Issue: When a refund is awarded by the Settlement Commission under section 244A, is there a right to receive interest on the same?

Facts of the case:

1. The assessee had approached the Settlement Commission for waiver of interest under sections 234A to 234C of the Income-tax Act, 1961. The said interest has already been paid by the assessee.

2. The Settlement Commission waived the interest but refused to grant interest on refund on the ground that section 244A does not provide for payment of interest in such cases.

3. Further, the Settlement Commission’s power to waive interest does not enable the Commission to provide for payment of interest under section 244A.

Supreme Court’s observations:

1. The Supreme Court observed that the right to claim refund is automatic once the statutory provisions have been complied with.

2. The statutory obligation to refund, being non-discretionary, carries with it the right to interest.

3. Section 244A is clear and plain – it grants a substantive right of interest. Under section 244A, it is enough if the refund becomes due under the Income-tax Act, 1961 in which case the assessee shall, subject to the provisions of that section, be entitled to receive simple interest. It does not matter that the interest being waived is discretionary in nature; the moment that discretion is exercised and refund becomes due consequently, a right to claim interest springs into being in favour of the assessee.

Supreme Court’s Decision: The Supreme Court held that the assessee has a right to interest on refund under section 244A.

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