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Payment of interest on refund under section 244A of excess TDS deposited under section 195 [Circular No.11/2016 dated 26.4.2016]

Payment of interest on refund under section 244A of excess TDS deposited under
section 195 [Circular No.11/2016 dated 26.4.2016]

The procedure for refund of tax deducted at source under section 195 to the person deducting the tax is set out in CBDT Circular No.7/2007 dated 23.10.2007. Circular No.7/2007 states that no interest under section 244A is admissible on refunds to be granted in accordance with the circular or on the refunds already granted in accordance with Circular No.769 or Circular No.790 dated 20.4.2000.

The issue of eligibility for interest on refund of excess TDS to a tax deductor has been a subject matter of controversy and litigation. The Supreme Court of India, in Tata Chemical Limited 1, Civil Appeal No. 6301 of 2011 vide order dated 26.02.2014, held that refund due and payable to the assessee is debt-owed and payable by the Revenue. Though there is no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, the Government 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.”

In view of the above judgment of the Apex Court, it is settled that if a resident deductor is entitled for the refund of tax deposited under section 195, then it has to be refunded with interest under section 244A from the date of payment of such tax.

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