TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 171
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntered into an agreement with M/s. Mannesmann Demag (MDH) Germany (hereinafter referred to as "the German company") on 8.11.1985 for transfer of technical knowhow. As per the said agreement, the petitioner company was required to make the payment of technical knowhow fee in three instalments of Rs. 25,48,333/DM, totalling to Rs. 76,45,000/. 3] That the petitioner Company in pursuance to the said agreement deducted 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 Rs. 53,70,567/for the third and final instalment and deposited the same in advance with the Assistant Commissioner of Income Tax, Survey CircleII, Permanent Account No. S14/ Special Range2 in accordance with the provisions of Section 195 of the Act. 4] Subsequently, since the German company was not able to fulfil its obligations, an agreement was entered into on 1.7.1992 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, reserving the right of the petitioner to approach this Court. After the orders were passed by the Delhi High Court on 2.7.1998, the present petition has been filed. Rule was granted in the matter on 22.12.1998. Thereafter the respondents have also filed on record their submission on affidavit. 6] Shri V.R. Thakur, learned Counsel for the petitioner, submits that in view of the provisions of Clause (7) of Section 2 read with provisions of Sections 195, 200, 201 of the Income Tax Act, petitioner 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 pet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de by the petitioner, the CBDT gratuitously granted the prayer for refund. He submits that the same was done independent of the provisions of the Act. The learned Counsel submits that the provisions of Section 244A shall be applicable 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 certain provisions of the Income Tax Act. Clause (7) of Section 2 which is a definition clause reads thus : "(7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes - (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t; or (c) from or through whom the nonresident is in receipt of any income, whether directly or indirectly; or (d) ..........................................; and includes also any other person who, whether a resident or nonresident, has acquired by means of a transfer, a capital asset in India : It will also be relevant to refer to the provisions of Section 244A which reads thus : Interest on refunds. "244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated 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 specified in the notice of demand issued under section 156 is paid in ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n company any sum chargeable 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 deducted to the credit of the Central Government as the Board directs. Subsection (1) of Section 201 would show that where any person including the Principal Officer of a company, who is required to deduct any sum in accordance with the provisions of the said Act, does not deduct or after so deducting fails to pay the whole or any part of the tax as required under the said Act, then such a person without prejudice to any other consequences which he may incur would be deemed to be an "assessee in default" 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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the said case, during the assessment year 199798, Tata Chemicals Limited (hereinafter to be referred to as "the resident/deductor") had commissioned its naphtha desulphurisation plant and to oversee the operation of the said plant it had sought assistance of two technicians from a Denmark company. The said company had raised invoice partly towards service charges of the technicians and partly for reimbursement of the expenses. The 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, preferred an appeal before the Commissioner of Income Tax. The Appellate Authority while allowing the appeal felt that the reimbursement of expenses is not part of the income, for deduction of tax at source and accordingly directed the refund of the tax that was dedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 to following observations of Their Lordships in paragraph nos. 36, 37, 38 and 39, which read as under :" 36. Section 240 of the Act provides for refund of any amount that becomes due to an assessee as a result of an order in appeal or any other proceedings under the Act. The phrase "other proceedings under the Act" is of wide amplitude. This Court has observed that, the other proceedings under the Act would include orders passed under Section 154 (rectification proceedings), orders passed by the High 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lies and carries with it the right to interest. Whenever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course." "39. In the present case, it is not in doubt that the payment of tax made 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. Simultaneously, since the said payment is not made pursuant to a notice issued under Section 156 of the Act, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to "as in any other case", the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only to the refund of tax deposited under Section 195(2) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 circumstances. It has further been held that the obligation to refund money received and retained without right implies and carries with it the right to interest. 22] It can thus clearly be seen that the contention of the Revenue that the petitioner is not an assessee, in view of what has been discussed by us hereinabove, is not sustainable in law. In any case, the contention of the Revenue that the resident/deductor was not entitled to apply for refund of the TDS deposited by it, in excess of the liability 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 the case of Kerala Fina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dents would squarely fall within the ambit of Section 240 of the said Act, 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 the nonresident German company. However, after the agreement with the nonresident German company, whereby it had waived the third instalment, the TDS on account of the payment of the third instalment was required to be refunded by the respondent Revenue. 26] If the contention as raised by the Revenue is to be accepted, it would result in causing great hardship to the honest taxpayers. If an honest taxpayer on account of anticipated liability deducts more amount of tax and deposits the same and ultimately if it is revealed that there was no liability to pay the tax, then in such a case permitting the Revenue to retain t....