Assessee Entitled to Get 6% Interest on Refund of Excess Amount of Equalisation Levy | HC

Case Details: Group M Media India (P.) Ltd. v. Deputy Commissioner of Income-tax, International Tax - [2023] 157 taxmann.com 487 (Bombay)

Judiciary and Counsel Details

• • K.R. Shriram & Dr Neela Gokhale, JJ.
  • Dharan V. Gandhi & Ms Aanchal Vyas for the Appellant.
  • Devvrat Singh for the Respondent.

Facts of the Case

The assessee had filed a statement of specified income disclosing total consideration for specified services and equalisation levy. After declaring the total levy paid, assessee claimed refund of a certain amount of levy.

The Assessing Officer (AO) paid the refund amount. However, the AO refused to grant interest on the amount refunded, contending that no provision provided for interest on refunding excess deduction or erroneous deduction of equalisation levy.

Aggrieved by the order, the assessee filed a writ petition to the Bombay High Court.

High Court Held

The High Court held that a tax refund is a refund of taxes when the tax liability is less than the tax paid. The assessee, having paid taxes pursuant to a special order passed by the Assessing Officer when the amount is refunded, should carry interest in the matter.

In the instant case, the assessee paid taxes pursuant to section 165 of the Finance Act, 2016 and, therefore, when the said amount is refunded, it should carry interest. While awarding interest, it is a kind of compensation for the use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is a corresponding obligation to refund such amount with interest as much as they have retained and enjoyed the money deposited.

The government must repay the taxpayer’s refund along with accrued interest, as no explicit statutory provision exempts it from the obligation to compensate for the undue retention of the taxpayer’s money, despite the absence of an interest payment mandate on excess amounts/taxes collected.

The State, having received the money without right, having retained and used it, is bound to make the party good, just as an individual would be under similar 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.

Therefore, there was no reason to deny interest payment to the deductor, and the AO was directed to pay simple interest at 6%, the rate prescribed under section 244A.

List of Cases Reviewed

• • Union of India v. Tata Chemicals Ltd. 1 [2014] 43 taxmann.com 240 (para 11)
  • Universal Cables Ltd. v. Commissioner of Income Tax, Jabalpur 2 [2020] 113 taxmann.com 353 (SC) (para 16)
  • UPS Freight Services India (P.) Ltd. v. DCIT Writ petition (L) no. 10314 of 2023 dated 28-8-2023 (para 17) followed.