India: Payment Of Interest On Refund Under Section 244A Of Excess TDS Deposited Under Section 195 Of The Income Tax Act, 1961

The Central Board of Direct Taxes, Ministry of Finance vide Circular No. 11/2016, dated 26th April 2016, clarified that if a resident deductor is entitled for the refund of tax deposited under Section 195 of the Income Tax Act, then it has to be refunded with interest under section 244A of the Act, from the date of payment of such tax.

As per section 195 of the Income-tax Act, any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in sections 194LB, 194LC or 194LD] or any other sum chargeable under the provisions of this Act (not being income under the head of salaries) shall deduct the income tax at the rates being in force, before paying such amount to the payee.

Section 244A of the Income-tax Act provides that if any amount of refund becomes due to the assessee under the income-tax Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the manner provided under the said section.

This clarification is issued by CBDT as a consequence to decision of the Hon'ble Supreme Court of India in the case of Tata Chemical Limited (2014-LL-0226-164 NJRS Citation), Civil Appeal No. 6301 of 2011 vide order dated 26.02.2014, wherein the apex court held that "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."

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