TITLE:
S. 244A: Deductor entitled to
interest on refund of excess TDS from date of payment
CASE: UOI vs. Tata Chemicals Ltd (Supreme
Court)
The assessee made an application u/s 195(2) for
permission to remit technical service charges and reimbursement of expenses to
a foreign company without deduction of tax at source. The AO passed an order
directing the assessee to deduct TDS at the rate of 20% before making
remittance. The assessee effected the deduction and filed an appeal before the
CIT(A) in which it claimed that the said remittance was not subject to TDS.
The CIT(A) upheld the claim with regard to the
reimbursement of expenses with the result that the TDS thereon was refunded to
the assessee. However, the AO declined to grant interest u/s 244A on the said
interest by relying on Circular Nos 769 dated 06.08.1998 and 790 dated 20.4.2000 issued by the CBDT.
The CIT(A) upheld the AO’s stand though the Tribunal and High Court upheld the
assessee’s stand.
On appeal by the department to the Supreme Court HELD dismissing
the appeal:
(i) A “tax refund” is a refund of taxes when the tax
liability is less than the tax paid. When the said amount is refunded it should
carry interest in the matter of course. As held by the Courts while awarding
interest, it is a kind of compensation of use and retention of the money
collected unauthorizedly by the Department. When the collection is illegal,
there is corresponding obligation on the revenue to refund such amount with
interest in as much as they have retained and enjoyed the money deposited. Even
the Department has understood the object behind insertion of Section 244A, as
that, an assessee is entitled to payment of interest for money remaining with the
Government which would be refunded. There is no reason to restrict the same to
an assessee only without extending the similar benefit to a deductor who has
deducted tax at source and deposited the same before remitting the amount
payable to a non-resident/ foreign company;
(ii) Providing for payment of interest in case of
refund of amounts paid as tax or deemed tax or advance tax is a method now
statutorily adopted by fiscal legislation to ensure that the aforesaid amount
of tax which has been duly paid in prescribed time and provisions in that
behalf form part of the recovery machinery provided in a taxing Statute. Refund
due and payable to the assessee is debt-owed and payable by the Revenue. The
Government, there being no express statutory provision for payment of interest
on the refund of excess amount/tax collected by the Revenue, cannot shrug off
its apparent obligation to reimburse the deductors’ lawful monies with the
accrued interest for the period of undue retention of such monies. The State having
received the money without right, and having retained and used it, is bound to
make the party good, just as an individual would be under like circumstances.
The obligation to refund money received and retained without right implies and
carries with it the right to interest. Whenever money has been received by a
party which ex ae quo et
bono ought to be
refunded, the right to interest follows, as a matter of course;
(iii) The said
interest has to be calculated from the date of payment of such tax.
RELATED
JUDGEMENTS
1.
CIT vs. Gujarat Flouro Chemicals
(Supreme Court)
2.
CIT vs. Gujarat Flouro Chemicals
(Supreme Court)
3.
Chironjilal Sharma HUF vs. UOI
(Supreme Court)