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.”
