CBDT asks I-T to pay interest on tax refunds

The Central Board of Direct Taxes (CBDT) has directed income tax establishments across the country to ensure they pay the interest due on tax refunds.

Any delays in executing this will result in the department forking out additional interest on a refund. There is no provision for payment of interest on refunds in the Income Tax Act, 1961.

The CBDT directive, issued recently, has come into effect, with the board specifying that interest is to be granted simultaneously with tax refunds.

The CBDT directive follows the recent Supreme Court order over-ruling the Gujarat High Court's ruling in a matter related to Sandvik Asia Ltd.

The Supreme Court, while pronouncing a decision in the case on January 27, 2006, slammed the income tax department for delay in tax refunds to Sandvik Asia. The court said there was "no question of the delay being justifiable" as was being argued by the income tax department.

The CBDT has also revised the guidelines for the rewards claimed by the officers and staff for block returns . Block returns are filed on undisclosed income after investigation and search made by the I-T officials. Under the revised guidelines, an officer will get his reward provided the assessee agrees to pay the tax on an undisclosed income.

Further, such income should not have been disputed in an appeal and no petition is made to the Settlement Commission. Further, a year must have passed for the award claim, from the day the relevant assessment was made.