TaxTMI 
TaxTMI 
2025 (8) TMI 1838
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....ank (Mauritius) Limited, (HSBC Mauritius), a foreign lender. This pertains to period between 27th April 2018 to 31st March 2019. Petitioner has further prayed for a direction against respondents to refund amount of Rs. 57,71,736/- being the tax amount deposited by petitioner under protest pursuant to impugned determination dated 13th August 2018 along with interest thereon. 2. Brief facts of writ petition are that petitioner, a company incorporated under Companies Act, 2013, is engaged in infrastructure projects and renewable energy facilities. For availing funds for its new long-term project, petitioner entered into an External Commercial Borrowing (for short, 'ECB') agreement dated 20th March 2018 with a non-resident financial institution namely HSBC Mauritius, which is a tax resident of Mauritius. 3. Section 7(3) of ECB deals with taxes and lays down as under:- "7.3: Taxes (a) All payments to be made by the Borrower to the Bank under the Facility Documents shall be made free and clear of all present and future taxes and deductions of whatever nature for or on account of tax unless the Borrower is required to make such a payment subject to the dedu....
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.... Government of the mentioned Contracting State." (emphasis supplied) 6. However, no separate machinery or mechanism has been specified in DTAA for getting approval of transaction/ agreement for purpose of taking benefit of exemption as per sub-clause (4) of Article 11 of DTAA. 7. Petitioner indicated that in similar circumstance, Section 194LC of Act of 1961, introduced by Finance Act, 2012 provides for dealing with income by way of interest from Indian company and lays down that where any income by way of interest is payable to a non-resident, person responsible for making payment shall at time of credit of such income to account of payee deduct income-tax at a lower rate of five percent. It further lays down that where such interest shall be income by way of interest payable by specified company in respect of monies borrowed by it in foreign currency from a source outside India under a loan agreement then such loan agreement should have been approved by Central Government in this behalf. Section 194LC of Act of 1961 reads as under: "194LC. (1) Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or ....
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....f section 194LC in respect of the loan agreements and issue of long-term infrastructure term bond by Indian companies which satisfy the conditions mentioned in paras A, B and C below: A. In respect of agreements for loan a. The borrowing of money should be under a loan agreement. b. The monies borrowed under the loan agreement by the Indian company should comply with clause (d) of sub section (3) of section 6 of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA3/2000-RB viz. Foreign Exchange Management (Borrowing or Lending in Foreign exchange) Regulations 2000, dated May 3, 2000, as amended from time to time, (hereafter referred to as "ECB regulations"), either under the automatic route or under the approval route.......... ................................................." 6. In view of the above, any loan agreement or bond issue, which satisfies the above conditions, would be treated as approved by the Central Government for the purposes of Section 194LC. 9. Further, it has been averred that in compliance with statutory framework and Circular dated 21st September 2012 issued by CBDT, petitioner applied for a....
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....t applicable rates and if payer seeks to deduct tax at a lower or NIL rate, a separate approval of Central Government issued in reference to the terms and conditions of DTAA for determination under Section 195(2) or a certificate under Section 197, is a mandatory precondition. 13. It is the stand of Revenue that approval granted under Section 194LC(2)(ia) of Act of 1961 is limited to concessional tax treatment under domestic law and does not automatically entitle payer to apply DTAA rates without specific permission from tax authority under Section 195. 14. It has also been submitted on behalf of Revenue that taxing statutes must be construed strictly and there should not be any interpretation to frustrate manifest object of statute or to allow taxpayers to circumvent tax liability by resorting to irrational reasons. 15. An objection has also been raised by Revenue that no application whatsoever has been filed by petitioner before competent authority for seeking refund of TDS deposited by it pursuant to certificate dated 13th August 2018 at the rate of 5%, hence, relief of refund, as prayed in writ petition, is totally inconceivable and untenable. 16. Thus, in view of a....
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.... State, which, in this case is India. Admittedly, it has been given approval because in the certificate dated 13th August 2019 issued under Section 197 (1), the Assessing Officer has authorised the assessee-petitioner to pay interest to HSBC Mauritius after deducting income tax @ 5%. The DTAA does not prescribe any separate permission to be obtained. 23. Therefore, we are of the considered view that to demand another certificate or approval of agreement addressing terms and conditions of DTAA in such cases amounts to duplication and a formalistic interpretation of tax law, which cannot be appreciated in light of facts and circumstances of case. Rather requiring multiple clearances for the same transaction not only hampers ease of doing business but also undermines legislative intent behind Sections 194LC and 90 of Act of 1961. 24. As regards objection raised by Revenue that petitioner has not filed any application for refund in instant matter, it would be sufficient to observe that petitioner was not a representative assessee of foreign lender 'HSBC Mauritius', within the meaning of Section 160 of Act of 1961 and, therefore, it could not have filed a refund claim for tax dedu....
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.... Court observed as under: "20. In our view, the consequence of the above provisions is that once the appellant succeeds in the appeal, the Revenue authorities must proceed on the basis that the appellant did not have any obligation to make the payment. Thus the amount wrongly deducted or paid to the Revenue authorities where it was not required to be paid would become refundable to the appellant. Of course, that is subject to the condition that the person receiving the payment has not claimed credit for the same or is not claiming credit for the same. 22. The Department had also issued two Circulars No. 769 dated August 6, 1998 ([1998] 232 ITR (St.) 25 ) and No. 790 dated April 20, 2000 ([2000] 243ITR (St.) 58). Though the petitioner is not claiming any relief under those circulars, these circulars are also pointers to the effect that in appropriate cases Revenue authorities must grant refund and/or return the sums collected without lawful authority, independent of the provisions of the Act. The Central Board of Direct Taxes ("CBDT") issued a Circular No. 7 of 2007 dated October 23, 2007 ([2007] 294 ITR (St.) 32) highlighting further problems regarding pr....
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....cts of each case. 25. In Nirmala L. Mehta v. A. Balasubramanian, CIT [2004] 269 ITR 1 (Bom) the court relying on a Constitution Bench judgment of the Supreme Court in Amalgamated Coalfields Ltd. v. Janapada Sabha, AIR 1961 SC 964 opined that acquiescence to illegal tax for a long time is not a ground for denying the party the relief that he is entitled to. 26. In Balmukund Acharya v. Dy. CIT [2009] 310 ITR 310 (Bom) the court held that the authorities under the Act are under an obligation to act in accordance with the law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Paragraphs 31, 32 and 33 of Balmukund Acharya (supra) read as under (page 318 of 310 ITR) : "Having said so, we must observe that the apex court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconception....