Taxpayer Entitled to Interest on Refund Under DTVSV Act Despite Section 7 Bar: Kerala HC [Read Order]

In a recent ruling, the Kerala High Court held that a taxpayer is entitled to interest on a refund made under the Direct Tax Vivad se Vishwas Act, 2020 even though Section 7 of the Act excludes statutory interest under Section 244A of the Income Tax Act.

Satwashil Vasant Mane, the petitioner, had filed a declaration under the Vivad se Vishwas Scheme in respect of Assessment Year 2016-17. On 24 November 2021, the Principal Commissioner of Income Tax issued Form-5, confirming that the petitioner was entitled to a refund of Rs. 28,81,185. The amount was released only on 29 November 2023, and no interest was paid.

The petitioner filed a writ petition before the High Court claiming interest on the delayed refund, which was allowed by the Single Judge on 7 January 2025. The Income Tax Department filed an appeal, relying on Section 7 of the Vivad se Vishwas Act, to argue that no interest could be granted in such cases.

The department’s counsel argued that Section 7 specifically provides that no interest shall be payable on any amount refunded under the Act. It was contended that once the legislature had excluded Section 244A, the petitioner’s claim stood barred.

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The petitioner’s counsel argued that Section 7 only excludes statutory interest under Section 244A, but does not prevent the court from granting compensatory interest under the general law when the delay in refund is unreasonable. It was argued that keeping the taxpayer’s money for almost two years after issuance of Form-5 amounted to unjust enrichment by the state.

The division bench comprising Justice A.K. Jayasankaran Nambiar and Justice Baswaraj S. observed that Section 7 excludes interest under Section 244A but it does not take away the court’s power to award interest under general principles of law, including the Interest Act, 1978.

The court explained that the object of the scheme requires prompt settlement by both parties, and the taxpayer cannot be made to suffer loss on account of administrative delay. The court pointed out that the delay of nearly two years in granting refund was without justification.

The court held the petitioner was entitled to interest on the delayed refund. The writ appeal filed by the Income Tax Department was dismissed, and no costs were imposed.

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