Deductor entitled to interest on refund of excess TDS from date of payment

The Supreme Court has ruled that the income tax department is liable to pay interest on the refund of tax made to resident deductor companies. A large number of appeals moved by the government against various orders of the high courts were dismissed with the observation that "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". In one typical case, Union of India vs Tata Chemicals Ltd, the company had sought the assistance of two technicians from Haldor Topsoe, Denmark. The foreign company charged Tata for services and reimbursement of expenses. Tata deducted 20 per cent tax before remitting the amounts to the Danish firm. On reimbursement amount, there was a dispute and, therefore, Tata moved the appellate forum, arguing it was not income. The authority agreed and directed refund on the reimbursement part. But interest was not paid. The company claimed interest also. The revenue authorities denied interest, arguing that refunds could be made only under provisions of the Income Tax Act and not in cases where refunds are made based on notifications, as in this case. The Supreme Court settled the question in favour of companies which are deductors, stating that "the government cannot shrug off its apparent obligation to reimburse the deductors lawful money with the accrued interest for the period of undue retention of such monies".

Article referred: http://www.business-standard.com/article/opinion/interest-payable-on-tds-refund-114033000786_1.html