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M/s. K. Lakshmanya and Company v. Commissioner of Income Tax

Civil Appeal · 2017 INSC 1071Decided 1 Nov 2017
Civil Appeal No. 4335 of 2012
Justice Rohinton Fali Nariman · Justice Sanjay Kishan Kaul

Background

The assessee, a partnership firm, had interest charges under the Income Tax Act (Sections 234A-C) partially waived by the Settlement Commission for assessment years 1993-94 and 1994-95, which created a refund entitlement. When the firm asked for interest on that delayed refund under Section 244A, the Assessing Officer refused, and this refusal was eventually upheld by the Karnataka High Court on the reasoning that since the original waiver was itself discretionary, no automatic right to refund-interest followed from it. The firm (and over 30 connected appeals raising the identical issue) appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the word "due" in Section 244A simply means a refund becomes due whenever any order, discretionary or not, reduces or waives tax or interest; once that discretion is actually exercised and a refund amount becomes payable, the right to interest on that refund follows automatically and is not itself discretionary. Relying on its own earlier rulings (Sandvik Asia, Tata Chemicals, H.E.G. Limited), the Court held that the obligation to pay interest on a tax refund is a non-discretionary statutory right, and the Karnataka High Court was wrong to treat the earlier discretionary waiver as removing that right. The connected appeals were allowed and the High Court's judgment set aside; a separate connected appeal (Director of Income Tax vs SET Satellite) was dismissed by the same bench as covered by existing precedent.

Lesson Learnt

Once a tax refund becomes payable to a taxpayer for any reason, even where the underlying waiver of tax/interest was itself a matter of official discretion, the government's obligation to pay interest on the delayed refund is automatic and cannot be denied merely because the original relief was discretionary.

Official source (sci.gov.in)View Judgment (PDF)

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