High Court: Petitioner Pays 50% Disputed Tax, Interest Not Recoverable

The High Court determined that the pending appeal before the ITAT was a Revenue appeal, making the petitioner liable to pay only 50% of the disputed tax under the DTVSV Act. Additionally, the court ruled that the DTVSV Act does not authorize the recovery of interest paid under Section 244A by adding it to the disputed tax. Consequently, the court quashed Form-3 and directed the Designated Authority to issue a new Form-3 for the revised disputed tax amount, with the petitioner required to make payment within two weeks.

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Issues Involved:
1. Whether the pending appeal before the ITAT is an assessee appeal or a Revenue appeal.
2. Whether the interest granted under Section 244A of the IT Act can be recovered by the Respondents by adding it to the amount of disputed tax payable under the DTVSV Act.

Detailed Analysis:

1. Nature of the Pending Appeal:
The petitioner, a bank established in the Netherlands, filed a return of income declaring nil income. The Assessing Officer assessed business profits attributable to a permanent establishment (PE) at Rs. 1,50,75,790/-. The petitioner appealed to the CIT(A), who ruled in favor of the petitioner, holding that there was no PE in India. The Revenue appealed to the ITAT, which remanded the case back to the Assessing Officer. The petitioner then appealed to the High Court, which set aside the ITAT's order and restored the Revenue's appeal to the ITAT for fresh adjudication.

The petitioner filed a declaration under the DTVSV Act, and the Designated Authority issued Form-3, determining the amount payable at 100% of the tax arrears. The petitioner contended that the appeal pending before the ITAT was a Revenue appeal and thus only 50% of the disputed tax should be payable.

The court held that the pending appeal was indeed a Revenue appeal. The High Court had earlier ruled in favor of the petitioner and restored the Revenue's appeal to the ITAT. Therefore, the first proviso to Section 3 of the DTVSV Act, which applies to Revenue appeals, was applicable, making the petitioner liable to pay only 50% of the disputed tax.

2. Recovery of Interest under Section 244A:
The petitioner received a refund along with interest under Section 244A of the IT Act after the CIT(A) ruled in their favor. The Designated Authority included this interest in the amount payable under the DTVSV Act, which the petitioner contested.

The court examined the relevant provisions of the DTVSV Act, including Sections 2(1)(j), 2(1)(o), 3, 5, and 6. The court concluded that the definition of "disputed tax" under the DTVSV Act does not include interest. The court also referred to the Supreme Court's decision in Harshad Shantilal Mehta, which held that the definition of "tax" under Section 2(43) of the IT Act does not include interest or penalty.

The court found no provision in the DTVSV Act authorizing the recovery of interest paid under Section 244A by adding it to the disputed tax. Thus, the addition of Rs. 7,75,272/- to the disputed tax in Form-3 was deemed unlawful.

Conclusion:
1. The pending appeal before the ITAT is a Revenue appeal, and the petitioner is liable to pay only 50% of the disputed tax under the first proviso to Section 3 of the DTVSV Act.
2. There is no provision in the DTVSV Act authorizing the recovery of interest paid under Section 244A by adding it to the disputed tax. The addition of Rs. 7,75,272/- to the disputed tax in Form-3 is unlawful.

The court quashed and set aside Form-3 dated 26th March 2021 and directed the Designated Authority to issue a fresh Form-3 determining the amount of disputed tax in accordance with the court's findings. The petitioner was directed to make the payment of the revised disputed tax within two weeks of the issuance of the revised Form-3.

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