QUALITY VMG BUS DEPOT PROJECT,MUMBAI vs. DCIT (TDS) 2(2),

Instant appeal by the assessee is directed against the order dated 21st March 2014, passed by the learned Commissioner (Appeals)–14, Mumbai, for the assessment year 2005–06. The solitary issue in dispute in the present appeal relates to disallowance of assessee’s claim of interest on refund.

3 M/s. Quality VMG Bus Depot Project return. Subsequently, realising that there was no requirement for deduction of tax at source on the interest payment, the assessee filed a revised return of income as well as revised TDS return. During the assessment proceedings, it was submitted by the assessee that neither the assessee had issued a TDS certificate in favour of LIFL towards the TDS nor had claimed the interest payment as expenditure. It was also submitted LIFL has neither shown the interest received as income nor claimed any credit of TDS in the return of income. The assessee also furnished an indemnity bond before the Assessing Officer in support of the aforesaid claim. Ultimately, the Assessing Officer completed the assessment accepting the income declared in the return of income. After completion of assessment, the assessee on 29th November 2007, applied for refund of TDS amount of ` 29,27,400, mistakenly deducted and remitted to the Government account. Thereafter, the assessee went on filing several letters before the Departmental Authorities requesting for grant of refund. Since none of these letters were responded to by the Departmental Authorities, the assessee on 1st June 2012, filed a petition before the Ombudsman claiming refund of TDS amount along with interest. On the basis of petition filed by the assessee, the Ombudsman vide letter dated 5th June 2012, called for a report from the Assessing Officer on assessee’s claim. The Assessing Officer vide letter dated 8th August 2012, intimated the assessee that 4 M/s. Quality VMG Bus Depot Project against refund claim for ` 29,27,400 certain demands relating to assessment year 2007–08, were to be adjusted. Ultimately, after adjusting the said demand, the Assessing Officer on 17th August 2012, granted refund of ` 16,29,669 to the assessee. While granting such refund, as the Assessing Officer did not compute any interest under section 244A, the assessee on 5th October 2012 and 8th November 2012 filed applications purportedly under section 154 before the Assessing Officer claiming interest on the refund of excess TDS deposited. The Assessing Officer, however, vide order dated 7th February 2013, rejected the petition for rectification under section 154 stating that the refund of the principal amount of excess TDS has already been issued and no interest on refund of excess deposit of TDS is payable as per the provisions of the Act. Being aggrieved of such order of the Assessing Officer assessee preferred appeal before the learned Commissioner (Appeals).

i) D.J. Works v/s DCIT, 195 ITR 227; and ii) CIT v/s Narendra Gosi, 254 ITR 606.

8 M/s. Quality VMG Bus Depot Project that the assessee was not required to deduct tax on the interest paid on margin money to LIFL, however, under misconception assessee deducted tax at source on such payment of interest and remitted to the Govt. account. After realising its mistake, the assessee had filed revised return of income disallowing the deduction claimed on account of interest payment and also filed a revised TDS return claiming no TDS on the interest payment on margin money to LIFL. While completing the assessment under section 143(3), the Assessing Officer appears to have accepted the aforesaid claim of the assessee. It is further evident, since November 2007 the assessee has repeatedly raised claim before the Departmental Authorities towards refund of excess TDS paid to Govt. account. However, none of the applications filed by the assessee were considered by the Departmental Authorities. Only after the Ombudsman called for a report from the Assessing Officer, he granted refund of excess TDS after adjusting certain demand relating to A.Y. 2007–08. Thus, as could be seen, though the excess TDS was remitted to the Govt. account by the assessee, may be voluntary in the financial year 2004–05 but the Department granted refund only in August 2012. Thus, it is apparent there was inordinate delay by the Department in granting refund to the assessee. The issue before us is whether the assessee is entitled for interest on delayed payment of refund. The Assessing Officer / learned

9 M/s. Quality VMG Bus Depot Project Commissioner (Appeals) have rejected the assessee’s claim of interest on delayed payment of refund on the reasoning that excess TDS was voluntarily paid to the Govt. account, hence, in terms of section 244A, r/w CBDT circulars referred to by the Departmental Authorities, the assessee is not entitled for interest payment. On a perusal of the provisions contained in section 244A, we have noted that there is no specific bar or prohibition under the said provision for granting interest on delayed payment of refund. As far as the circular on delayed payment of interest is concerned, we are of the view that the Department cannot resort to such circulars for depriving the assessee from claiming interest on refund as the delay in granting refund to the assessee is due to the negligence of the Departmental Authorities. In case of Sandvik Asia (supra), the Hon'ble Supreme Court held that interest provided under section 244A, is compensatory in nature for wrongful retention of money belonging to the assessee. The Hon'ble Supreme Court again in Tata Chemicals Ltd. (supra) after taking note of object for which section 244A was brought into the statute held as under:–

“A tax refund' is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income-tax Officer. In the appeal

10 M/s. Quality VMG Bus Depot Project filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it 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 inasmuch 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. Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. 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. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course. In the present case, it is not in doubt that 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. As already held the interest requires to be paid on such refunds.

11 M/s. Quality VMG Bus Depot Project

The catechise is from what date interest is payable, since 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. Simultaneously, since the said payment is not made pursuant to a notice issued under section 156 of the Act, Explanation to clause (b) has no application. In such cases, 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 sequel of aforesaid discussion is 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.”

12 M/s. Quality VMG Bus Depot Project received and retained without right implies and carries with it the right to interest and the right to interest follows as a matter of course. If we consider the facts of the present case in the light of the aforesaid principle laid down by the Hon'ble Supreme Court it is to be seen that the Department in principle has accepted that excess TDS paid by the assessee is not due to the Department. Accordingly, the amount has been refunded to the assessee. It is equally true that though the assessee had been claiming the refund since the year 2007, there was no apparent effort on the part of the Department to refund the excess TDS paid by the assessee knowing fully well that such money retained by it is without authority of law. That being the case, applying the ratio laid down by the Hon'ble Supreme Court, the Revenue has to compensate the assessee for unauthrisedly holding on or retaining the excess amount paid by the assessee. Therefore, even if the excess TDS was paid by the assessee to the Govt. account voluntarily under misconception, however, as held by the Hon'ble Supreme Court even in the absence of an express statutory provision for payment of interest, the assessee has to be paid interest on refund from the date of payment of such tax. It has further been brought to our notice that the CBDT abiding by the view expressed by the Hon'ble Supreme Court in Tata Chemicals Ltd. (supra) had issued Circular no.11 of 2016 dated 26th April 2016, wherein, it is stated that if a resident deductor

13 M/s. Quality VMG Bus Depot Project is entitled for refund of tax deposited, then it has to be refunded with interest under section 244A from the date of payment of such tax. In the said Circular, Departmental Authorities have also been advised not to contest the claim of interest in appeal. Thus, in view of the decision of the Hon'ble Supreme Court as referred to above and the CBDT circular no.11 of 2016 dated 26th April 2016, we hold that the assessee is entitled to receive interest on excess TDS refunded to him from the date of payment. Grounds no.1 and 2 are allowed.