Dividend repatriation with security allowed despite tax dispute; refund adjusted against demand and lien on deposits lifted.

Dividend repatriation to foreign shareholders was permitted despite pending tax demands because accumulated dividend could not be withheld indefinitely when the assessments were under challenge and the restraint orders were not meant to continue without balance. The Court required tax deduction at source and equivalent security by way of an auto-renewable, interest-bearing fixed deposit receipt in a nationalised bank, thereby protecting the Department while allowing remittance. The income-tax refund for the relevant year was also permitted to be adjusted against the outstanding demand, and the lien on the existing fixed deposit receipts was lifted, leaving the company free to withdraw them if desired.

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Issues: (i) whether the petitioner-company could be permitted to repatriate dividend to its foreign shareholders despite pending tax demands and earlier restraint orders, and on what conditions; (ii) whether the income-tax refund for the relevant assessment year could be adjusted against the outstanding demand and whether the lien on the existing fixed deposit receipts could be lifted.

Issue (i): whether the petitioner-company could be permitted to repatriate dividend to its foreign shareholders despite pending tax demands and earlier restraint orders, and on what conditions.

Analysis: The accumulated dividend could not be withheld indefinitely merely because the Department had earlier frozen accounts on apprehension of demand, particularly when the assessed demands were under challenge and stood stayed by the appellate forum or the Court. The Court balanced the competing interests by recognising the shareholders' entitlement to receive dividend while safeguarding the Department through a security mechanism linked to the amount proposed to be repatriated.

Conclusion: The petitioner-company was permitted to declare and repatriate dividend in accordance with law and foreign remittance requirements, subject to deduction of tax at source and furnishing an auto-renewable interest-bearing fixed deposit receipt of equal amount in a nationalized bank.

Issue (ii): whether the income-tax refund for the relevant assessment year could be adjusted against the outstanding demand and whether the lien on the existing fixed deposit receipts could be lifted.

Analysis: Since the demand had already crystallised and the refund was available with the Department, adjustment of the refund against another outstanding demand was permitted. The Court also removed the lien on the earlier fixed deposit receipts, leaving it open to the petitioner-company to withdraw them if so desired.

Conclusion: The refund was allowed to be adjusted against the outstanding demand, and the lien on the existing fixed deposit receipts was lifted.

Final Conclusion: The application was allowed in part by permitting dividend repatriation with security, while also permitting refund adjustment and lifting the lien on the existing security deposits.

Ratio Decidendi: Where a tax demand is stayed without any security condition, interim restraint on dividend repatriation cannot be continued indefinitely; the proper course is to balance shareholder rights with departmental protection by permitting remittance subject to equivalent security and tax compliance.

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