Union of India Vs. Tata Chemicals Ltd., Civil Appeal No. 6301 of 2011, Date of Order: 26.02.2014, Supreme Court of India
Whether
the resident deductor is also entitled to interest u/s 244A of the Act
on refund of excess deduction or erroneous deduction of TDS u/s 195 of
the Act.
Held: Yes
In the present
case, the AO has passed an order u/s 195(2) of the Act directing the
assessee to deduct tax at a particular rate. After depositing the tax,
the assessee had filed appeal against the said order. The CIT(A) had
allowed the assessee’s appeal by holding that reimbursement of expenses
is not a part of the income for deduction of TDS u/s 195 of the Act and
accordingly, directed the refund. In observance of the same, the AO had
granted the refund u/s 240 of the Act, but declined to grant interest.
The AO has in opinion that the conjoint reading of Section 156 and the
explanation appended to Section 244A(1)(b) of the Act would indicate
that the amount refunded to the assessee cannot be equated to the refund
contemplated u/s 244A(1)(b) of the Act, whereunder only the interest on
refund of excess payment made u/s 156 of the Act on account of post
assessment tax is contemplated and not the interest on refund of tax
deposited under self assessment. However, the Tribunal has rejected the
aforesaid rationale and granted the claim of the assessee. The High
Court has endorsed the view of the Tribunal and dismissed the appeals
filed the Revenue.
After
analyzing the provisions of statute and considering the submission, the
Hon’ble Supreme court has held that interest 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. The object
behind insertion of Section 244A has to be understood, 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
interest to an assessee only without extending the similar benefit to a
deductor who has deducted TDS and deposited the same before remitting
the amount payable to a non-resident. Therefore, the deductor is
entitled to interest on refund of excess TDS from date of payment of tax
amount.
(Please click here for judgment)
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