S. 244A: Deductor entitled to interest on refund of excess TDS from date of payment
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.
(Click Here To Read More)