The Supreme Court held as under:
1) In the instant case, the deductor had paid taxes pursuant to a special order passed by the assessing officer. In the appeal filed against the said order, the assessee has succeeded and a direction was issued by the appellate authority to refund the taxes paid;
2) When the said amount was to be refunded it would carry interest in the matter of course. Awarding interest was a kind of compensation for use and retention of the money collected unauthorizedly by the Department.
3) When the collection was illegal, there was corresponding obligation on the revenue to refund such amount with interest as they have retained and enjoyed the money deposited;
4) The object behind insertion of section 244A was that an assessee was entitled to payment of interest for money remaining with the Government which would be refunded.
5) There was no reason to restrict the payment of interest to an assessee only without extending the similar benefit to deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company;Thus, the deductor was entitled to interest under section 244A(b) from the date of payment of TDS, i.e., date of deposit of TDS with Government