No TDS on Arbitral Award Without Statutory Authority; Refund Ordered – Calcutta HC

P.G. And W. Sawoo Private Limited Vs Union of India (Calcutta High Court)

The Calcutta High Court adjudicated the Execution Petition filed by the Award Holder seeking enforcement of an arbitral award dated 24.01.2024, along with an Additional Award dated 28.03.2024. Neither the original award nor the additional award had been challenged, and both had attained finality. The original award directed the Award Debtor to pay Rs. 58,00,172 towards unpaid rent, Rs. 2,54,37,533 for unpaid mesne profits, interest at 10% per annum on these sums from 01.07.2021 until the date of the award, Rs. 55,55,339 for Service Tax/GST, and Rs. 87,00,000 as arbitration costs. Failure to pay within four weeks would attract future interest at 12% per annum until realization. The Additional Award corrected a typographical error in paragraph 16 but made no substantive change to the operative directions.

Both parties submitted rival calculations of the amounts due. The Award Debtor’s calculation, which the Court found correct, confirmed entitlement to future interest from the date of the Additional Award (29.03.2024) until payment of the principal (23.07.2025). The Award Debtor had deducted TDS amounts of Rs. 54,06,844 and Rs. 8,56,800 from payments toward the decretal sum. The Court observed that under established law, no tax is deductible at source from amounts payable under a decree or arbitral award unless expressly authorized by statute. Consequently, the Award Debtor is obligated to refund the erroneously deducted TDS amounts.

The Award Holder’s claim for interest on the TDS component was rejected. The Court held that allowing interest would be inequitable because the Award Debtor had committed a bona fide procedural error and had not derived any benefit from the deducted sums, which were deposited with the Income Tax Department. The Court emphasized principles of equity, fairness, and restitution, ruling that the TDS must be refunded without interest. The Award Debtor was also allowed to seek a refund of the TDS from the Income Tax authorities according to law.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

1. The Award Holder has preferred the present Execution Petition seeking enforcement of the arbitral award dated 24.01.2024, read with the Additional Award dated 28.03.2024. There has been no challenge to either the original award or the additional award. Consequently, both awards have attained finality.

2. Under the award dated 24.01.2024, the Award Debtor was directed to pay the following amounts:

(i) Rs. 58,00,172/-, towards the claim for unpaid rent;

ii. Rs.2,54,37,533/-, towards unpaid mesne profits;

iii. Interest @ 10% per annum on the sums mentioned in (i) and (ii) from 01.07.2021 until the date of the award.

iv. Rs.55,55,339/-, towards the Award Holder’s claim for Service Tax/GST (without interest);

v. Rs.87,00,000/- towards the costs of arbitration;

vi. Further, in the event of failure to make payment within four weeks from the date of the award, the Award Debtor was made liable to pay future interest @ 12% per annum until realization.

3. By the Additional Award dated 28.03.2024, the learned Arbitrator corrected a typographical error that had crept into paragraph 16 of the original award. No substantive change was made to the operative directions.

4. The rival calculations furnished by the parties are set out in the following comparative statement:

5. Upon examining the materials on record and the computation sheets produced by both sides, this Court is satisfied that the calculation furnished by the Award Debtor correctly reflects the directions contained in the award. The Award Holder is entitled to future interest only from the date of the Additional Award, i.e., 29.03.2024, until the date of payment of the principal sum, i.e., 23.07.2025.

6. It is an admitted position that the Award Debtor deducted TDS amounts of Rs. 54,06,844/- and Rs. 8,56,800/- from the payments made towards the decretal sum.

7. It is a well-settled principle of law that no tax is deductible at source from amounts payable under a decree or an arbitral award, unless expressly authorised by statute. (Ref. Neo Built Corporation v. Union of India, 2023 SCC OnLine Cal 1929). In view of the said legal position, the Award Debtor is under an obligation to refund to the Award Holder the amount of TDS that was erroneously deducted at the time of releasing the decretal amount.

8. The Award Holder has further sought interest on the TDS component. However, this Court finds no merit in any claim for interest on the said amount. It is an admitted fact that the Award Debtor, while releasing the decretal amount, mistakenly deducted TDS, despite the settled principle that no tax is deductible at source from sums payable under an arbitral award. The amount so deducted stands deposited with the Income Tax Department in compliance with statutory requirements. The Award Debtor has neither retained nor derived any benefit from the deducted sum.

9. Allowing interest on the TDS component would, therefore, be inequitable and inappropriate. Imposing an interest burden would penalise the Award Debtor for a bona fide procedural error, notwithstanding that the amount is already lying with the statutory authorities. Such a direction would run contrary to the principles of equity, fairness, and restitution. Accordingly, this Court directs that the Award Debtor shall refund the erroneously deducted TDS amount to the Award Holder, without any interest.

10. It is further clarified that the Award Debtor is at liberty to seek refund of the amount deposited with the Income Tax Department, in accordance with law, including the principles laid down by this Court in S. Miranda Ltd. v. Shyam Bahadur Singh, 1984 SCC OnLine Cal 161.

11. Accordingly, the Execution Petition is disposed of with the following directions:

a. The Award Debtor shall remit to the Award Holder the TDS Rs. 54,06,844/- and Rs. 8,56,800/-, without any
interest within four weeks from today.

b. The Award Debtor shall be at liberty to approach the Income Tax Authorities seeking recovery/refund of the said amounts, in accordance with law.

12. In view of the above directions, the Execution Petition stands disposed of.