TaxTMI 
TaxTMI 
2025 (2) TMI 127
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.... introduced a prescription of limitation for the institution of such refund applications. The respondent has held against the writ petitioner not only on the ground that the applications were barred by time but also on the basis of those applications not being liable to be granted on merits. In consequence to the challenge as raised, the petitioners also seek an appropriate direction for refund of the excess tax that had come to be deposited. 2. The respondent, while dealing with those applications has firstly alluded to Circular No. 07/2007, and which according to it, had constructed a period of limitation of two years within which an application for excess tax deposited could have been preferred. It has thus held that the applications would be barred by paragraph 9 of the aforesaid circular. It has also questioned the assertion of the tax having been deducted in excess on the ground that the remittance made would not fall within the ambit of the exception which is carved out by clause (b) of Section 9 (1) (v) of the Act holding that the same would not fall within the scope of interest paid on monies borrowed and used for the purposes of a business carried on outside India nor fa....
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....aragraph 10 of the impugned order, it would appear that although the remittances to bond holders and banks were not subjected to any deduction at source, RLL, out of abundant caution, deposited the TDS on the entire premium and interest paid in purported discharge of its perceived obligations under Section 195 of the Act. 7. In the revised TDS returns that RLL came to file for FY's 2010-11 to 2012-13 on 29 March 2014, it claimed a refund of tax deposited on the aforenoted payments of premium and interest on the bonds as well as the External Commercial Borrowings [ECB] that it had obtained. This was followed by the filing of a formal application on 31 March 2014 with the Assessing Officer [AO] seeking refund of the excess tax so deposited. 8. On 24 March 2015, RLL merged with the petitioner in terms of a Scheme of Arrangement with an effective date of 01 April 2014. The petitioner before us, acting as the successor-in-interest of RLL, is thereafter stated to have addressed various reminders in respect of the applications for refund which were pending. Those refund applications have ultimately come to be rejected in terms of the order dated 27 March 2018 which is impugned before us....
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....tion 195 to the person deducting the tax-section 239 of the Income Tax 1961-Refunds The Board had issued Circular No. 790 dated 20th April, 2000, laying down the procedure for refund of tax deducted under section 195, in certain situations to the person deducting the tax at source from the payment to the non-resident. Representations have been received in the Board from taxpayers requesting that the said Circular may be amended to take into account situations where genuine claim for refund arises to the person deducting the tax at source from payment to the non-resident and it does not fall in the purview of the said Circular. 2. The cases which are being referred to the Board mainly relate to circumstances where, after the deposit into Government account of the tax deducted at source under section 195, a) the contract is cancelled and no remittance is made to the non-resident; b) the remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source; c) the contract is cancelled after partial execution and no remittance is made to the non-resident for the n....
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....ction 195, cannot be said to be "tax". 4.1 It has been decided 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 person who deducted it from the payment to the non-resident, under section 195. 5. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident or if the income is accruing no tax is due or tax is due at a lesser rate. The amount paid into the Government account in such cases to that extent, 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 or Circular No. 790. 6. In case of refund being made to the person who made the payment under section 195, the Assessing Officer may, after giving intimation to the deductor, adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law. The balance amount, if any, should be refunded to the person who made such payment under section 195. A....
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.... of two years, for making a refund claim, was stipulated vide Circular No. 790 dated 20th April, 2000.Some cases covered by Circular No. 769, which were also covered by Circular No. 790, now listed in item (a) and (b) of paragraph 2 of this Circular, and filed before the issue of Circular No. 790, became time-barred because of the specification of time limit in Circular No. 790. It is hereby clarified that such cases may also be considered for refund. 11. This Circular is issued in supersession of the Circular No.790/2000 dated 20th April, 2000. 12. The contents of this Circular may be brought to the notice of all officers in your region." 12. Mr. Vohra further submitted that although the Board chose to create a time frame of two years, and which was described to be a period of limitation, the same clearly would not sustain absent any prescription of limitation or outer time limit having been statutorily engrafted in the Act. It was in the aforesaid light that learned senior counsel submitted that paragraph 9 of the aforenoted Circular is clearly ultra vires the Act itself. 13. While addressing submissions along those lines, Mr. Vohra also took us through Sections 200, ....
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....ch form and verified in such manner as may be specified by the authority.] [Following second proviso shall be inserted after the existing proviso to sub-section (3) of section 200 by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025: Provided further that no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the statement referred to in sub-section (3) is required to be delivered]" 15. It becomes pertinent to note that the First Proviso to Section 200 enables a person to deliver to the prescribed authority the correction statement for purposes of rectification of any mistake or even to add, delete or update information that may be contained in a statement submitted by a deductor. Of equal significance is the Second Proviso which came to be inserted in Section 200(3) by Finance (No.2) Act of 2024, with effect from 01 April 2025, and which now stipulates that no correction statement would be entertained if tendered after the expiry of six years from the end of the FY in which the principal statement may have been delivered. This we do note since in the facts of the present case, the correction statement was filed with d....
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....od of limitation which came to be introduced by the CBDT is clearly illegal and beyond jurisdiction. 19. Our attention was also drawn to the provisions comprised in Circular Nos. 769/1998 and 790/2000 and on the basis of which Mr. Vohra sought to underscore the fact that even those had never introduced any provision of limitation. Circular No. 769/1998 which was issued on 06 August 1998 was concerned with applications for refund in respect of excess or erroneous deduction of tax. The said Circular is reproduced hereinbelow: - "1167. Procedure for refund of tax deducted at source under section 195 1. The Board has received a number of representations for granting approval for refund of excess deduction or erroneous deduction of tax at source under section 195 of the Income-tax Act. The cases referred to the Board mainly relate to circumstances where:- (i) after the deposit of tax deducted at source under section 195, (a) the contract is cancelled and no remittance is required to be made to the foreign collaborator; (b) the remittance is duly made to the foreign collaborator, but the contract is cancelled and the foreign collaborator returns the remitted amount to the pers....
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....g tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. 6. The adjustment of refund against the existing tax liability should be made in accordance with the present procedure on the subject. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer in favour of the "Income-tax Department" and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the sub-head "Other refunds" below the minor head "Income-tax on companies" major head "020 -Corporation Tax" or below the minor head "Income-tax other than Union Emoluments" major head "021-Taxes on Incomes other than Corporation Tax", depending upon whether the payment was originally credited to the major head "020-Corporation Tax" or to the major head "021-Taxes on Income other than Corporation Tax". 7. Since the adjustment/refund of the amount paid in excess would arise in relation to the deduction of tax at source, the recording of the particulars of adj....
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....ax. This resident deductor is, therefore, put to genuine hardship as he would not be able to recover the amount deducted and deposited as tax. 4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract, the amount deposited to the credit of Government under section 195 cannot be said to be 'tax'. It has been decided that this amount can be refunded, with prior approval of Chief Commissioner concerned to the person who deducted it from the payment to the non-resident under section 195. 5. The refund being made to the person who made the payment under section 195, the Assessing Officer may after giving intimation to the deductor, adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law. The balance amount, if any, should be refunded to the person who made such payment under section 195. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer or the Assessing Officer in favour of the "Income-tax Department....
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.... under this Circular shall be two years from the end of the financial year in which tax is deducted at source." 21. Proceeding further, Mr. Vohra also questioned the correctness of the view expressed by the respondent based on the exception carved out by Section 9 (1) (v) and submitted that the view as expressed by the respondents was wholly unsustainable for reasons recorded hereinafter. Mr. Vohra submitted that the funds which were generated by the issuance of bonds as well as the ECBs which were taken by RLL were exclusively intended to aid the global business operations of that entity. 22. It was his submission that no part of the investments made leading up to the placement of funds in the hands of RLL or for that matter the ECBs' were either routed to India or utilized in connection with the operations of RLL in this country. It was thus submitted that the interest was clearly one which had been paid by RLL for the purposes of a business undertaken outside India as well as for the purposes of making or earning income from a source outside India. Since those funds and investments, according to Mr. Vohra, were primarily utilized to shore up the financials of Terapia, SA, the ....
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....source of the receipt of the monies. In order to fall within the second exception provided in section 9 (1) (vii) (b) of the Act, the source of the income, and not the receipt, should be situated outside India. That condition is not satisfied in the present case. The Tribunal, with respect, does not appear to have examined the case from this aspect. Its conclusion that the technical services were not utilised for the assessee's business activity of production in India does not bring the assessee's case within the second exception in section 9 (1) (vii) (b) of the Act. It does not bring the case under the first exception either, because in order to get the benefit of the first exception it is not sufficient for the assessee to prove that the technical services were not utilised for its business activities of production in India, but it is further necessary for the assessee to show that the technical services were utilised in a business carried on outside India. Therefore, we cannot also approve of the Tribunal's conclusion in paragraph 29 of its order to the extent it seems to suggest that the assessee satisfies the condition necessary for bringing its case under the fir....
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....the strengthening of the capital base of the company. Though it prima facie appears that there are sufficient facts to indicate that what was contemplated was an issue of shares to the Mauritius company under the investor agreement which would result in strengthening of the assessee's capital base, having regard to the judgments cited on behalf of the assessee, in which it has been held that despite indications to the effect that the debentures are to be converted in the near future into equity shares, the expenditure incurred should be allowed as revenue expenditure on the basis of the factual position obtaining at the time of the debenture issue, we are not inclined to take a different view. The following cases have been cited on behalf of the assessee in support of the view that even in such a situation the expenditure is allowable as revenue expenditure: (i) CIT v. East India Hotels Ltd. (2001) 252 ITR 860 (Cal) ; (ii) CIT v. ITC Hotels Ltd. (2011) 334 ITR 109 (Karn) ; (iii) CIT v. South India Corporation (Agencies) Ltd. [2007] 290 ITR 217 (Mad) ; and (iv) CIT v. First Leasing Co. of India Ltd. (2008) 304 ITR 67 (Mad). 28. In addition to the above judgments, we al....
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.... recall the last date for filing refund claim under the scheme was 31.03.2008. The petitioner upon coming to realize that excess deduction has been made and deposited with the Government, approached the appropriate authority under letter dated 15.12.2008. 10. Under the circumstances, we propose to condone the delay here itself and then require the competent authority before whom the petitioner's application for refund is pending to decide the same on merits. We order accordingly. The competent authority shall consider the petitioner's application for refund" 26. Our attention was then drawn to the significant observations which appear in the decision of the Supreme Court in Commissioner of Income Tax, Bhopal v. Shelly Products and Another (2003) 5 SCC 461:- "33. Having considered the authorities on the subject, we find ourselves in agreement with the view of the Gujarat High Court in Saurashtra Cement and Chemical Industries Ltd. The question that falls for our consideration in these appeals is whether on the failure or inability of the authorities to frame a regular assessment after the earlier assessment is set aside or nullified, the tax deposited by an assessee by ....
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.... the assessee the duty to file a return of income disclosing his true income. On the basis of the income so disclosed, the assessee is required to make a self-assessment and to compute the tax payable on such income and to pay the same in the manner provided by the Act. Thus the filing of return and the payment of tax thereon computed at the prescribed rates amounts to an admission of tax liability which the assessee admits to have incurred in accordance with the provisions of the Finance Act and the Income Tax Act. Both the quantum of tax payable and its mode of recovery are authorized by law. The liability to pay income tax chargeable under Section 4(1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income tax thereon which involves a process of self-assessment. Since all this is done under authority of law, there is no scope for contending that Article 265 is violated. **** 36. We cannot lose sight of the fact that the failure or inability of the Revenue to frame a fresh ....
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....of even the tax due on the basis of the returned income and directed the refund of tax deducted at source or advance tax. To overcome this difficulty and to make the position clear, the proviso to Section 240 was inserted. A plain reading of the circular also indicates that the Board also took the view that the amendment was clarificatory and that it had become necessary to get over the difficulties posed by the judicial pronouncements directing refund of the entire tax including the advance tax and tax deducted at source, which were payable on the basis of income declared in the return by the assessee himself. It is, therefore, not necessary for us to consider the larger question as to the extent to which such circulars are binding upon the Department. In any event, as submitted by counsel for the appellant, the relevant part of the circular contains only a statement of fact. There is no instruction, direction or order to the authorities to act in a particular manner. As rightly submitted by him, the statutory provision has to be examined for its true effect and the circular, in the instant case, is not relevant." 27. Mr. Vohra then drew our attention to a judgment rendered by th....
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....he petitioner was not only impugning the intimation under section 143 (1) but also the rejection of the application under section 154 of the Act. 38. In the present case, as per the petitioner, in his return of income, he has erroneously offered to tax gains arising on sale of shares as short-term capital gains instead of same being long-term capital gains exempt from tax. Subsequently, the petitioner on January 14, 2011 filed the application under section 154 of the Act. The Assessing Officer on February 21, 2011 partly rectified the intimation and computed the tax on capital gains at 10 per cent. as against 30 per cent. computed in the intimation issued under section 143 (1) of the Act. The Assessing Officer, however refused to accept the application under section 154 filed by the petitioner. When the Assessing Officer could rectify the intimation on February 21, 2011, he could also consider the prayer of the petitioner made in the rectification application under section 154 of the Act, which was already pending before him on that date. 39. When the Commissioner was called upon to examine the revision application under section 264 of the Act, all the relevant material was alr....
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....he Income Tax Authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest-free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 24. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36 (l) (iii) because in Section 37 also the expression used is "for the purpose of business". It has been consistently held in decisions relating to Section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 25. Thus in Atherton v. British Insulated & Helsby Cables Ltd. it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. The above test in Atherton case has been a....
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.... the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximise its profit. The Income Tax Authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 37. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilise the amount advanced to it by the assessee for their personal ben....
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....der Section 36 (l) (iii) of the Act. In Madhav Prasad case the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named. It was held by this Court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. 29. Thus, the ratio of Madhav Prasad Jatia case is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under Section 36 (l) (iii) of the Act. a 30. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. 31. It has been repeatedly held by this Court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. 5, CIT v. Birla Cotton Spg. & Wvg. Mills Ltd., etc." 12. In the process, the Court also agreed that the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. wherein the High Court had h....
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....2011 SCC OnLine Del 5634. We deem it apposite to reproduce the following parts of that judgment: "2. A perusal of the orders passed by the Tribunal would reveal that it is noted by the Income-tax Appellate Tribunal that the assessee is in the business of owning, running and managing hotels. For the effective control of new hotels acquired by the assessee under its management it had invested in a wholly owned subsidiary, namely, M/s. Tulip Star Hospitality Services Ltd. On this ground, relying upon the judgment of the Supreme Court in the case of S. A. Builders v. CIT (Appeals) (2007) 288 ITR 1 (SC) the Tribunal has held that the assessee was entitled to the deduction of interest on the borrowed funds. The observations made by the Supreme Court in S.A. Builders' case (2007) 288 ITR 1 (SC) were quoted by the Tribunal as under (page 10): "...where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans" 3. In thes....
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.... High Court in CIT v. Dalmia Cement (B.) Ltd. (2002) 254 ITR 377 was approved. It was further held that it all depends on the facts and circumstance of the case as to whether the directors of the sister concern utilized the amount advanced to it by the assessee for their personal benefit, which obviously could not be said to be an advance as a measure of commercial expediency. 12. In the instant case, from the order of the Commissioner of Income-tax (Appeals) and that of the Income-tax Appellate Tribunal, as reproduced above, in paragraphs 3 and 6, we note that the assessee was maintaining a bank account with mixed common funds in which all the deposits and withdrawals were made. There was no specific instance noted by the Assessing Officer in respect of any direct nexus between the borrowed fund and the said advances made to the subsidiaries. The Assessing Officer had made general observations without going into the depth of the matter and without pointing out any specific instance where an interest bearing borrowing was advanced to the subsidiaries or establishing that the borrowings made by the appellant were not for business purposes. Both appellate authorities below were of ....
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.... in section 36 (1) (iii) of the Act is wider in scope than the expression "for the purpose of earning income, profits or gains". Accordingly, expenditure voluntarily incurred and meeting the "commercial expediency" test is to be allowed as a deduction. It is immaterial if a third party also benefits by the said expenditure. The expression "commercial expediency" is again of wide import and is satisfied once it is established that there was a connection and nexus between the interest paid claimed as expenditure and the business of the assessee. Purpose of business need not be the business of the assessee, for deduction under section 36 (1) (iii) of the Act to be allowed. Further, the Revenue cannot assume the role and occupy the armchair of a businessman to decide whether expenditure was reasonable. The Revenue cannot look at the matter from its own standpoint, but opinion and decision of a businessman on "business expediency" matters. Money borrowed even when advanced to a subsidiary for some business purpose would qualify for deduction of interest. However, if the money borrowed is utilised by the assessee for personal benefit and not for business purpose, interest paid on that mo....
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....prudent businessman incurs for the purpose of business. An expenditure, which is commercially expedient, may not be incurred under a legal obligation, but so long as it meets the requirement of commercial expediency, it has to be allowed. However, the Supreme Court held that it is not in every case that interest on borrowed loans would have to be allowed if the assessee advanced the money to a sister concern. Where the amount is advanced to a sister concern, for the personal benefit of its directors, for instance, it would not qualify to be regarded as commercial expediency. However, noted the Supreme Court, where a holding company "has a deep interest in its subsidiary advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would. ordinarily be entitled to deduction of interest on its borrowed loans." The Supreme Court accordingly set aside all the orders passed by the authorities below including the judgment of the Tribunal and of the High Court and remanded the matter for a fresh decision. 12. In the present case, there is a finding of fact by the CIT(A) and by the Tribunal that as a matter of fact, borrowed funds....
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....er Section 36 (1) (iii). Counsel appearing on behalf of the Revenue submits that there is a distinction between an advance, which is a payment handed over to some one as a loan and an investment which is money placed into financial schemes, shares or property with the expectation of making a profit. We are unable to accept that such a distinction will have any legal consequence in so far as the entitlement of the assessee to claim a deduction under Section 36 (1) (iii) is concerned. In the present case, when the assessee advanced an amount to RIL that was with a view to furthering the business of the assessee. RIL in turn was to execute counter guarantees in favour of financial institutions for the benefit of the discharge of the EPCG obligations by the assessee. That was a security for the guarantees which those institutions were required to execute under the EPCG Scheme. The funds which were invested in the wholly owned subsidiary were again for the purposes of the business of the assessee. There is evidently a significant interest of the assessee in the business of its subsidiary since both the assessee and the subsidiary are engaged in providing telecommunication services. Cons....
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....is Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued- (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the [the Joint Commissioner (Appeals) or] the exercise of his appellate functions. (c) so as to interfere with the discretion of the 1*** 2[Commissioner (Appeals)] in the exercise of his appellate functions. (2) Without prejudice to the generality of the foregoing power,- (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections [115P, 115S, 115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK,] [139,] 143, 144, 147, 148, 154, 155 [,158BFA], 6[sub-section (1A) of section 201, sections 210, 211, 234A, 234B, 234C [,234E]], [270A,] 271 [,271C, 271CA] a....
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....ist from rendering any further observations in that respect. 38. Sub-section (2) thereafter proceeds to broadly delineate the powers which the Board could exercise in various contingencies. The powers which are spoken of in clauses (a), (b) and (c) are obviously not exhaustive since that provision itself is prefaced by the usage of the expression "without prejudice to the generality of the foregoing power". The broad power which thus stands conferred upon the Board is with respect to a proper administration of the Act. 39. However, and as we examine clauses (a), (b) and (c) of Section 119 (2), the following position emerges. Clause (a) enables the Board, for the purposes of proper and efficient management of the work of assessment and collection of revenue, to issue, from time to time, such directions, instructions or guidelines that may be followed by Income Tax authorities in connection with the aforesaid. Of significance is clause (a) which envisages the Board in that context also relaxing the rigor of some of the provisions which are specified therein. Clause (b) proceeds then to enable the Board, in cases of genuine hardship and where it be considered desirable or expedient,....
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....ced in the preceding parts of this decision, neither Section 237 nor Section 239, as they stand today, incorporate a limitation period within which an application for refund may be presented. Of equal import is the deletion of sub-section (2) which existed and formed part of Section 239 and which came to be omitted by virtue of Finance Act (No. 2) of 2019. It was Section 239 (2) which alone had enacted time lines within which claims for refund were liable to be instituted albeit with respect to income assessable. It is in the aforesaid statutory backdrop that we would have to evaluate whether paragraph 9 of Circular 7/2007 would sustain. 44. In fairness, it may only be noted that since the aforenoted circular was issued way back in 2007, the said direction was perhaps influenced by Section 239 (2). However, the question which arises for our consideration is whether the stipulations comprised in paragraph 9 would prevail notwithstanding Section 239 (2) having stopped short of creating a period of limitation governing claims like the present. 45. In aid of our analysis of the impact of prescriptions of limitation in taxing statutes insofar as claims for refund are concerned, this w....
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....respect of the goods, the date on which the return relating to such deemed exports is furnished; [(ba) in case of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit where a refund of tax paid is available in respect of such supplies themselves, or as the case may be, the inputs or input services used in such supplies, the due date for furnishing of return under section 39 in respect of such supplies;] (c) in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of-- (i) receipt of payment in convertible foreign exchange, [or in Indian rupees wherever permitted by the Reserve Bank of India] where the supply of services had been completed prior to the receipt of such payment; or (ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice; (d) in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, th....
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....re reproduced hereinbelow:- "11B. Claim for refund of [duty and interest, if any, paid on such duty].- (a) Any person claiming refund of any [duty of excise and interest, if any, paid on such duty] may make an application for refund of such [duty and interest, if any, paid on such duty] to the [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of [one year] [from the relevant date] [in such form and manner] as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of [duty of excise and interest, if any, paid on such duty] in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such [duty and interest, if any, paid on such duty] had not been passed on by him to any other person: Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the s....
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....this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;] [(ec) in case where the duty becomes refundable as a consequence of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction;] (f) in any other case, the date of payment of duty.]" 50. As is manifest from the above, the aforementioned statutes mandate that refund applications must be made within the timeline so prescribed, failing which such claims would be rendered time barred. This is liable to be viewed and appreciated in juxtaposition with the provisions of the Income Tax Act which does not envisage any limitation period within which such claims may be preferred and leads us to the inevitable conclusion that the Act did not seek to place delineated fetters on the time period within which an assessee may file an application for refund. This, of course, subject to what was postulated by Section 239 (2) as it stood at the relevant time. 51. More significant is the omission of sub-section (2) of Section 239 which sought to invalidate refund claims made beyond the time periods speci....
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....came to be omitted with effect from 01 September 2019. This legislative act is demonstrative of the clear legislative intent to avoid prescribing strict limitation periods within which refund applications may be preferred and may be considered as having been validly instituted. This more so in light of the stand of the CBDT itself which in its numerous circulars spoke of tax erroneously deducted not being liable to be viewed as a legitimate collection of an impost sanctioned by law. 54. On a more fundamental plane, it becomes pertinent to note that the prescription of a period of limitation is essentially legislative in character. The interplay between a prescription of limitation and its impact on rights was lucidly explained by the Supreme Court in M/s Bharat Barrel and Drum MFG. Co. Ltd. And Another v. The Employees State Insurance Corporation [(1971) 2 SCC 360]. That judgment was concerned with a limitation prescription which came to be introduced by the State Government in Rule 17 of the Employees' State Insurance (Central) Rules, 1950 [Employees' Rules]. The question which arose for consideration was whether the same could be recognized as being in valid exercise of the rule....
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....those who are watchful and Rot to those who sleep). Therefore the object of the statutes of limitations is to compel a person to exercise his right of action within a reasonable time as also to discourage and suppress stale, fake or fraudulent claims. While this is so there are two aspects of the statutes of limitation the one concerns the extinguishment of the right if a claim or action is not commenced with a particular time and the other merely bare the claim without affecting the right which tither remains merely as a moral obligation or can be availed of to furnish the consideration for a fresh enforceable obligation. Where a statute prescribing the limitation extinguishes the right, it affects substantive rights while that which purely pertains to the commencement of action without touching the right is said to be procedural. According to Salmond the law of procedure is that branch of the law of actions which governs the process of litigation, both Civil and Criminal. "All 'the residue" he says "is substantive law, and relation not to the process of litigation but to its purposes and subject-matter".............It does not therefore appear that the statement that substantive ....
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....es for a suit to be brought within one year after the delivery of the goods or the date when the goods should have been delivered, only prescribes a rule of limitation or does it also provide for the extinction of the right to compensation after certain period of time. It was observed by Das Gupta, J., at page 836: 13. What we have to consider is, apart from the question that the Government on the terms of Section 96 (1) (b) is not empowered to fix periods of limitation for filing applications under Section 75 (2) to move the Court, whether on an examination of the Scheme of the Act, Rule 17 affects substantive rights by extinguishing the claim of the Corporation to enforce the liability for contributions payable by the appellant." 55. It ultimately came to record the following conclusions:- "14. ........................... It is clear therefore that the right of the Corporation to recover these amounts by coercive process is not restricted by any limitation nor could the Government by recourse to the rule-making power prescribe a period in the teeth of Section 68. What Section 75 (2) is empowering is not necessarily the recovery of the amounts due to the Corporation from the ....
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....ars from the date of the accrual of the cause of action. This amendment also confirms the view taken by this Court that the power under Section 96 (l) (b) does not empower the Government to prescribe by rules a period of limitation for claims under Section 75. In the result this appeal is dismissed with costs." 56. Speaking on the law of limitation as would generally apply, the Supreme Court explained the operation of such a law as pertaining to claims which could not be entertained if not commenced within the time prescribed. It was further pertinently observed that unless the statute itself were to fix a period within which an action may be initiated or instituted, there is no general law which governs the issue of limitation. It proceeded further to observe that a statute of limitation intends to compel a person to exercise a right or institute an action within a reasonable time and thus discourage stale claims. 57. Speaking of the two basic facets of a rule of limitation, the Supreme Court explained that while one is concerned with the extinguishment of a right to institute a claim or commence an action, the other merely bars the remedy without impacting or affecting the righ....
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....ckdrop of that provision as it existed at the relevant time. The outer limit which came to be constructed by CBDT could have at best been shored by Section 119. However and was noticed in the preceding parts of this decision, the same is confined to relaxation, incorporating a power to condone or to relieve a person from the rigours of the statute. That provision surely cannot be construed as contemplating the CBDT extinguishing a claim or a right. 61. We are thus of the firm opinion that given the scope of the power conferred upon the Board, it is evident that a circular made in exercise of powers conferred by Section 119 could have neither curtailed nor erased a right to petition for refund or extinguish a claim for refund of tax erroneously deposited and that too by prescribing periods of limitation when none existed in the statute. 62. Our Court, as far back as 1998 in the decision of Dr. K. Jagadeesan v. Central Board of Direct Taxes and Others 1998 SCC OnLine Del 996, while examining the powers of the Board under Section 119, in the context of Section 279 (2), had categorically observed that the CBDT does not have the power to issue instructions, circulars or orders which c....
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....ect Taxes for issuance of order, instruction or direction so as to compound his prosecution was entirely misconceived. No fault can be found with the Board having turned down the petitioner's such attempt. The petitioner would have been better advised to approach the Chief Commissioner or the Director-General as contemplated by section 279 (2). Any communication between any of them and the Board would have been an internal matter between the two. The petitioner is still at liberty to approach the Chief Commissioner or the Director-General which he does not appear to have done so far. Learned counsel for the petitioner submitted that once the Board has turned down his petition under section 279, howsoever misconceived it might have been, no income-tax authority subordinate to the Board would have power to entertain the petitioner's prayer for compounding in face of the order of the Central Board of Direct Taxes and, therefore, the court may at least quash the order of the Central Board of Direct Taxes as uncalled for. The contention cannot be entertained even for a moment for two reasons. Firstly, the petitioner has to thank himself for having invited the pronouncement of th....
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....r to prescribe a period of limitation for filing an application for compounding. For instance, if there is an application for compounding, in a case which has been pending trial for, let us say 5 years, it will still have to be considered by the authority irrespective of the fact that it may have been filed within ten years after the complaint was first filed. Understandably, there is no limitation period for considering the application for compounding. The grounds on which an application may be considered, should not be confused with the limitation for filing such an application. 9. This has to be also understood in the context of the object of providing for compounding of offences. There is an acknowledgment that the judicial system is not as efficient as it is intended to be. There are trials, even in non-serious offences, that have been pending for decades. It is in the public interest, apart from the interest of the Department itself, that some closure is brought to such cases which may be pending interminably in our court system. It is for this reason that some discretion has been vested in the officers of the Department to compound offences. It provides an opportunity for ....
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....ce, to pay upfront the compounding fee even before the application for compounding can be considered on the merits? It would appear from para 11(v) of the impugned circular dated December 23. 2014 of the Central Board of Direct Taxes that where an applicant seeking compounding of the offences does not pay the compounding fee upfront, his application need not be considered at all. 14. The court finds nothing in section 279 of the Act or the Explanation thereunder to permit the Central Board of Direct Taxes to prescribe such an onerous and irrational procedure which runs contrary to the very object of section 279 of the Act. The Central Board of Direct Taxes cannot arrogate to itself, on the strength of section 279 of the Act or the Explanation thereunder, the power to insist on a "predeposit" of sorts of the compounding fee even without considering the application for compounding. Indeed Mr. Kaushik was unable to deny the possibility, even if theoretical, of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above circular by the Department, then certainly it is undoubtedly ultra ....
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....he heels of the Vikram Singh decision, the Bombay High Court has, in the decision of Sofitel Realty LLP and Others v. Income Tax officer (TDS) and Others 2023 SCC OnLine Bom 1498 following Vikram Singh as well as another decision of the Bombay High Court in Footcandles Film Private Limited and Others v. Income Tax Officer-TDS-1 and Others 2022 SCC OnLine Bom 11768 held that CBDT Circulars cannot curtail the statutory provisions by prescribing limitation periods in the event that none is prescribed in the Act. The observations made in Sofitel Realty are reproduced hereinbelow:- "9. We have to observe, in view of the comment made by the Income-tax Officer in the affidavit-in-reply, that sub-section (2) of section 279 of the Act provides for compounding of any offence by the authorised officer either before or after the institution of the proceedings. There is no limitation provided under sub-section (2) of section 279 of the Act for submission or consideration of the compounding application. What is relied upon by the Income-tax Officer is the Guidelines issued by respondent No. 4, Central Board of Direct Taxes (CBDT). The Central Board of Direct Taxes by the Guidelines cannot prov....
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.... from the second Explanation appended to section 279 of the Act, 1961. It is well settled that the Explanation merely explains the main section and is not meant to carve out a particular exception to the contents of the main section (Sonia Bhatia v. State of U. P. (1981) 2 SCC 585 at page 597). The object of an Explanation to a statutory provision was elaborated by the Supreme Court in S. Sundaram Pillai v. V. R. Pattabiraman (1985) 1 SCC 591, in which it was held as follows : "53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is- "(a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief an....
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....2016 passed by the Chief Commissioner of Income-tax on the ground that there was inordinate delay of nine years in filing of the application for compounding of offences by the assessee. While referring to para 8(vii) of the circular dated December 23, 2014, the court observed that it did not stipulate a limitation period for filing the application for compounding. It gave a discretion to the competent authority to reject an application for compounding on certain grounds. Thus, the court held that resort cannot be had to para 8 of the circular to prescribe a period of limitation for filing an application for compounding. The court accordingly held as follows (page 751 of 394 ITR): "The court finds nothing in section 279 of the Act or the Explanation thereunder to permit the Central Board of Direct Taxes to prescribe such an onerous and irrational procedure which runs contrary to the very object of section 279 of the Act. The Central Board of Direct Taxes cannot arrogate to itself, on the strength of section 279 of the Act or the Explanation thereunder, the power to insist on a "pre-deposit" of sorts of the compounding fee even without considering the application for compounding. I....
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....(Bom) which reads as under (page 415 of 453 ITR) : "Under these circumstances, we are of the view that the findings arrived at by respondent No. 3 in the impugned order dated June 1, 2021, that the application for compounding of offence, under section 279 of the Income-tax Act, was filed beyond twelve months, as prescribed under the Central Board of Direct Taxes Guidelines dated June 14, 2019, are contrary to the provisions of sub-section (2) of section 279. Respondent No. 3 has failed to exercise jurisdiction vested in it while deciding the application on merits and consideration of the grounds set out when the application for compounding of offence was filed before it. On this count, the impugned order dated June 1, 2021 needs to be quashed and set aside. Accordingly, we pass the following order: (i) The impugned order dated June 1, 2021 passed by respondent No. 3-Chief Commissioner of Income-tax (TDS), Mumbai, on the application filed by the petitioners for compounding of an offence, is quashed and set aside. (ii) Consequently, we remand the application, under the provisions of section 279 (2) of the Income-tax Act, of the petitioners back to respondent No. 3 to consider a....
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....be kept in mind specially while exercising jurisdiction, they cannot blind the authority from considering the objective facts before it. In the present case the petitioner's failure to deposit the amount collected was beyond its control and was on account of seizure of books of account and documents, etc. But for such seizure, the petitioner would quite reasonably be expected to deposit the amount within the time prescribed or at least within the reasonable time. Instead of considering these factors on their merits and examining whether indeed they were true or not, the Chief Commissioner felt compelled by the text of para 8(v). That condition, no doubt is important and has to be kept in mind, cannot be only determining. In the present case, the material on record in the form of a letter by the Superintendent of CBI also shows that a closure report was in fact filed before the competent court. Having regard to all these facts, this court is of the opinion that the refusal to consider and accept the petitioner's application under section 279 (2) cannot be sustained. The impugned order is hereby set aside." (emphasis supplied) *** 12. It will also be appropriate to repr....
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....ate to itself, on the strength of section 279 of the Act or the Explanation thereunder, the power to insist on a 'pre-deposit' of sorts of the compounding fee even without considering the application for compounding. Indeed Mr. Kaushik was unable to deny the possibility, even if theoretical, of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above circular by the Department, then certainly it is undoubtedly ultra vires section 279 of the Act. The court, accordingly, clarifies that the Department cannot on the strength of para 11(v) of the circular dated December 23, 2014, of the Central Board of Direct Taxes reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on the merits. The question of payment of the compounding fee, if any, would arise, only if upon considering the application on the merits, the Department is of the view that the prayer should be allowed subject to the terms that a....