Interest in case of appeal

In cases where the Income Tax Department appeals an order (e.g., from the ITAT) to the High Court and eventually wins, the tax that was refunded to the assessee is treated as an amount that was never rightfully "due."

Key Points Regarding Interest and Repayment:

• Repayment of Principal: If the High Court rules in favor of the department, the assessee is required to repay the tax amount that was refunded to them.

• Interest on the Refunded Amount: When a refund is reversed due to a higher court's decision, the department typically issues a demand for the repayment of the tax. The question of whether you owe interest on that repaid amount—and from what date—is governed by the provisions of the Income Tax Act (specifically regarding interest on delayed payments of tax).

• Date of Interest Calculation: Generally, judicial precedents suggest that interest liability does not necessarily start from the date you originally received the refund. Instead, interest for delayed payment of tax is usually calculated from the date of the final demand notice issued by the Assessing Officer after the High Court's order is given effect.

• Case Law Guidance: For example, in Income Tax Officer v. A.V. Thomas & Company, the Kerala High Court ruled that the department could not levy interest from the date of the initial refund. Interest under Section 220(2) (or relevant current sections) typically accrues only from the date the new demand notice is served and remains unpaid after the specified due date.

Summary

If the High Court reverses an order in favor of the Department:

1. You must repay the tax that was refunded to you.

2. Interest liability is generally not calculated from the date you received the original refund. It typically begins to accrue only after a new demand notice is served by the Assessing Officer following the High Court's judgment, if you fail to pay that demand by the due date specified in the notice.