MAP suspension of tax recovery upheld where treaty proceedings were pending and the bank guarantee remained valid.

Pending Mutual Agreement Procedure proceedings under the India-USA tax treaty required suspension of collection where the prescribed security continued to subsist, and the revenue could not treat the assessee as in default on an unsupported distinction between "pending" and "admitted" MAP. Recovery from the bank account was therefore inconsistent with the treaty framework, the MoU on collection during MAP, and the CBDT instructions, and the recovery notices were quashed. The court also rejected the claim that the stay had lapsed: the competent authority confirmed MAP was pending, and no valid expiry or non-renewal of the bank guarantee was proved. The recovered amount was directed to be refunded, subject to the MAP proceedings.

---

---

Issues: (i) Whether the revenue was justified in invoking recovery measures and appropriating the amount from the assessee's bank account despite pending Mutual Agreement Procedure proceedings under the India-USA tax treaty and the governing administrative instructions. (ii) Whether the stay granted earlier stood vacated for non-admission of MAP or for alleged non-renewal/expiry of the bank guarantee.

Issue (i): Whether the revenue was justified in invoking recovery measures and appropriating the amount from the assessee's bank account despite pending Mutual Agreement Procedure proceedings under the India-USA tax treaty and the governing administrative instructions.

Analysis: The treaty framework, the Memorandum of Understanding on suspension of collection during MAP, and the CBDT instructions required suspension of collection once MAP was pending and the prescribed security was furnished. The record showed that MAP proceedings were pending and had in fact been treated as pending by the Indian competent authority. The earlier stay order had proceeded on that basis, and the later recovery notices were founded on an artificial distinction between "pending" and "admitted" MAP, which was not supported by the governing framework. The recovery action was therefore inconsistent with the treaty arrangement and the administrative instructions governing MAP-related suspension of demand.

Conclusion: The revenue was not justified in appropriating the amount while MAP proceedings were pending; the action was invalid and was against the assessee.

Issue (ii): Whether the stay granted earlier stood vacated for non-admission of MAP or for alleged non-renewal/expiry of the bank guarantee.

Analysis: The competent authority's affidavit confirmed that MAP was pending and that the proceedings had been taken as pending after verification. As to the bank guarantee, the guarantee terms contemplated continued force and renewal, and the bank's letter stated that the guarantee remained valid in its records. No communication from the bank or any triggering event under the guarantee was shown to establish expiry or non-renewal in the manner alleged by the revenue. The contention that the guarantee had lapsed was therefore not accepted, and the plea of defective format or absence of renewal was treated as an afterthought.

Conclusion: The stay order did not stand vacated on either ground; the bank guarantee was treated as continuing and the assessee was not liable to be proceeded against on that basis.

Final Conclusion: The writ petition succeeded, the recovery notices were quashed, and the amount recovered was directed to be refunded, with the direction kept in abeyance pending conclusion of the MAP proceedings.

Ratio Decidendi: Where treaty-based MAP proceedings are pending and the prescribed security continues to subsist, recovery of the disputed tax cannot be enforced by treating the assessee as in default on an unsupported premise that MAP was not "admitted" or that the bank guarantee had expired without proof of valid termination.

---