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Under the Income tax Act every entity is required to deduct tax on specified payments. Often it is found that assessees deposit excess tax. And in the absence of any provisions for refund of such excess deposit of tax one has to rush to the higher authorities but unfortunately they also show their limitations in the absence of adequate instructions/directions from the Board. Thus ultimately one has to rush to the High Court in such cases. Even after such order of the High Court there is a limitation for grant of interest on such refunds of excess deposit of tax.

In ITO v. DDA (2002) 120TAX120 the ITO raised demand on the assessee for failure to deduct tax at source. The demands were quashed by the High Court. The ITO though refunded the tax but denied interest on the excess tax collected from the assessee on the ground that the amount refunded to the assessee was not the amount taxed nor involved any advance tax or the tax paid by the assessee on its own.

The Supreme Court held that the interest is payable u/s 244 where the amount became refundable to the assessee by virtue of an order passed in appeal or any proceedings under the Act.

The position would be different where the assessee actually deposits the tax deducted at source twice due to a mistake. In that case it is advisable to claim such excess tax paid as advance tax deposit in the return of income to safeguard claim for interest on such excess payment. However care must be taken to issue only one certificate of deduction at source to the payee.

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