2020 (5) TMI 25 - HC - Income Tax

Refund of interest amount payable u/s 201(1A) - interest u/s 244A - Excessive deduction of TDS on the direction of Department - HELD THAT - Respondent No.1 has rejected the claim vide impugned order dated 14.09.2017 (Annexure P-12). Surprisingly, there is no reference to the order dated 04.08.2017 (Annexure P-11) passed by the respondent No.2 directing the Assistant Commissioner of Income Tax (TDS), Bhopal for compliance of the order of this Court passed 2017 (1) TMI 1713 - MADHYA PRADESH HIGH COURT and refund of interest amount to the NHAI, as claimed, so that subsequently the NHAI can refund the same to the petitioner. It appears that there has been lack of communication between the respondent No.1 and 2. Still further, the respondent No.1 while passing the impugned order dated 14.09.2017 (Annexure P-12) has assigned the reasons that the default was detected in the case of NHAI i.e. the respondent No.3, which was the assessee over which the respondent No.1 exercised jurisdiction. NHAI was liable to deduct and deposit TDS and interest for delay but the NHAI instead of paying it out of its own coffers illegally recovered the amount from IJMC-petitioner. The charge of interest was created on NHAI and not on the petitioner and therefore, the claim of the petitioner was not justifiable. Reasons assigned by the Revenue to decline refund of the interest under Section 201(1A) of the Act recovered from respondent No.3-NHAI on behalf of the petitioner is untenable, as after detailed scrutiny, the respondent No.2 found that the petitioner was assessed at loss and therefore, allowed the TDS credit in its favour. The TDS was refunded to the petitioner in accordance with law. No interest recovered from respondent No.3 under Section 201(1A) of the Act could be legally retained by the Revenue. In these circumstances, the interest under Section 201(1A) of the Act deducted and deposited by the respondent No.3 with the office of the ACIT (TDS), Jabalpur ought to have been refunded. Any payment of TDS by the deductor in respect of payment made to deductee-petitioner will entitle the deductee to get back such TDS with interest at the time of framing of assessment under Section 143(3) of the Act. In such eventuality, it was not proper to hold the deductor as assessee in default under Section 201(1) nor interest could be levied under Section 201(1A) of the Act. Admission of claim of refund of interest amount payable to respondent No.3 by the respondent No.2 and direction being issued in this regard to the respondent No.1 vide order dated 04.08.2017 (Annexure P-11), the impugned order dated 14.09.2017 (Annexure P-12) is quashed. The respondent Nos.1 and 2 are directed to refund the interest amount collected under Section 201(1A) of the Act from respondent No.3 on behalf of the petitioner together with interest under Section 244A of the Act, who in turn, shall pay the same to the petitioner in accordance with law.

Summary

Issues Involved:
1. Jurisdiction and cause of action.
2. Levy of TDS at a higher rate.
3. Entitlement to refund of interest under Section 201(1A) of the Income Tax Act.
4. Compliance with court orders and procedural fairness.

Detailed Analysis:

1. Jurisdiction and Cause of Action:
The petitioner argued that the order rejecting their claim for interest refund was passed without an opportunity for a hearing, violating a previous court direction. The respondent contended that the petitioner was outside their jurisdiction, as the order under Section 201(1A) was against the respondent No.3, not the petitioner. The court found the petitioner's grievance valid, emphasizing the need for procedural fairness and adherence to court directions.

2. Levy of TDS at a Higher Rate:
The petitioner had obtained certificates for lower TDS rates from its Assessing Officer. Despite this, respondent No.3 deducted TDS at a higher rate (42.23%) for certain financial years, leading to disputes and subsequent legal proceedings. The court noted that the Income Tax Appellate Tribunal had directed the Assessing Officer to determine if the petitioner was entitled to a refund of the excess TDS deducted.

3. Entitlement to Refund of Interest under Section 201(1A):
The petitioner sought a refund of interest levied under Section 201(1A) of the Act, arguing that no interest should be charged if there was no tax liability. The court agreed, stating that if the deductee (petitioner) was assessed at a loss, no interest should be levied under Section 201(1A). The court emphasized that the petitioner was entitled to a refund of the interest amount collected from respondent No.3 on their behalf.

4. Compliance with Court Orders and Procedural Fairness:
The court highlighted the lack of communication between the respondents and the failure to comply with previous court orders directing the refund of interest. The court criticized the respondent No.1 for rejecting the refund claim without considering the respondent No.2's direction to comply with the court's order. The court found the reasons given by the Revenue to decline the refund untenable, as the petitioner was assessed at a loss, and the TDS credit was allowed in their favor.

Conclusion:
The court quashed the impugned order dated 14.09.2017, directing the respondents to refund the interest amount collected under Section 201(1A) of the Act from respondent No.3 on behalf of the petitioner, together with interest under Section 244A of the Act. The judgment emphasized the importance of procedural fairness, compliance with court orders, and the proper application of tax laws.