2016 (2) TMI 171 - HC - Income Tax

Interest u/s 244A - from what date the respondents should be directed to pay the interest? - Held that - Undisputedly, though the TDS was deducted and deposited at earlier point of time, the agreement between the petitioner and the German company was executed only on 1.7.1992 wherein the German company waived the instalment. However, even after that date, the petitioner waited till 31.1.1994 to make an application for refund. It is only when the petitioner brought to the notice of the respondent authorities that the German company had agreed to waive the third instalment and as such, the petitioner was entitled to refund of the TDS deducted and deposited on account of third instalment, the respondent Revenue would come to know about the same. In so far as the submission of Shri Thakur is concerned, we find that in the peculiar facts and circumstances of the case the petitioner would be entitled to refund only from the date on which the petitioner had applied for refund and brought the factual aspect to the notice of the respondent authorities. It is wellsettled that the law comes to the assistance of the vigilant and diligent. If the petitioners have chosen to be in slumber for long years, the respondents cannot be fastened with the liability for a period earlier to the date on which the petitioners have woken and brought this factual position to the notice of the respondents. In that view of the matter, we find that in the interest of justice, it would be appropriate to restrict the claim of the petitioner for interest in accordance with the provisions of Section 244A from 31.1.1994 till the date on which the actual amount was paid to the petitioners.

Summary

Issues Involved:
1. Entitlement of the petitioner to interest under Section 244A of the Income Tax Act.
2. Validity of the communication dated 18.7.1995 issued by the Central Board of Direct Taxes (CBDT).

Detailed Analysis:

1. Entitlement of the petitioner to interest under Section 244A of the Income Tax Act:

The petitioner, a public limited company, sought a writ of mandamus for the payment of interest on the amount of Rs. 49,40,923 as per Section 244A of the Income Tax Act. The petitioner had deducted TDS for payments to a German company but later sought a refund for the third installment of TDS, which was waived by the German company. The petitioner argued that, as per Sections 160 and 163, it was a representative assessee and thus entitled to a refund and interest.

The Court examined the definitions and provisions under Sections 2(7), 195, 200, 201, 160, and 163 of the Income Tax Act. It concluded that the petitioner qualified as an "assessee" under sub-clauses (b) and (c) of Section 2(7) because it had a business connection with the non-resident German company and had deducted and deposited TDS as required by law. The Court held that the petitioner was entitled to interest on the refund under Section 244A, rejecting the respondent's argument that only the German company could claim the refund and interest.

The Court cited the Supreme Court's judgment in Union of India vs. Tata Chemicals, which held that interest on refunds is a form of compensation for unauthorized retention of money by the department. The Court emphasized that the principle of granting interest applies to both assessees and resident deductors who have deducted and deposited TDS.

2. Validity of the communication dated 18.7.1995 issued by the Central Board of Direct Taxes (CBDT):

The CBDT had authorized the refund of Rs. 53,70,567 to the petitioner but without interest, stating it was independent of the Act's provisions. The petitioner contended that this communication was invalid as it contradicted the statutory provisions of the Income Tax Act.

The Court referred to the Supreme Court's observation that circulars cannot override statutory provisions. The Court held that the CBDT's communication was not binding as it deviated from the Act, which mandates the payment of interest on refunds under Section 244A. The Court stated that the refund fell within the ambit of Section 240, which includes all proceedings under the Act.

Conclusion:

The Court allowed the petition, directing the respondents to pay interest under Section 244A from 31.1.1994 (the date the petitioner applied for the refund) until the actual refund date. The Court emphasized that the law assists the vigilant and diligent, and since the petitioner delayed in applying for the refund, interest would be calculated from the application date. The petition was granted with no order as to costs.