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Don't withhold income tax refunds needlessly: HC
January, 29th 2007

Expressing concern over unusual delays in income-tax refunds, which have increased in recent years, the Delhi High Court has said in a ruling that the authorities cannot withhold the return of due amount to an assessee in perpetuity. A time limit has to be set, otherwise the assessee would not be able to get the refund, it noted.

The refund can be withheld only after the authorities are satisfied that the assessee will not be able to pay the tax and that the outstanding tax cannot be recovered at all if the refund is not withheld, said the court.

A mechanical invocation of powers under Section 245 of the I-T Act, irrespective of the fact situation, can lead to misuse of power by the Revenue (department) in order to delay the refund till such time a fresh demand for the subsequent assessment years is finalised. If reasonable time limits are not set for processing of and disposal of an application for refund of the amount, it may result in assessee not being able to get the refund at all, said a Division Bench of Justices Vikramjit Sen and S Murlidhar.

Section 245 of the Act, which allows tax officers in higher echelons to set off the amount to be refunded or any part of that amount against the same, if any, remaining payable under this Act by the person to whom the refund is due, is not mandatory but discretionary, said the court.

The court further said the importance of timely processing of refund claims has been underscored by stipulating the payment of interest on refunds (Section 244 A) and interest on delayed refunds (Section 243).

Unless there are sound reasons justifying the formation of an opinion that tax that has become payable cannot be recovered from the assessee as and when the issues are ultimately decided, the power under Section 245 should not be lightly invoked, said the court. The court said the revenue department, by delaying the refund, is actually incurring an additional expenditure since it has to pay interest on the amount.

The judgement cited a report of The Economic Times, which said the public accounts was concerned over the unusual delay in income-tax refunds.

As per the report, the committee had noted that delay in refunds shot up to 27.36 months in 2003-04 compared to 8 months in 1996-97.

The ruling came while directing the concerned authorities to refund the due amount, including interest, on such delayed payments to the petitioner company Glaxo Smith Kline Asia not later than February 15. The petitioner had sought refund for the assessment year 2001-02.

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