High Court Upholds Refund Interest Governed by Section 244A (1)(b) :

The petitioner is engaged in infrastructure development and had made a payment of Rs 70 crore to MSRDC. The AO alleged failure to deduct tax at source and, by order dated April 23, 2015, treated the petitioner as an assessee-in-default under Sections 201(1) and 201(1A) of the Income Tax Act. A TDS demand of Rs 6,70,80,235 along with interest of Rs 5,89,25,714 was raised, resulting in a total demand of Rs 12,60,65,949. The petitioner challenged the action before the Gujarat High Court. 

The High Court, relying upon its earlier decision in Tata Teleservices Vs Union of India case, quashed the notices and the order dated April 23, 2015. The Revenue's challenge before the Supreme Court was later dismissed on September 23, 2016.

Meanwhile, the petitioner had deposited Rs 2.50 crore under protest in instalments between September 30, 2015 and February 3, 2017. Despite the High Court and CIT(A) orders in the petitioner's favour, the refund was processed only on February 3, 2017, and no interest was granted. 

The Court observed that Section 244A(1)(b) specifically provides for interest in “any other case” from the date of payment of tax or penalty until the date on which the refund is granted. The petitioner, having successfully challenged the demand and having been treated as not liable as an assessee-in-default, was entitled to interest on the amount refunded. 

Accordingly, the Court held that the petitioner could not be denied interest by resorting to Section 244A(1B), which was inserted with effect from April 1, 2017.

Allowing the writ petition, the Gujarat High Court directed the respondents to grant interest on the Rs 2.50 crore refund under Section 244A(1)(b) and make the payment within four weeks, pay further interest at 9% per annum in case of failure to comply within the prescribed period and pay Rs 10,000 as costs to the petitioner. The Court further directed that the Rs 10,000 costs be deposited by the Revenue before the High Court Legal Services Authority within two weeks.