2019 (12) TMI 1081 - SCH - Income Tax

Entitled to interest on the amount refunded by the Department u/s 244A - HELD THAT - As relying on nion of India Vs. Tata Chemicals Ltd. 2014 (3) TMI 610 - SUPREME COURT there is no reason to deny payment of interest to the deductor who had deducted tax at source and deposited the same with the Treasury. In our opinion, this observation squarely applies to the appellant. As a result, we allow this appeal and direct the Department to pay interest as prescribed under Section 244-A of the Income Tax Act as applicable at the relevant time at the earliest.

Summary

Issues:
Entitlement to interest on refunded amount by the Department.

Analysis:
The Supreme Court considered the limited issue of whether the appellant would be entitled to interest on the amount refunded by the Department. The appellant relied on the decision in Union of India Vs. Tata Chemicals Ltd., where it was held that a tax refund entitles the assessee to interest on the refunded amount. The Court emphasized that interest is a form of compensation for the unauthorized use and retention of the money by the Department. The Court noted that this principle should not be restricted to only the assessee but should also extend to a resident/deductor who deducted tax at source. Based on this reasoning, the Court allowed the appeal and directed the Department to pay interest as per Section 244-A of the Income Tax Act applicable at the relevant time.

The Court's decision was influenced by the understanding that interest on refunded amounts serves as compensation for the unauthorized use and retention of funds by the Department. The Court highlighted that the purpose of Section 244-A is to ensure that an assessee is entitled to interest for money held by the Government and subsequently refunded. The Court emphasized that this entitlement should not be limited to the assessee alone but should also encompass residents/deductors who have deposited tax at source. Consequently, the Court directed the Department to pay interest as per the relevant provisions of the Income Tax Act.

In conclusion, the Supreme Court allowed the appeal and ordered the Department to pay interest on the refunded amount in accordance with Section 244-A of the Income Tax Act. The Court's decision was based on the principle that interest serves as compensation for the unauthorized retention and use of funds by the Department, extending this entitlement not only to the assessee but also to residents/deductors who have deposited tax at source. The judgment emphasized the importance of ensuring fair treatment and compensation for funds held by the Government and subsequently refunded.