Business Standard

Interest payable on TDS refund

A weekly selection of key court orders

M J Antony 

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".

Directors' role in cheque bounce
The Supreme Court, last week, set aside the judgment of the Calcutta High Court and reiterated that in a cheque bounce case, the directors can be prosecuted only if it is specifically alleged that they were "in charge of and responsible for the conduct of the business" of the firm. In this case, Mannalal vs state of West Bengal, a few directors of Heritage Herbs Ltd which promised land as investment, were prosecuted when three cheques issued by the chairman of the firm bounced. Meanwhile, the chairman died and therefore the rest of the directors were impleaded in the case under section 138 of the Negotiable Instruments Act. The magistrate summoned them. They appealed to the high court, arguing that there were no specific allegations against them in the original complaint. The high court rejected the contention. On appeal, the Supreme Court quashed the prosecution of the directors.

Insurer to pay for tractor mishap

A tractor carrying sand for constructing an underground tank for agricultural purposes could not be said to be conducting 'commercial activities'. The insurance company cannot argue thus to allege violation of the terms of the policy and deny liability to pay compensation in case of an accident, the Supreme Court stated last week in the case, Fahim Ahmad vs United India Insurance. A person was killed by a tractor driven rashly. The motor accident claims tribunal awarded Rs 3.12 lakh to the widow and children and directed the insurance company to pay the compensation. The company appealed to the Uttarakhand High Court arguing that the tractor violated the terms of the policy by engaging in commercial activity and therefore it was not liable. The high court partly agreed and asked the insurer to pay the compensation, and then recover it from the owner of the tractor. This was because the tractor was used for commercial purpose. On appeal, the Supreme Court said that the vehicle was engaged in agricultural purpose and therefore the insurance company alone shall pay the compensation.

Damages for undeveloped plot sale
The Supreme Court, last week, dismissed the appeal of the Haryana State Agricultural Marketing Board against an order of the National Consumer Commission in a consumer dispute with allottees of land in a marketing area. The plots were allotted, but the allottees complained that no infrastructure facilities were provided by the authorities for nearly two decades. They stopped payment of instalments. The board retaliated by demanding 75 per cent of the cost with interest and penalty. The allottees moved the district consumer forum. It found the board guilty of deficiency in service and asked the board to pay interest on the deposits. The board's appeal was dismissed by the Supreme Court observing that as a service provider it was obliged to facilitate the utilisation of the plots as intended by the allottees. The judgment said: "The inaction of the board in providing the requisite facilities for more than a decade clearly establishes deficiency of services as the allottees were prevented from carrying out the grain business. However, the latter were also incorrect in refusing to pay instalments and violating the terms of the
instalment letter."

No interest on amount under lien
The Supreme Court has allowed the appeal of the railways against the judgment of the Madras High Court which had asked it to pay interest on the amount withheld from a contracting firm and deposited in the high court. The high court had appointed an arbitrator in the dispute between the railways and the contracting firm. The award went against the railways. The high court had asked the railways to pay interest to the firm on the refund. The railways appealed to the Supreme Court. In the appeal case, Union of India vs Concrete Products & Constructions, the Supreme Court ruled that under the terms of the contract the railways shall be entitled to withhold the amount, and also have a lien on it, deposited as security. The contractor cannot claim any interest or damages for retention of the amount under lien, the judgment stated quoting the contract.

UK firm gets injunction on trademark
The Delhi High Court, last week, allowed the injunction application of a British company, Mind Gym Ltd, and restrained Indian firm Mindgym Kids Library Ltd, from using the trademark 'Mind Gym' either as a part of its corporate name or as a trade mark or in any other manner amounting to infringement of the trade name claimed by the foreign firm. The latter claimed that it was internationally renowned in the field of education/training, personal and professional development and mind management. They objected to the Indian firm using the word Mind Gym. The Indian firm denied that its mark and website will create confusion in the market. The high court found prima facie substance in the allegation of the British firm and passed the injunction order. It further stated that the Indian firm was at liberty to use the name Mindgymnastics as a trademark and trade name as one word, subject to certain conditions.

First Published: Sun, March 30 2014. 22:31 IST