However, on the other hand, when there are shortfalls in revenue targets, oral instructions are issued to the field officers to not process refunds. Some Commissioners clearly stated that they had instructions from the top not to issue refunds till after the close of the fiscal year. Others gave the excuse of reorganisation of the various charges in the department to postpone issue of refunds.However, there are some larger legal issues regarding refunds which I would like to address.
Under section 244A of the Income-tax Act, 1961, which is applicable from assessment year 1989-90 onwards, interest, is allowed at the rate of three- fourth per cent for every month or part of a month (9% per annum). This is proposed to be further reduced by the Finance Bill 2002 with effect from 1.6.2002 to two-third per cent per month (8% per annum).
Under clause (a) of sub section (1) of section 244A, where tax has been paid excessively, either by way of deduction or collection at source or by way of advance tax during the financial year, interest is allowed from 1st April of the assessment year till the date on which the refund is granted. Unfortunately, there is a proviso here that if the amount of refund is less than 10% of the tax as determined in the intimation under section 143(1) or on regular assessment, no interest would be payable on the resulting refund.
Under clause (b) of section 244A(1), interest is payable where taxes have been paid in excess pursuant to demands raised by the Department for the period or periods from the date of payment of tax or penalty to the date on which the refund is granted.
At the outset it must be pointed out that the rates of interest under the Act have always been discriminatory. Interest payable for defaults in payment of advance tax or even for deferment in advance tax is higher than the interest for granting refunds. For instance, interest under section 234C (for deferrment of payments of advance tax) or under section 234B (for shortfalls in payment of advance tax below 90% of the assessed tax) is at the rate of one and one-fourth percent per month or part thereof (i.e. 15% per annum). And in the case of section 234B this is charged right upto the date of the regular assessment. Thus, if the assessment is delayed for no fault of the assessee, interest would be payable, nevertheless, right till the date of assessment. It should not be forgotten that interest is supposed to be compensatory in nature and is not akin to a penalty, for which there are separate provisions under the Act.
The Government should be fair to the assessees and compensate itself at the same rate that it compensates assessees. The Finance Bill, 2002 proposes a reduction in interest payable to assessees from 9% per annum to 8% per annum while keeping interest payable by the assessee at the same rate of 15% per annum. The rate at which interest is payable to the Government is almost twice the rate payable by the Government.
Secondly, under section 244A, there is no definition of the term "date on which the refund is granted". Thus, it happens all the time that assessments/ intimations are concluded on a particular date and demand notices/ intimations are sent to the concerned assessees stating therein that a refund is due. However, the cheque which should accompany the assessment order/ intimation does not so accompany. And the interest is computed on the refund only upto the date of the order/intimation. Assessees are left to chase the Assessing Officer for actual issue of the cheque.
Thirdly, where is the need for not paying assessees interest when the refund amounts to less than 10% of the tax determined in the intimation or the regular assessment as the case may be. The fact is that the Department has been paid the tax in advance. There is no reason, therefore, to discriminate against an assessee merely because the refund works out less than 10% of the tax determined. For example: An assessee paid a tax of Rs.10 lakh. Tax determined is Rs.9,10,000. Thus, the refund is Rs.90,000 but is less than 10% of the tax determined. Hence no interest would be payable despite the department having enjoyed the benefit of such a large amount. Imagine the position where the above figures are multiplied 10 or 100 times. I may add that there was no such restrictive clause under the old provisions covered by section 244 of the Act.
Another issue is that interest is payable only from 1st April following the financial year in which the payment is made under the provisions of sub-clause (a) of section 244A(1). Thus, a tax may have been paid say on 15th September in excess, but no interest is, in any event, payable during the intervening period 15th September to 31st March. This is the fourth area of discrimination as there is no reason why the interest should not be paid from the end of the month in which the excess payment has been made. After all, the Income-tax Department is now being fully computerised and this kind of a calculation would not be difficult. Also payment of interest under clause (b) of section 244A(1) are actually calculated from the date of payment till the date of grant of refund. There is no reason why this same method should not be followed while calculating interest under clause (a) of section 244A(1).
To sum up, the provisions regarding refunds require to be modified:
(i) by making the interest payable by the Department the same as the interest payable by the assessee;
(ii) by defining the term "date upto which the refund is granted" and ensuring that the refund cheque is sent alongwith the intimation/ assessment order;
(iii) by calculating interest on refunds from the date of payment of tax and not merely from 1st April of the year following the financial year in cases where the refund is under sub-clause (a) of section 244A(1);
(iv) by granting interest even to persons whose refunds are less than 10% of the tax; and
(v) ensuring a time limit for granting refunds so that there can be no interference from the administrative bosses, merely because there are shortfalls in revenue targets.