act, 2020 and nothing to do with the entitlement to interest for the period after issuance of Form No.5 indicating entitlement of the petitioner to the amount of refund.
16. In view of the above discussion, for the delayed payment, the petitioner is entitled to interest on the refund amount for the delay beyond the period of 90 days from the date of refund i.e. 8/3/2021.
17. Consequently, the writ petition is allowed. It is directed that the respondents-revenue shall make payment of interest @ 6% p.a. on the delayed refund amount w.e.f. 8/6/2021 i.e. beyond the period of 90 days from the date of determination of refund amount on 8/3/2021 till the date of actual/last payment. As the payment/adjustment has been made on various dates, interest would be calculated on the balance amount till each respective date. The payment of interest be made within 08 weeks from the date of this order.