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M/s. Sunflag Iron & Steel Co. Ltd. Versus The Central Board of Direct Taxes, Ministry of Finance, Govt. of India, New Delhi and The Dy. Commissioner of Income Tax, Special Range2, Nagpur.

2016 (2) TMI 171 - BOMBAY HIGH COURT

Interest u/s 244A - from what date the respondents should be directed to pay the interest? - Held that:- Undisputedly, though the TDS was deducted and deposited at earlier point of time, the agreement between the petitioner and the German company was executed only on 1.7.1992 wherein the German company waived the instalment. However, even after that date, the petitioner waited till 31.1.1994 to make an application for refund. It is only when the petitioner brought to the notice of the respondent .....

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t the factual aspect to the notice of the respondent authorities. It is wellsettled that the law comes to the assistance of the vigilant and diligent. If the petitioners have chosen to be in slumber for long years, the respondents cannot be fastened with the liability for a period earlier to the date on which the petitioners have woken and brought this factual position to the notice of the respondents. - In that view of the matter, we find that in the interest of justice, it would be appropr .....

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ect for a writ of mandamus directing the respondents to pay interest on the amount of ₹ 49,40,923/as provided under Section 244A of the Income Tax Act (hereinafter referred to as the Act ). The petitioner has also prayed for quashing and setting aside the communication dated 18.7.1995 issued by the Central Board of Direct Taxes to the Chief Commissioner of Income Tax, Pune. 2] The facts in the present case are not in dispute. The petitioner is a steel manufacturing company. The petitioner .....

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ducted tax at source (TDS) and paid/deposited the same with respondent as detailed below : Amount paid to MDH (Germany) in D.M. TDS in Rs. Date of payment Of TDS. 2548333 27,72,600.00 29.03.1986. - 1,48,126.00 22.05.1986 2548333 36,56,000.00 16.12.1987 - 10,666.00 11.08.1988 53,70,567.00 26.05.1990 That the petitioner Company on 26.5.1990 deducted tax at source of ₹ 53,70,567/for the third and final instalment and deposited the same in advance with the Assistant Commissioner of Income Tax, .....

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nd final payment against the contract. The petitioners subsequently on 31.1.1994 filed an application claiming refund of the amount of ₹ 53,70,567/which was deposited as advance TDS towards the third instalment of the payment which was to be made to the German company and in fact which payment was not made to the German company. The petitioners as directed by the Department executed an indemnity bond for the said amount of ₹ 53,70,567/on 18.2.1994. On 24.3.1994 the Deputy Commissione .....

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t Taxes, he requested the Chief Commissioner of Income Tax to give necessary clarification. 5] The Central Board of Direct Taxes vide the communication dated 18.7.1995 informed the Chief Commissioner of Income Tax, thereby conveying the authorization of the Board for grant of refund of ₹ 53,70,567/independent of the provisions of the said Act to the petitioner. However, it was made subject to certain administrative safeguards. Needless to state that the conditions stipulated in the said co .....

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t to the respondent. However, since the respondents did not consider the request for grant of interest, the petitioner moved Delhi High Court seeking a direction to the respondents to pay the interest. However, the Division Bench of Delhi High Court was of the view that it did not have territorial jurisdiction to entertain the petition and it is the Nagpur Bench of the Bombay High Court which had a territorial jurisdiction and, as such, dismissed the petition for want of territorial jurisdiction .....

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would be assessee as provided under the said Act. The learned Counsel in any case submits that in view of provisions of Sections 160 & 163 of the said Act, the petitioner would be a representative assessee of the German company and as such, the application for refund as well as the interest thereon would be very much tenable at the instance of the present petitioner. Shri Thakur submits that the perusal of Section 244A( 1) Clause (b) would reveal that the said clause has a wide scope and th .....

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uch, no payment was made, the respondents had no authority to retain the TDS for the said amount of ₹ 53,70,567/. The learned Counsel submits that the respondents correctly understanding the position have rightly decided to refund the amount of ₹ 53,70,567/which was deducted. Shri V.R. Thakur, learned Counsel for the petitioner, further submitted that as such, the petitioner would be entitled to the interest for the entire period between the date of deposit and the date of refund. Th .....

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ommissioner of Income Tax reported in AIR 1994 SC 2416 and of the Division Bench of Delhi High Court in the case of Delhi Development Authority .vs. Income Tax Officer reported in 1998 Vol. 230 ITR 9. 7] Per contra, Shri Anand Parchure, leaned Counsel appearing on behalf of respondents/Revenue, submits that the TDS which was credited by the petitioner was credited on behalf of the German company. The learned Counsel, therefore, submits that it is only the German company which can be construed to .....

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licable only when the refund was made under the provisions of the Act and not independent of the provisions of the Act. The learned Counsel, therefore, submits that the respondents have rightly rejected the claim of the petitioner for interest. The learned Counsel relies on the judgment of the Apex Court in the case of Commissioner of Income Tax, Gujarat .vs. Gujarat Fluoro Chemicals reported in 2013(12) SCALE 281. 8] For appreciating the rival submissions, it will be relevant to refer to certai .....

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son, or of the amount of refund due to him or to such other person ; (b) every person who is deemed to be an assessee under any provision of this Act ; (c) every person who is deemed to be an assessee in default under any provision of this Act. The relevant part of Section 195 reads thus : 195. (1) Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest not being interest referred to in section 194LB or section 194LC or section 194LD or any .....

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s Chapter shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. The relevant portion of Section 201 reads thus : 201. (1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in subsection (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any .....

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ding a person who is treated as an agent under section 163. The relevant part of Section 163(1) reads thus : Who may be regarded as agent. 163. (1) For the purposes of this Act, "agent", in relation to a nonresident, includes any person in India- (a) …........................................; or (b) who has any business connection with the nonresident; or (c) from or through whom the nonresident is in receipt of any income, whether directly or indirectly; or (d) …........ .....

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ated in the following manner, namely :- (a) …........... (b) in any other case, such interest shall be calculated at the rate of onehalf per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. Explanation.-For the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty sp .....

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ssee under the provisions of the said Act, whereas subclause (c) also includes every person who is deemed to be an assessee in default under any provisions of the Act. It could thus clearly be seen that an assessee would also include every person who is deemed to be an assessee under any provisions of the Act and also every person who is deemed to be an assessee in default under any provisions of the Act. 10] In the light of the aforesaid import of subsection (7) of Section 2, it will be relevan .....

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ident. The perusal of Section 160 would reveal that clause (i) provides that in respect of nonresident specified in subsection (1) of Section 9, an agent of the nonresident including a person who is treated as an agent under Section 163 would be a representative assessee for the purposes of the said Act. It is not in dispute that the income with which we are concerned in the present matter, is squarely covered by subsection (1) of Section 9 of the said Act. It is also not in dispute that the pet .....

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le under the provisions of the said Act, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, is required to deduct income tax thereon at the rate in force. Subsection (1) of Section 200 would further reveal that any person deducting any sum in accordance with the foregoing provisions of the said Chapter is required to pay within the prescribed time the sum so de .....

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fault in respect of such tax. 12] It could thus be seen that the scheme of the said Chapter is very clear. When any person is responsible for making a payment to foreign company, such a person at the time of crediting the said amount by any modes is required to deduct income tax thereon at the rates in force. After deducting such sum, the said person is required to pay within a prescribed limit the sum so deducted to the credit of Central Government or as the Board directs. The scheme further pr .....

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t had agreed to pay the amount to the said company in three instalments. Out of the three instalments, the first two instalments were paid to the German company. The German company failed to supply further technical knowhow and as such, agreed to waive the third instalment and as such, the said amount was not paid to the German company. The petitioner had deducted TDS as was required under Section 195 for all three instalments and also deposited the said TDS on account of all the three instalmen .....

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tion 2 and would be an assessee within the meaning of the said Act. In that view of the matter, we find that the view taken by the respondent Department that the petitioner was not an assessee and as such, not entitled to apply for refund or interest is not a correct view in law. 15] It will be relevant to refer to the judgment of Their Lordships of the Apex Court in the case of Union of India .vs. Tata Chemicals (cited supra). The facts in the present case are almost similar to the facts which .....

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e resident/deductor had approached Income Tax Officer under Section 195(2) of the Act requesting him to provide information/determination as to what percentage of tax should be withdrawn from the amount payable from the foreign company. On request so made the Assessing Officer determined and passed special order under Section 195(2) of the Act directing certain amount to be deducted and credited the same in favour of Revenue. 16] The resident/deductor deposited the amount as directed; however, p .....

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only on refunds due to the assessees under the Act and not to the deductor and since the refund in the case was in view of the Circulars of the CBDT and not under the statutory provisions of the Act, no interest would accrue on the refunds. The Assessing Officer, therefore, though granted refund of the tax, refused to entertain the claim of interest on the amount so refunded. The resident/deductor carried the matter in appeal before the Commissioner of IncomeTax, Appeals. The appeal was dismisse .....

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ordships of the Apex Court while considering the scope of Section 240 of the said Act observed thus : 15. Section 240 of the Act provides for refund on appeal etc. The Section envisages that if an amount becomes due to the assessee by virtue of an order passed in appeal, reference, revision, rectification or amendment proceedings, the assessing officer is bound to refund the amount to the assessee without the assessee being required to make any claim in that behalf. The expression other proceedi .....

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ot necessary, the material portion of the circular is extracted : ........ 6. Refund to the person making payment under Section 195 is being allowed as income does not accrue to the nonresident. The amount paid into the Government account in such cases, is no longer tax . In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance with Circular No. 769. 18] It will be appropriate to refer .....

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gh Court or Supreme Court under Section 260 (in reference), or order passed by the Commissioner in revision applications under Section 263 or in an application under Section 273A. 37. A tax refund is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/a .....

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s while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest inasmuch as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which wou .....

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rescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing statute. Refund due and payable to the assessee is debtowed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The Stat .....

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by resident/depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held that the interest requires to be paid on such refunds. The catechise is from what date interest is payable, since the present case does not fall either under clause (a) or (b) of Section 244A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. Simult .....

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ment of such tax. 19] It could thus clearly be seen that the Hon'ble Apex Court in unequivocal terms held that the expression other proceedings under the Act used in Section 240 of the Act is wide enough to include any order passed in proceedings other than the appeals under the Act. Their Lordships further hold that the other proceedings under the Act would include orders passed under Section 154, orders passed by the High Court or Supreme Court under Section 260 or orders passed by the Com .....

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und said amount with interest, inasmuch as they have enjoyed the money deposited. Their Lordships held that there is no reason to restrict the same to an assessee only without extending the similar benefit to the resident/deductor, who has deducted the tax at source and deposited the same before remitting the amount payable to a nonresident foreign company. It could thus be clearly seen that the contention of the Revenue that an application at the behest of resident/deductor like the present pet .....

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no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, the Government cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The Hon'ble Apex Court further holds 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 in the like circ .....

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iability on the basis of circular dated 20.4.2000 is specifically negated by Their Lordships of the Apex Court. 23] We further find that the contention of the Revenue that the CBDT had gratuitously granted refund and, therefore, the petitioners are not entitled to interest thereon is without substance. 24] By now, it is a settled principle of law that the circulars cannot override the provisions of statute or deviate from the statute. We may gainfully refer to the observations of Apex Court in t .....

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f the Act". As to what was sought to be conveyed by the word 'deviate' is not clear to us. This much, however, is apparent that this Court did not mean, while saying as above, that circulars can override any provision of the Act or to put in the language of Mukharji, J. detract from the Act. Though Shri Salve has urged that the decision in Varghese has been affirmed by a Constitution Bench in C.B. Gautam v. Union of India, (1993) 1 SCC 78, reference to that case shows that Varghese& .....

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an equally settled that the circulars issued by the Board in exercise of its powers under Section 119 of the Act would be binding on the Taxing authorities, even if they deviate from the provisions of the Act, so long as they seek to mitigate the rigor of the particular Section for the benefit of the assessee. The reference in this respect be made to the decision in Uco Bank, Calcutta .vs. Commissioner of Income Tax, W.B. reported in (1999) 4 SCC 599. However, in the present case, the respondent .....

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inasmuch as Their Lordships in the case of Tata Chemicals (cited supra) have clearly held that the provisions of Section 240 are wide enough and they include all sorts of proceedings. Undisputedly, the tax which was deducted and paid by the assessee was under the provisions of Sections 195 and 201 of the said Act. Undisputedly, the advance tax which was paid was more than the liability to pay the tax. The tax was deducted and paid on an anticipation that the third instalment was to be paid to t .....

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timately if it is revealed that there was no liability to pay the tax, then in such a case permitting the Revenue to retain that tax and not to permit refund to the person who has honestly deposited the said amount, would be permitting unjust enrichment of the State and depriving the honest taxpayer of his legitimate due. We find that such an interpretation would not also be permissible in view of public policy. 27] In the result, we find that the petitioner's case is squarely covered by the .....

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