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Interest on interest is permissible

Q: In the assessee entitled to interest on delayed payment of interest, or in other words, interest on interest?

A: Since the law stipulates only simple interest, it was thought that such interest on interest cannot be admissible. But it has been held in Vikrant Tyres Ltd. v First ITO (2001) 247 821 (SC) that such interest on interest is admissible, in the view that, interest becomes tax refundable at the end of each year. In actual practice, it is not in all cases that the taxpayer is able to get even interest, leave alone interest on interest, a sore point with most taxpayers. It should be possible to have the computer programmed to add such interest along with refund, so that such complaint can be easily avoided by having computerised tax calculation reckoning refund along with interest, as long as necessary information for this purpose is also fed, while processing the refund. It appears that, at present, this is done manually, so that the drudgery of calculating interest for different periods at different rates on one hand and the fact that interest on refund is not pressed by many taxpayers on the other, results in such interest often getting skipped.

S. Rajaratnam

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