2005 (7) TMI 339 - AT - Income Tax

Summary

Issues:
Interpretation of provisions of law regarding interest on refunds under section 244A in relation to tax deducted at source (TDS) and payment to Central Government.

Analysis:
The case involved two appeals by the revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment years 2000-01 and 2001-02. The returns for these years declared NIL income with refund claims. The Assessing Officer granted the refunds along with interest, but the assessee found the interest under section 244A to be insufficient. The dispute arose when the Assessing Officer denied interest on certain TDS amounts not credited to the Central Government Account in the relevant financial year. The CIT(A) directed the Assessing Officer to grant interest under section 244A from 1st April of the assessment year on the entire TDS amount. The Tribunal analyzed the provisions of section 244A, section 199, and section 206C(4) to determine the applicability of interest on refunds. It was established that for interest under section 244A to apply, the TDS must be paid to the Central Government in the relevant financial year.

The Tribunal found that the CIT(A) misinterpreted the law by directing interest under section 244A on TDS amounts not credited to the Central Government Account in the relevant financial year. Section 199 clarifies that TDS should be paid to the Central Government to be treated as tax payment on behalf of the deductee. The Tribunal emphasized that mere deduction of TDS does not discharge the tax liability unless the amount is deposited with the Central Government. Referring to a decision of the Gauhati High Court, the Tribunal reinforced the requirement of depositing the TDS amount with the Central Government for it to be considered as tax payment. As the TDS amounts in question were not deposited with the Central Government, the Tribunal reversed the CIT(A) order and upheld the Assessing Officer's decision to deny interest under section 244A.

In conclusion, the Tribunal allowed the revenue's appeals, holding that interest under section 244A is not applicable to TDS amounts not paid to the Central Government. The decision was based on the statutory obligation to deposit TDS with the Central Government for it to be considered as tax payment.