2014 (3) TMI 610 - SC - Income Tax

Payment of interest on refund u/s 244A - refund of excess tax deposited u/s 195(2) - Whether the revenue is legally responsible u/s 244A of the Act for payment of interest on the refund of tax made to the resident/deductor u/s 240 of the Act - Whether the resident/deductor is also entitled to interest on refund of excess deduction or erroneous deduction of tax at source u/s195 of the Act – Held that:- Interest on refund 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 resident/deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/foreign company.

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.

The payment of tax made by resident/depositor is in excess and the department chooses to refund the excess payment of tax to the depositor – the interest requires to be paid on such refunds - The catechize is from what date interest is payable, the present case does not fall either under clause (a) or (b) of Section 244A of the Act - In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year - the payment is not made pursuant to a notice issued u/s 156 of the Act, Explanation to clause (b) has no application - as the opening words of clause (b) specifically referred to "as in any other case", the interest is payable from the date of payment of tax - the resident/deductor is entitled not only the refund of tax deposited under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax – Decided against Revenue.