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
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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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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