TMI Blog2013 (10) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... ses reproduced above clearly envisage an automatic renewal for a period of three years except if the assessee does not furnish requisite documents regarding the bank guarantee to the bank and the bank, thereafter intimates the government 60 days before expiry of the bank guarantee that the guarantee shall expire on 28.02.2012 or on the happening of events enumerated in Clause 4 of the bank guarantee. – Decided in favor of Assessee. - Civil Writ Petition No.7652 of 2013 - - - Dated:- 11-10-2013 - Rajive Bhalla AND Dr. Bharat Bhushan Parsoon, JJ. For the Appellant : Ashok Aggarwal and Ashim Aggarwal. For the Respondent : Rupinder Khosla and T.K. Joshi. ORDER:- PER : Rajive Bhalla, J. The petitioner prays for issuance of a writ, order or direction quashing notices dated 25.03.2013 (Annexure P-16 P-17), 26.03.2013 (Annexure P-19) and 28.03.2013 (Annexure P-20), issued by respondent no. 2 and for a direction to the respondents to refund Rs.26,26,87,000/- appropriated from the petitioner's bank account towards an alleged demand of tax, relating to assessment year 2005-06. Counsel for the petitioner submits that execution of the treaty for avoidance of double t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y violate an international treaty. It is further submitted that as pendency of MAP has been admitted by the respondents, they should, have instead of contesting the present petition, refunded the amount to the petitioner. Counsel for the petitioner further submits that reference to non-renewal of a bank guarantee, is now being canvassed as a ground for raising the demand and appropriating money but is not referred to in the show cause notices or letters addressed by respondent no. 2. The plea with respect to expiry of bank guarantee is an after thought manufactured by the respondents when they realised their error. The plea with respect to bank guarantee has been raised despite Citi Bank having addressed a letter confirming validity of the bank guarantee. It is further submitted that power under Section 226 of the Income Tax Act can only be invoked against an assessee in default. The outstanding demand of tax having been duly secured by a subsisting and valid bank guarantee, there was no question of treating the petitioner as an assessee in default. It is further submitted that the bilateral agreement between two countries and instructions issued by the CBDT, cannot be violated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner. The expiry of the bank guarantees was conveyed by DCIT, Circle-ll, Gurgaon, vide order sheet entry dated 25.03.2013, duly signed by Sh. Sant Dass, representative of the petitioner. The office entry dated 25.03.2013, refers to status of the MAP application, a letter written to Joint Secretary (FT TR), CBDT, New Delhi to confirm admission of MAP and expiry of bank guarantee of Rs.17.63 crores. It is further submitted that the letter, written by the petitioner, in response to notice dated 25.03.2013, clearly reveals that the petitioner was aware that the bank guarantee has expired as reference by the petitioner to letters written by its bank clearly reveals that the petitioner was aware of the revenue's stand that the bank guarantee has expired. The letter forwarded by the banker was not accompanied by a bank guarantee in the prescribed Performa. The respondents have rightly proceeded to recover tax payable by the petitioner. The mere pendency of MAP does not entitle the petitioner to claim that order dated 22.02.2009 subsists without proving that the bank guarantee was renewed, after 28.02.2012. In the absence of any fresh bank guarantee, the stay order stood vacated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13.06 crores was raised by a rectification order dated 10.02.2009. The Government of India and the Government of United States of America have signed a Convention/Treaty for avoidance of double taxation and prevention of fiscal evasion. Article 27 of the convention provides for a Mutual Agreement Procedure (MAP), whereby a person aggrieved by taxation can present his case to the competent authority of the country of his residence. A Memorandum of Understanding (MOU) providing for deferment of assessment and/or suspension of collection of taxes, during pendency of MAP was signed between the Government of India and United States of America, on 25.09.2002. The MOU requires the assessing authority to suspend collection of taxes potentially payable till such time as MAP proceedings are disposed off. Clause 5 of the MOU provides that collection and assessment of any interest or penalty levied shall also be suspended. Clause 2 of the MOU, requires the assessee to furnish an irrevocable bank guarantee, as security. The Central Board of Direct Taxes(CBDT) has issued instruction No. 2, dated 28.04.2003, directing that the tax would remain suspended during pendency of MAP. Vide instructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot clear whether MAP has been admitted. Another letter dated 25.03.2013, followed, requesting the petitioner to deposit outstanding tax for assessment year 2003-04, 2004-05 and 2005-06. It would be appropriate at this stage, to reproduce the letter in its entirety as a major part of the controversy revolves around this letter- "To Dated: 25.03.2013 The Principal Officer, Motorola India Electronics Pvt. Ltd., (Now K/a Motorola Solutions India Pvt. Ltd.) 415/2, Mehrauli Gurgaon Road, Gurgaon-122001. Sir/madam, Sub:- Request to deposit the outstanding demand in your case for A.Y 2003-04, A.Y. 2004-05 and 2005-06-Reg. From perusal of records, it is seen that there is a demand of Rs.27.15 Cr. is outstanding in your case for above A.Y's. The assessment records of this case were received from DCIT, circle 12(1), Bangalore on 06.12.2010. As per the Dossier folder, it has been stated that a MAP application has been filed by you before Hon'ble CBDT, New Delhi. However, since it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o confirmation has been received by 26.03.2013. The petitioner is, thereafter, called upon to intimate, whether it has any communication that request for suspension of collection of outstanding tax has been admitted by the Indian Competent Authority, by 26.03.2013. In response to letter dated 25.03.2013, the petitioner addressed a letter dated 26.03.2013. A relevant extract from the letter, reads as follows:- "We refer to your notice dated 25.03.2013 requesting the assessee to deposit the outstanding demands for the captioned assessment years. In this regard, the company submits as follows:- 1. For all the captioned years, the company has already furnished bank guarantees (BG) and invoked MAP in accordance with the Indo-US treaty law. We understand that one bank guarantee for a sum of Rs. 9 Crores is already in your files. A confirmation from our bankers (City Bank) to the effect that the second bank guarantee for Rs. 17.63 Crores is also continuing in your favour is enclosed as Annexure-1 to this petition. In view of the above, the requisite bank guarantees issued by the company in accordance with Indo-US treaty law have always been in place and part of your record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2, certain objections were raised with respect to validity of the bank guarantee furnished by the petitioner. A perusal of the petitioner's letter reveals that the petitioner asserted that it has already furnished bank guarantee and invoked MAP in accordance with the Indo-US treaty and a bank guarantee of Rs.9 crores is already on the file. The letter also records that the petitioner's banker (Citi Bank) has sent confirmation that the second bank guarantee of Rs. 17.63 crores (the relevant bank guarantee) is valid and continuing. It is further asserted that MAP application has been filed in accordance with the Indo-US treaty and is pending. The Citi Bank also addressed letter dated 25.03.2013, to the Assistant Commissioner, Income Tax Circle, Income Tax Dept, Ministry of Finance, Govt. of India, New Delhi, confirming the validity of the bank guarantee. After receipt of the letter, respondent no. 2, issued notice, dated 26.03.2013, under Section 226(3) of the Act, calling upon the petitioner to forthwith deposit Rs.26,26,87,000/- in favour of Deputy Commissioner of Income Tax, Circle-2, Gurgaon, followed by another notice dated 28.03.2013, under Section 226(3) of the Act, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taken by the Competent Authority of India. 4. That an MOU in this regard was entered into between India and USA. On receipt of the MAP request from the US Competent Authority, in the light of the MOU, FT TR-l Division requests the Chief Commissioner of Income Tax concerned to consider the stay of demand. The conditions for suspension of collection of demand as per the MOU are provided vide Instruction No. 10/2007 dated 23.09.2007. It is clearly stated in paragraph 4 of the Instruction No. 10/2007, dated 23.10.2007, in a case involving Mutual agreement Procedure, a suspension of collection of tax is mandated only. (i) after obtaining a confirmation regarding pendency of MAP from the Foreign Tax and Tax Research Division of the Central Board of Direct Taxes and (ii) on receipt of a bank guarantee in the model draft format annexed to the MOU for an amount calculated in accordance with the manner indicated therein. 5. In light of the above discussion, the facts of the case for Assessment Year 2005-06 is stated herein under: (i) A MAP request in the case of M/s Motorola India Electronics Pvt. Ltd. (now merged with Motorola Solutions India Pvt Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand and recover Rs.26,26,87,000/- from the petitioner. The question that remains is whether bank guarantee No.5679063528, dated 04.03.2009, had expired and the affect of letter dated 25.03.2013, issued by the Citi Bank to the respondents, confirming validity of the bank guarantee. The show cause notice, issued under Section 226(3) of the Act, does not refer to expiry of the bank guarantee as it is based upon failure to intimate "admission" of MAP. However, in proceedings in the office, the respondents pointedly referred to expiry of the bank guarantee. In response, the petitioner addressed letter dated 26.03.2013 (which we have already reproduced) specifically asserting that the bank guarantee is in force and Citi Bank has addressed letter dated 25.03.2013, confirming validity of the bank Guarantee. The letter addressed by Citi Bank, on 25.03.2013, reads as follows:- " Subject:- Confirmation for Issuance of Bank Guarantee No:5679063528 dated 04.03.2009. We hereby confirm that we have on 04.03.2009 issued Bank Guarantee No. 5679063528 for Rs. 17,63,46,462 (Rupees Seventeen Crores Sixty three Lakhs Forty Six Thousand Four Hundred and Sixty Two only) in your favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAP agreement between the competent authorities of the Governments of India and the United States, and the assessee will not be treated as in default for the above assessment year (s)...." 2. The bank further agrees that the guarantee herein contained shall remain in full force and effect from the date hereof, i.e., 4th March 2009, till 28th February 2012; and further agrees to renew this guarantee for another 3 years on the following terms: the bank will provide the government with written notice no later than 60 days prior to the expiration date of this bank guarantee if the taxpayer has not renewed the agreements between the assessee and the bank that underlie this bank guarantee for an additional period of 3 years. If the government does not receive a renewal of this bank guarantee or a substitute bank guarantee for the amounts of tax and interest in dispute prior to 30 days before the expiration date of this bank guarantee, the government may instruct the bank to pay the guaranteed amounts prior to expiration of the bank guarantee. 4. The obligation of the bank to the government under this bank guarantee will terminate upon the occurrence of any of the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.02.2012 and 25.03.2013 when the revenue issued notice of demand, though, not based upon expiry of the bank guarantee, it received any communication from Citi Bank that the assessee has not executed any document in favour of the bank with respect to the bank guarantee. The revenue does not allege the happening of any event referred to in Clause 4 of the Bank Guarantee. The Citi Bank has instead addressed a letter dated 25.03.2013, to the revenue, before the revenue appropriated the amount from the petitioner's account with Standard Chartered Bank, reiterating the validity of the bank guarantee. A reference to the letter, which we have already reproduced in a preceding paragraph of the judgment, cannot, as urged by counsel for the respondents, be read as a mere confirmation of issuance of the bank guarantee. A perusal of the letter reveals that the Citi Bank has clearly stated that the bank guarantee No.5679063528, dated 04.03.2009, for Rs. 17,63,46,462/- is valid in their records and has been issued on behalf of the "Motorola India Private Limited." It is not denied by the respondents that letter dated 25.03.2013, was received by the respondents before they appropriated money from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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