Interest on Refund of Self-Assessment Tax : A Needless Controversy?

Whether or not refund is due to an assessee, is in itself a vexed question which requires judicial determination and appellate endorsement. Whether or not interest is payable on such refund, is no lesser vexed question. While in common law it is well settled that interest is payable for deprivation of use of money when legally due, this settled principle is apparently yet to be accepted by the revenue departments in as much as they continue to hotly contest the liability to pay interest on refunds. One would have expected that the introduction of Section 244A in the Income Tax Act would have to put an end to the controversy prevailing hitherto. The decision of the Supreme Court recently in Tata Chemicals, however, is a reflection of the fact that the position is seemingly otherwise. This article traces the legal position surrounding the controversy relating to the interpretation of Section 244A and the Explanation to Section 244A(1) in particular to highlight the prevailing situation in so far as interest on refund of self-assessment tax is concerned