TMI Blog2005 (10) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the order passed by the Assessing Officer dated July 14, 2000, rejecting the application for refund of tax deducted at source ("the TDS" for short). The facts: The facts giving rise to the present petition, in a nutshell, are as under: The BASF (India) Ltd. ("the assessee" for short) had entered into a collaboration agreement with M/s. BASF AG, Germany, on July 16, 1996, for increasing the capacity of its existing plant for manufacturing expandable styrene monomer from 3,576 metric tonnes to at least 73,000 metric tonnes and also for obtaining the improvements/developments made by the collaborator relating to the actual process, methods, technical information and know-how for the manufacture and sale of expandable sytrene polymers. In consideration of the above, amongst others, in terms of article 3.1 of the collaboration agreement, BASF India Limited, the assessee, was required to pay a running royalty at 2 per cent, on the domestic net sale price of the agreement product manufactured in excess of the capacity of 3,576 metric tonnes after the date of the start up. The royalty was payable within 60 days from the end of 30th June and 31st December of each calendar year d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard were furnished by the petitioners on February 16, 2000, to the Assessing Officer. At the relevant time, Circular No. 769 dated August 6, 1998 (see [1998] 232 ITR (St.) 25) was in force and operation. Mr. Jasani submits that in view of the said circular, the petitioners were entitled to refund of tax deducted at source on the amount of royalty wrongly paid to the foreign collaborator, which was remitted back by the collaborator to the petitioners. Mr. Jasani further submits that Circular No. 790 dated April 20, 2000 (see [2000] 243 ITR (St.) 58), revoking the earlier Circular No. 769 (see [1998] 232 ITR (St.) 25) with immediate effect, i.e., from April 20, 2000, will have a prospective effect. He submits that Circular No. 790 dated April 20, 2000, (see [2000] 243 ITR (St.) 58) would apply to applications for refund which were made after issuance of the said circular. He placed reliance on the judgment of this court in Unit Trust of India v. P.K. Unny [2001] 249 ITR 612; wherein it has been held that it is well-settled that the withdrawal of the circulars cannot operate retrospectively since they are in the nature of instructions and/or guidelines for the benefit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners are entitled to refund of tax deducted at source. Without prejudice to the above, Mr. Jasani, learned counsel for the petitioners submits that Circular No. 790 dated April 20, 2000 (see [2000] 243 ITR (St.) 58) does not disentitle the petitioners from claiming refund of tax deducted at source on the remittance wrongly made which was, ultimately, returned to the petitioners. According to him, the case of the petitioners is clearly covered by the spirit of clause (b) which deals with a case where the remittance is duly made though inadvertently and the collaborator agreeing that it was not entitled to the same and has returned the same to the petitioners. The Board has opined that where income does not accrue to the non-resident the tax deducted belongs to the deductor and the amount deposited to the credit of the Government cannot be said to be tax. In this view of the matter, he submits that in the present case at hand there is no dispute that the income did not belong to the non-resident as such the tax deducted at source belongs to the petitioners. In his submission, if the amount credited to the Government cannot be said to be a tax, then the same cannot be retai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money refunded and since the dealer was not guilty of any laches; and since there was no specific prohibition against refund, it was not proper to get entangled in the cobweb of procedures to defeat substantial justice. He further relied upon the judgment of the apex court in CIT v. Shelly Products [2003] 261 ITR 367; wherein the apex court held that in a case where an assessee chose to deposit by way of abundant caution advance tax or self-assessment tax which was in excess of his liability; on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of assessment proceeding. Similarly, if, he has by mistake or inadvertence or on account of ignorance, included in his income any amount which was exempted from payment of income-tax or was not income within the contemplation of law, he may likewise bring it to the notice of the assessing authority, who, if satisfied, may grant appropriate relief. Mr. Jasani further submits that it is well-settled that no tax can be levied except with the authority of law as enjoined by article 265 of the Constitution of India. The Central Board of Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be in the nature of income liable to deduction of tax. The subsequent events cannot affect the validity of the tax deducted at that time. He, relying upon the judgment of the apex court in the case of Mafatlal Industries Ltd. v. Union of India [1997] 89 ELT 247, submits that even otherwise a tax collected under misapplication or misinterpretation of the provision of law cannot be said to be a case where article 265 can be invoked. Lastly he submitted that the concerned assessee, i.e., BASF AG Germany, could have sought refund by filing a tax return within the time allowed. Since no return has been filed within the time allowed, no refund is permissible. He, thus, submits that the petition is liable to be dismissed. Learned counsel for the Revenue also sought to contend that Circular No. 790 (see [2000] 243 ITR (St.) 58) deals with the procedural aspects as such it should not be treated to have prospective operation. Consideration: Having heard rival parties, this petition can be disposed of on a narrow consideration without going to the larger issue raised by the petitioners based on interpretation of article 265 or 300A of the Constitution. The petitioners vide applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners for refund of TDS in view of subsequent Circular No. 790 dated April 20, 2000 (see [2000] 243 ITR (St.) 58). The said order stands confirmed by the Commissioner of Income-tax vide his order dated January 8, 2001 passed in the revision application filed under section 264 of the Act. In the above view of the matter, the first question which needs consideration is: which of the two circulars would be applicable to the refund application of the petitioners dated February 6, 2000. Before taking this issue for consideration, it is necessary to first consider whether the circulars issued by the Central Board of Direct Taxes can operate with retrospective effect. This court in the case of Unit Trust of India v. P.K. Unny [2001] 249 ITR 612, to which one of us (Daga, J.) is a party, observed: "It is well-settled that the withdrawal of circulars cannot operate retrospectively. In that sense, circulars under section 119 do not constitute law. They are in the nature of instructions and/or guidelines. Therefore, the communication dated January 29, 2001, will operate prospectively and not retrospectively ..." The Full Bench of the Kerala High Court in CIT v. B.M. Edward, India Sea Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of Direct Taxes, which was in force on the first day of the assessment year, were applicable and the Income-tax Officer was bound by it even though he passed the assessment order subsequent to the withdrawal of the said circular. A special leave petition filed against this judgment of the Full Bench was dismissed by the Supreme Court on November 17, 1982 vide CIT v. Geeva Films [1983] 140 ITR (St.) 1. In the case of CIT v. N.T. Ramarao (HUF)[1987] 163 ITR 453 (AP), a question similar to the question which was for consideration before the Kerala High Court fell for consideration. Relying upon the aforesaid judgment of the Full Bench of the Kerala High Court in CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334, the Andhra Pradesh High Court held that the circulars which are in force during the relevant assessment years are the circulars that have to be applied and the subsequent circulars either withdrawing or modifying the earlier circulars have no application. In the above view of the law laid down by the Andhra Pradesh High Court in consonance with the law laid down by the Kerala High Court, we have no hesitation to come to the conclusion that the application moved ..... X X X X Extracts X X X X X X X X Extracts X X X X
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