2016 (6) TMI 1218 - AT - Income Tax

Assessee wins appeal for interest on excess TDS refund; remand for interest on interest

M/s. Quality VMG Bus Depot Project Versus Dy. Commissioner of Income Tax (TDS) Circle–2 (2), Mumbai

M/s. Quality VMG Bus Depot Project Versus Dy. Commissioner of Income Tax (TDS) Circle–2 (2), Mumbai - Tmi Issues Involved:1. Disallowance of the assessee’s claim of interest on refund.2. Claim of interest on interest by the assessee.Detailed Analysis:1. Disallowance of the Assessee’s Claim of Interest on Refund:The assessee, a joint venture engaged in the construction business, entered into an agreement with Lakshdeep Investment and Finance Ltd. (LIFL) in April 2004, agreeing to provide a specified super built-up area in a commercial building. LIFL paid Rs. 10 crore as margin money. Due to changes in the project plan and delays, the agreement was terminated in March 2005, and the margin money was returned to LIFL with interest. The assessee deducted tax at source (TDS) on the interest payment and credited it to the Central Government.The assessee later realized that TDS was not required and filed revised returns. The Assessing Officer (AO) completed the assessment, accepting the revised income and TDS returns. The assessee then sought a refund of the TDS amount of Rs. 29,27,400, which was mistakenly deducted. Despite repeated requests, the refund was delayed, and the assessee approached the Ombudsman. The AO eventually granted a partial refund of Rs. 16,29,669 after adjusting certain demands but did not compute any interest under section 244A. The AO rejected the assessee’s petition for rectification under section 154, stating no interest on the refund was payable as per the Act.The Commissioner (Appeals) confirmed the AO’s order, citing CBDT circulars which indicated no interest on voluntary TDS payments. The assessee argued that the TDS was deducted by mistake and that the Department had accepted this by refunding the excess TDS. The assessee claimed interest on the refund under section 244A, citing the Supreme Court’s decision in Tata Chemicals Ltd., which held that interest is compensatory for wrongful retention of money by the Department.The Tribunal noted that there was no specific prohibition in section 244A against granting interest on delayed refunds. The Tribunal referred to the Supreme Court’s decision in Tata Chemicals Ltd., which emphasized that interest on refunds is a compensation for the use and retention of money collected unauthorizedly by the Department. The Tribunal concluded that the assessee was entitled to interest on the refund from the date of payment, as the Department had retained the money without authority. The Tribunal also noted a CBDT circular aligning with the Supreme Court’s view that interest should be paid on refunds from the date of payment. Thus, the Tribunal allowed the assessee’s claim for interest on the refund.2. Claim of Interest on Interest by the Assessee:The assessee raised an additional ground before the Commissioner (Appeals) for interest on interest, which was rejected on the basis that the primary claim of interest was not allowed. The Tribunal, however, observed that as per the Supreme Court’s decision in National Thermal Power Corp. Ltd., a legal issue can be entertained if the primary facts are available on record. The Tribunal noted that the primary facts regarding the excess TDS payment and the claim for interest were available. Therefore, the Tribunal restored the issue to the AO for reconsideration in light of the relevant statutory provisions and judicial decisions.Conclusion:The Tribunal partly allowed the assessee’s appeal, granting interest on the refund of excess TDS from the date of payment and remanding the issue of interest on interest back to the AO for further consideration.