TaxTMI 
TaxTMI 
2023 (9) TMI 495
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....tered into another agreement (Supervisory Agreement) with DAVY to provide certain supervisory services to Petitioner in India. Under the agreement DAVY was to deliver to Petitioner the necessary design, drawing and data with respect to the Sponge Iron Plant outside India. DAVY also agreed to train outside India, certain number of employees of Petitioner in order to make available to such employees technical information, scientific knowledge, expertise, etc. for commissioning, operation and maintenance of the Plant. 2. Petitioner agreed to pay a sum of US $ 16,231,000/- net of Indian Income-tax, if any, leviable. In other words, it was agreed that if any withholding tax was required to be deducted, it will be borne by Petitioner and DAVY would be paid the net amount of US $ 16.23 millions. 3. Petitioner, by a letter dated 5th December 1989, sought from Assistant Commissioner of Income Tax ("ACIT"), Central Circle-I a 'No Objection Certificate' to facilitate remittance of the amount to DAVY without deduction of tax at source. Petitioner in its application informed the ACIT that the technical services specified in the agreement, having been rendered outside India and the fees re....
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....ged both the assessment orders before the Commissioner of Income Tax (Appeals). Thereafter, Petitioner, along with DAVY, filed Writ Petition No. 448 of 1994 in this Court challenging the constitutional validity of the provisions of Section 9(1)(vii) of the Act, the assessment orders for Assessment Year 1990-91 and 1991-92 in the case of DAVY and the taxability of the amount received by DAVY under the agreement under Section 9(1) (vii) of the Act. By an order dated 5th May 2010, this Court was pleased to hold that the assessment orders passed by Respondents No. 4 and 5 subjecting the income received by DAVY from Petitioner under the agreement dated 22nd October 1989 was not correct and Respondents were directed to pass fresh assessment orders excluding the income received by DAVY by way of fees for technical services from Petitioner under the agreement. 6. By a letter dated 1st July 2010, Petitioner called upon Respondent No. 1-ACIT, Circle 6(3) to pass an order giving effect to the order passed by this Court on 5th May 2010. Reminders were sent, but no action was forthcoming. 7. In the meanwhile, Kvaerner U.S. Inc., New Jersey, USA, which is the successor-in-interest to DAVY,....
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....hed this Court with DAVY challenging the orders of assessment passed by Respondent No. 4 and the order in appeal passed by CIT(A). He pointed out that this Court had already held that the income by way of fees for technical services paid by Petitioner to DAVY was not liable to income tax under the Act and the income received by DAVY cannot be deemed to have arisen or accrued in India because the services under the agreement were not rendered within India. Mr. Mistri submitted that the consequence of the order would be that the income under the agreement would be excluded from the income of DAVY whereby it would become entitled to a refund of the tax deducted at source by Petitioner and if the amount is paid to DAVY, DAVY would remit such refund to Petitioner. Since DAVY is succeeded by Kvaerner and Kvaerner has issued its no objection to Respondents giving the refund amount to Petitioner, the tax ought to be paid to Petitioner. In the alternative, since the amount receivable by DAVY under the agreement is not chargeable to tax in India, the directions to Petitioner by the order dated 5th December 1989 to deduct tax at source was not in accordance with law and, therefore, the amo....
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....e of DAVY and hence Respondents cannot refund the TDS deposited by Petitioner on behalf of DAVY to Petitioner as there is no provision in the Act for the same. 15. On 11th March 2014, when this Court was pleased to issue rule, the Court also passed an elaborate order. It will be useful to reproduce the said order which reads as under: "1. Rule. 2. By this petition under Article 226 of the Constitution of India, the Petitioner has challenged the order dated 24 August 2012 of Respondent No. 1- Assistant Commissioner of Income Tax, 6(3), Mumbai declining to grant the Petitioner's claim for refund pursuant to the order dated 5 May 2010 passed by this Court in Writ Petition No. 448 of 1994. 3. Brief facts leading to filing of this petition are as under. (a) On 22 October 1989, the Petitioner entered into a Foreign Technical Collaboration for Basic Engineering and Training Agreement ('BEAT Agreement') with Davy Mckee Corporation ('Davy') to set up a gas based Sponge Iron Plant in India. In terms of the BEAT agreement, Davy was to deliver to the Petitioner the designs, drawings and data with respect to the Sponge Iron Plant outside India besi....
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....urt on 27 January 1994 challenging: (i) the constitutional validity of the provisions of Section 9(1)(vii) of the Income Tax Act, 1961 ('the Act'); and (ii) the assessment orders for the A.Ys. 1990- 91 and 1991-92 dated 30 November 1992 and 16 March 1993 respectively; (e) At the hearing of Writ Petition No. 448 of 1994, the challenge to the constitutional validity of Section 9(1)(vii) of the Act was not pressed but the Court adjudicated other controversites and rendered its judgment on 5 May 2010. The operative part of the judgment read as under: "17. Examined on this test, the income received by the Petitioner No. 2 cannot be deemed to have arisen or accrued in India because the services under the BEAT agreement were not rendered within India though the drawings, designs received from Petitioner No. 2 may have been utilized by the Petitioner No. 1 in India. The law requires both the conditions to be satisfied viz services rendered in India and utilized in India. For these reasons, we are of the view that the income by way of fees for technical services by the Petitioner is not liable to the Indian income tax under the Act. Consequently, petition....
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....ted in the Petitioner paying amounts aggregating Rs.5.54 crores to the Revenue out of its funds under protest, in December-1989 and in September-1990, as tax deducted at source. It is submitted that once this Court holds by order dated 5 May 2010 that the income by way of fees for technical services paid by the Petitioner to Davy under the BEAT Agreement was not liable to Indian Income Tax, then the amounts paid by the Petitioner out of its own funds as withholding tax, becomes refundable to the Petitioner. The counsel also invites our attention to the letter given by Kvaerner U.S. Inc. who is the successor in interest of Davy that it has no objection if the above amounts of the tax paid as tax deducted at source are paid to the Petitioner. It is submitted that under Clause 5.1 of the BEAT agreement between the Petitioner and Davy, it was specifically provided as under: "5.1 TAXES, CHARGES AND DUTIES: ... ... ... In the event that DAVY is able to obtain any tax credit in U.S.A. Or elsewhere in respect of tax paid in India as aforesaid by GRASIM, then DAVY shall refund to GRASIM an amount equivalent to such credit obtained. DAVY will provide GRASIM with a certifica....
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.... has been assessed with ITO3(1)(4), Mumbai to whom the matter has been forwarded for taking necessary action. The said officer had issued notice to Davy, however, Davy was not available at the address. It is submitted that the Petitioner has no locus standi to claim refund on behalf of Davy. Learned counsel for Respondents also places on record a copy of letter dated 30 December 2013 issued by ITO 3(1)(4) to Davy. 7. In rejoinder, learned counsel for Petitioner points out that the letter dated 30 December 2013 sent by ITO 3(1)(4) was sent on the following address: "To, The Principal Officer, Davy McKee Corporation, C/o.Arthur Anderson & Co; 66, Maker Towers, 'F', Cuffe Parade, Mumbai-400005" It is submitted that Arthur Anderson & Co, was a Chartered Accountant's firm, and were Chartered Accountant of Davy. The said firm has been closed down in Mumbai and Davy had also merged with Kvaerner U,S, Inc. Hence, the Department has deliberately sent notice to an address which was not the address of Davy. The officer could have at the very least sent a notice to Davy at its address shown in the cause title of Writ Petition N....
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....s deposited with the Prothonotary and Senior Master, High Court, Bombay, a sum of Rs. 6,30,95,624/- and Rs. 6,20,32,789/- for Assessment Years 1990-91 and 1991-92, respectively. These amounts have been invested by the Prothonotary and Senior Master in fixed deposit pursuant to an order dated 14th July 2014. The amount has continued to be invested in fixed deposit. 17. The indisputable position is that it has always been Petitioner's stand that the technical services specified under the agreement with DAVY was rendered outside India and the fees also were paid outside India in foreign exchange and the income imbedded in the said fees accrues and arises to DAVY outside India. There is no operation involved in the execution of the said agreement to take place within India. No activity was also carried out in India under the said agreement. The fees received by DAVY, therefore, are not taxable in India and consequently, no tax at source was required to be deducted out of the fees payable by Petitioner to DAVY. When Petitioner made these submissions and requested for issuance of a 'No Objection' Certificate by its letter dated 5th December 1989, it was the ACIT, Central Circle-I, who....
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.... It is therefore proposed to amend clause (a) of subsection (2) of Section 249 providing that where the appeal is under section 248, the prescribed time shall be counted from the date of payment of tax. This amendment is consequential in nature and will take effect from 1st June, 2007." 19. The memorandum explaining the provisions in Finance Bill 2007 reads as under: "Provision of appeal a person denying liability to deduce tax. Under the existing provisions of section 248, it is provided that where any person has deducted and paid tax in accordance with the provisions of section 195 and 200 in respect of any sum chargeable under the Act, other than interest and who denies his liability to make such deductions, may make an appeal to the Commissioner (Appeals) to be declared not liable to make such deductions. It is proposed to substitute section 248 so as to provide that where under an agreement or other arrangement, that tax deductible on any income other than interest, under section 195 is be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government, claims that on tax was....
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....e "tax". The Circular further states that this amount can be refunded with prior approval of the Chief Commissioner of Income Tax or the Director General of Income Tax concerned, to the persons who deducted it from the payment to the non-resident under Section 195 of the Act. 23. In our view, the refusal of the Department to return the amount and retaining the same is unauthorized by law and would only amount to unjust enrichment by the Department on technical grounds. 24. The Apex Court in Commissioner of Income Tax v. Shelly Products (2003) 261 ITR 367 (SC)., as relied upon by Mr. Mistri, has held that where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of return furnished or by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income tax or is not an income within the contemplation of law, he can certainly make such claim before the concerned authority for refund and he must be given that refund on being satisfied that refund is due and payable. Non giving the refund, in our view, would be in breach of Article....
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....hall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. In the case on hand, it was obligatory on the part of the Assessing Officer to apply his mind to the facts disclosed in the return and assess the assessee keeping in mind the law holding the field." 27. In the circumstances, the rule is made absolute in terms of prayer clauses (a) and (b) which read as under: "a. this Hon'ble Court may be pleased to issue a writ of Certiorari, or a writ in the nature of Certiorari, or any other appropriate writ, order or direction under article 226 of the Constitution of India, calling for the records of the Petitioner's case so far as they relate the impugned order (Exhibit "P") refusing to pass an order giving effect to the order of this Hon'ble Court in WP No. 448 of 1994 and granting refund to the Petitioner and after going through and examining the question of the validity, propriety and legality thereof, be pleased to quash the impugned order; b. this Hon'ble Court may be pleased to issue a writ of mandamus or a w....