The Himachal Pradesh High Court held that delayed payment of interest on delayed refund becomes part of the principal amount will be eligible for interest under Section 244A.
The respondent Society, M/s Solan District Truck Operators Transport Co-op. Society filed a return of income for the assessment year 1996-97, which was processed under Section 143 (1) of the Income Tax Act.
For the assessment years 1996-97 to 1999-2000, certain refunds arising out of excess TDS were issued in favour of the assessee. However, interest under Section 244-A of the Act was not paid in respect of some of the refunds, while in the case of some other refunds, interest was paid for a shorter period than what was claimed by the assessee.
It is averred in the appeal that the interest was refused on the ground that the delay in issuing refund was attributable to the assessee. Against the order of the Assessing Officer refusing to grant interest under Section 244-A of the Act.
The appeal of the assessee was allowed by the ITAT directing the revenue to pay compensation in the shape of simple interest on the amount due at the rate at which the assessee otherwise would have been entitled to, on the delayed payment of excess tax paid.
The issue raised was that whether the ITAT was right in law in directing the department to pay compensation in the shape of simple interest on the amount due at the rate at which the assessee otherwise would have been entitled to without appreciating the fact that assessee was duly paid interest under section 244A on delayed refund upto the date of issue of refund.
The high court upheld the order of the ITAT in the light of the decision of the supreme court in the case of Commissioner of income Tax Vs. HEG Ltd, wherein it was held that the interest on the delayed refund becomes part of the principal amount and the delayed interest includes the interest for not refunding the principal amount. Accordingly, it also includes the interest on the delayed refund.
The division bench of Justices Tarlok Singh Chauhan and Jyotsna Rewal Dua while dismissing the appeal by the revenue said that though, the monetary limit to prefer an appeal before High Court is less than Rs.1.00 crore, but if there is a valid question, where an Order, Notification, Instruction or Circular is to be challenged as illegal or ultra vires, an appeal could be filed before the High Court. In the present case, no such exception is available to the appellant.
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