Since no provision is made in the Act or the Rules for claiming refund of excess TDS deducted with respect to remittance to the foreign company, CBDT issued its circular No. 769, dated 6-8-1998 and made provision for granting such refund to the Indian assessee deductee under the following circumstances:
(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 person responsible for deducting tax at source;
(c) the tax deducted at source is found to be in excess of tax deductible for any other reason.
Under such circumstances it was provided that in the type of cases referred to above, a refund may
be made independent of the provisions of the Income-tax Act, 1961 to the person responsible for deducting the tax at source from payments to the non-resident, after taking the prior approval of the Chief Commissioner concerned.
It is not in dispute that subsequently in the circular no. 790, dated 20-4-2000 the third category mentioned in clause (i)(c) of paragraph 1 of circular dated 6-8-1998 came to be deleted and only two categories mentioned in clause (i) (a) and (b) were retained. In para (9) of the circular dated 20-4-2000, it was clarified that the refund was not to be issued to the deductor of tax in the cases referred to in clause (i)(c) of paragraph 1 of circular No. 769, dated 6-8-1998. [Para 7]
Clause (i)(c) of paragraph 1 of circular No. 769, dated 6-8-1998 was sufficiently wide and would cover variety of cases of refund of excess tax deducted at source. The assessee deposited the amount of tax twice for the same payment only due to oversight. Such overpayment was required to be refunded. This was the only ground raised in the impugned communication. In the reply filed by the Commissioner, two more grounds are sought to be raised. One that the circular dated 6-8-1998 was superseded by subsequent circular dated 20-4-2000, and two that the foreign company was liable to pay tax; the contract was executed as per the agreement and the assessee was not entitled to any refund. One is not able to accept either of the two objections. The case of the assessee was required to be considered under circular dated 6-8-1998 which was prevailing when the application was filed. Any subsequent change made long thereafter could not be applied in the instant case. The assessee filed its application promptly and shortly after the event of deducting the tax in excess of liability. Such an application which was though filed on 2-11-1998 was not decided for a long period of time despite repeated reminders from the assessee. Nearly one year and six months passed when the Board issued fresh circular dated 20-4-2000. In that view of the matter, subsequent circular could not have been applied. Simply because the contract was completed did not mean that the assessee was liable to deduct tax twice. It was a pure mistake.
The opposition in respect of both the counts, therefore, must fall. Firstly case of the assessee would fall under clause (i)(c) of para (1) of circular no. 769, dated 6-8-1998. Subsequent deletion of such provision by virtue of circular dated 20-4-2000 could not have been applied to the assessee. Quite independent of both the circulars, deduction of tax at source twice and depositing with Government twice was a pure mistake. The revenue cannot retain any amount that the assessee paid under pure mistake particularly, when the refund thereof was claimed shortly after the second payment was made and mistake was detected. Contention of the revenue that deduction at the time of remittance was not a tax and, therefore, not refundable is self contradictory when it also contends that refund of tax is not covered either under circular dated 6-8-1998 or under circular dated 20-4-2000. If the amount deposited with the Government of India was not taxable at all, there was no question of holding on such amount deposited with the Government under mistake. [Para 9]
Under the circumstances, the original sum of Rs. 19.49 lakhs must be refunded to the assessee on the application being made. Such refund should carry reasonable interest at least after reasonable period of the assessee making application for such refund. No doubt, in circular dated 6-8-1998, as also in circular dated 20-4-2000, it is clarified that on such refund no interest under section 244A would be payable since such amount is not a tax. However, such provision cannot be applied in the instant case. Firstly, present is not a case of tax deducted at source which was later on found to be in excess of the assessee’s liability. Present is a case where out of sheer mistake, an amount was deducted twice and also deposited with the Government. As per the revenue, the deduction of Rs. 19.49 lakhs and depositing with the Government at the time of making provision for payment was not a tax at all. If that be the position, such amount which was deposited with the Government under mistaken belief ought to have been refunded, even without reference to any of the circulars. Both the circulars essentially governed the situations where the tax at the time it was deducted at source is rightly deducted and deposited. However, due to subsequent developments such tax deposited with the Government turns out to be in excess of the liability of the deductee. Such deductee would be entitled to refund thereof. But being a foreign company and not regularly assessed to tax in India, may not be interested in pursuing such refund claims. To obviate such hardship, circulars made special provision enabling the assessee to claim refund under certain circumstances. In the instant case, the assessee deposited an amount which was not required to be deposited at all. Such amount was deposited purely on mistake. The revenue could not and should not have tried to capitalize on such a mistake. On the revenue passing the refund claim, within a reasonable period from the assessee making application for such purpose, the interest liability to that extent could have been avoided. However, such application was firstly not decided for a long time and thereafter was wrongly rejected. The revenue must pay reasonable interest. Under the circumstances, the revenue was to be directed to refund to the assessee the sum of Rs. 19.49 lakhs with simple interest for the period after expiry of four months from the date of receipt of the application dated 2-11-1998 till actual payment.
HIGH COURT OF GUJARAT
FAG Bearings India Ltd.
v.
Chief Commissioner of Income-tax
SPECIAL CIVIL APPLICATION NO. 11132 OF 2012
Date of Pronouncement – 23.07.2012
JUDGMENT
Akil Kureshi, J. – The petitioner has prayed for quashing a communication dated 18.4.2001 and consequently prayed for refund of an amount of Rs.19,49,400/with interest from 1.6.1998 till actual payment.
2. Brief facts are as follows :
2.1 The petitioner is a company registered under the Companies Act and is regularly assessed to tax. In the year 1998, the petitioner desired to update its computer system and to replace its existing computer system with a new one. For such purpose, the petitioner took technical assistance of a German company called M/s. IBB Information System (hereinafter referred to as “the foreign company”). Towards such assistance, the petitioner agreed to pay Deutsche Mark 9 lakhs equivalent to Rs.1,94,94,000/. A provision in this respect was made in the books of accounts as on 31.3.1998 at the prevailing exchange rate.
2.2 On such provision made, the petitioner deducted tax at source under section 195 of the Income Tax Act, 1961(“the Act” for short), of a sum of Rs. 19,49,400/. Such amount of Rs. 19,49,400/was also deposited with the Income Tax department by the petitioner on 1.6.1998.
2.3 It appears that due to oversight, when the petitioner made ultimate remittance of the contractual amount to the foreign company, once again a TDS of Rs. 21,82,500/was deducted and deposited with the Government of India on 18.8.1998. It is therefore, the case of the petitioner that the petitioner deducted tax at source twice for the same payment of technical fees to the foreign company. Such tax so deducted at source and also paid to the Government to the excess of the liability of the petitioner should be refunded. When the petitioner realized such a mistake, an application was made to respondent no.1 on 2.11.1998 and claiming refund of excess tax of Rs. 19,49,400/. The petitioner referred to and relied upon a circular of CBDT no.769 dated 6.8.1998 wherein under certain circumstances, according to the petitioner, refund was allowable.
2.4 Since the petitioner did not receive any response from the respondents, it sent a reminder letter dated 23.9.2000. Yet another letter was sent on 19.1.2001 reiterating the request for refund of excess tax.
2.5 The respondents replied under communication dated 12.3.2001 and required the petitioner to file certain factual details with respect to such claim. The petitioner furnished such details under communication dated 13.3.2001. The respondent no.1 however, rejected the petitioner’s application by impugned communication dated 18.4.2001. Hence the petition.
3. Counsel for the petitioner submitted that the respondents committed a grave error in rejecting the request of the petitioner. He pointed out that tax was deducted twice and also deposited with the Government of India. To the extent the same was in excess of the petitioner’s liability, the same must be refunded. He submitted that the respondents cannot retain the amount which was deposited under mistake since such deposit cannot partake the character of tax. Such retention of amount would be without authority of law.
3.1 Counsel submitted that under circular dated 6.8.1998, the authorities had to consider the refund claim of the petitioner. He submitted that any subsequent change in the position by virtue of circular dated 20.4.2000, would not justify rejection of the petitioner’s refund claim.
In this respect counsel relied on decision of the Division Bench of Bombay High Court reported in case of BASF(India) Ltd. v. W. Hasan, CIT [2006] 151 Taxman 31.
3.2 Counsel submitted that the respondents consumed inordinately long time in processing the refund claim of the petitioner. For months together, there was no response from the respondents. Despite reminders, no steps were taken to process the claim. In that view of the matter, even on facts subsequent circular dated 20.4.2000 could not have been applied, since had the respondents decided the refund claim of the petitioner in time, the petitioner would have got the benefit of circular dated 6.8.1998.
4. On the other hand, learned counsel Shri Parikh for the Revenue opposed the petition contending that the liability to pay tax was that of the foreign company. In absence of any specific provision under the Act or the Rules made thereunder, the petitioner cannot claim refund of such an amount. Counsel further submitted that the deduction and deposit of tax at the time of making provision for the ultimate payment to the foreign company was not in the nature of tax at all and therefore, no refund could be claimed. Counsel further submitted that the case of the petitioner was not covered under clause(i)(c) of para.(1) of circular dated 6.8.1998. He submitted that in any case circular was superseded by subsequent circular dated 20.4.2000. He pointed out that in any view of the matter, by virtue of circulars dated 6.8.1998 and 20.4.2000, the petitioner cannot claim any interest on such refund claim.
5. Having thus heard learned advocates for the parties, we find that material facts are not in dispute. The petitioner at the time of making the provision for technical assessment fees, payable to the foreign company deducted an amount of Rs. 19,49,400/as TDS and also deposited such sum with the Government of India on 1.6.1998. When the fees for technical assistance were actually remitted, the petitioner once again deducted a sum of Rs. 21,82,500/- towards tax at source and also deposited the sum with the Government of India on 18.8.1998. When the petitioner realized such a mistake, an application was filed with the respondents on 2.11.1998. Such application was not decided for a long period of time. The petitioner made series of reminders. Ultimately, such application came to be dismissed only on 18.4.2001. In such order, it was conveyed to the petitioner that request cannot be granted in view of clause (i)(c) of para.(1) of circular no. 769 dated 6.8.1998.
6. Before going to the merits of the matter, we may record that since no provision is made in the Act or the Rules for claiming refund of excess TDS deducted, with respect to remittance to the foreign company, CBDT issued its circular no.769 dated 6.8.1998 and made provision for granting such refund to the Indian assessee deductee under the following circumstances :
“(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 person responsible for deducting tax at source;
(c) the tax deducted at source is found to be in excess of tax deductible for any other reason;”
♦ Under such circumstances it was provided that :
“3. The matter has been considered by the Board. It has been decided that in the type of cases referred to above, a refund may be made independent of the provisions of the Income-tax Act, 1961 to the person responsible for deducting the tax at source from payments to the nonresident, after taking the prior approval of the Chief Commissioner concerned.”
7. It is not in dispute that subsequently in the circular no.790 dated 20.4.2000, the third category mentioned in clause(c) of para.(1) of circular dated 6.8.1998 came to be deleted and only two categories mentioned in clause(a) and (b) were retained. In para (9) of the circular dated 20.4.2000, it was clarified that the refund was not to be issued to the deductor of tax in the cases referred to in clause(i)(c) of para.(1) of circular no.769 dated 6.8.1998.
8. In the case on hand, we fail to see how the case of the petitioner was not covered under clause(i)(c) of para.(1) of circular no.769 dated 6.8.1998. Said provision was sufficiently wide and would cover variety of cases of refund of excess tax deducted by source. The petitioner deposited the amount of tax twice for the same payment only due to oversight. Such overpayment was required to be refunded. This was the only ground raised in the impugned communication. In the reply filed by the respondents, two more grounds are sought to be raised. One, that the circular dated 6.8.1998 was superseded by subsequent circular dated 20.4.2000, and two that the foreign company was liable to pay tax; the contract was executed as per the agreement and the petitioner was not entitled to any refund. We are not able to accept either of the two objections. The case of the petitioner was required to be considered under circular dated 6.8.1998 which was prevailing when the application was filed. Any subsequent change made long thereafter, could not be applied in case of the petitioner. We say so because the petitioner filed its application promptly and shortly after the event of deducting the tax in excess of liability. Such an application which was though filed on 2.11.1998, was not decided for a long period of time, despite repeated reminders from the petitioner. Nearly one year and six months passed when the Board issued fresh circular dated 20.4.2000. In that view of the matter, we are clearly of the opinion that subsequent circular could not have been applied. Even without reference to Bombay High Court judgement in case of BASF(India) Ltd.(supra), this ground must be rejected. Simply because the contract was completed did not mean that the petitioner was liable to deduct tax twice. It was a pure mistake.
9. The opposition in respect of both the counts therefore, must fail. Firstly, as already noted, we are unable to see how as contended by the respondents case of the petitioner did not fall under clause(i)(c) of para.(1) of circular no.769 dated 6.8.1998. Subsequent deletion of such provision by virtue of circular dated 20.4.2000 could not have been applied to the petitioner. Quite independent of both the circulars, we are of the opinion that deduction of tax at source and depositing with Government twice was a pure mistake. The respondents cannot retain any amount that the petitioner paid under pure mistake particularly, when the refund thereof was claimed shortly after the second payment was made and mistake was detected. Contention of the counsel for the respondent that deduction at the time of remittance was not a tax and therefore, not refundable is self contradictory when he also contends that refund of tax is not covered either under circular dated 6.8.1998 or under circular dated 20.4.2000. If the amount deposited with the Government of India was not taxable at all, there was no question of holding on such amount deposited with the Government under mistake.
10. The facts are thus more than sufficiently clear. The petitioner though not required to deposit any tax at the time of making mere provision for payment of technical fees to the foreign company, deducted sum of Rs. 19,49,400/and also deposited with the Government. At the time of subsequent remittance, the petitioner deducted yet again a sum of Rs. 21,82,500/and also deposited with the Government. Such deposit of the amount twice was a mere mistake and the respondents ought to have refunded the original sum of Rs. 19,49,400/to the petitioner on the application being made.
11. Under the circumstances, we are of the opinion that such amount must be refunded. We are also of the opinion that such refund should carry reasonable interest atleast after reasonable period of the petitioner making application for such refund. We are conscious that in circular dated 6.8.1998, as also in circular dated 20.4.2000, it is clarified that on such refund, no interest under section 244A of the Act would be payable since such amount is not a tax. However, such provision cannot be applied in the present case. Firstly, we are of the opinion that present is not a case of tax deducted at source which was later on found to be in excess of the petitioner’s liability. Present is a case where out of sheer mistake, an amount was deducted twice and also deposited with the Government. As per the counsel for the Revenue himself, the deduction of Rs. 19,49,400/and depositing with the Government at the time of making provision for payment was not a tax at all. If that be the position, such amount which was deposited with the Government under mistaken belief ought to have been refunded, even without reference to any of the circulars. Both the circulars essentially governed the situations where the tax at the time it was deducted at source is rightly deducted and deposited. However, due to subsequent developments such tax deposited with the Government turns out to be in excess of the liability of the deductee. Such deductee would be entitled to refund thereof. But being a foreign company and not regularly assessed to tax in India, may not be interested in pursuing such refund claims. To obviate such hardship, circulars made special provision enabling the assessee to claim refund under certain circumstances. In the present case the petitioner deposited an amount which was at the outset was not required to be deposited at all. Such amount was deposited purely on mistake. Respondents could not and should not have tried to capitalise on such a mistake. On the respondents passing the refund claim, within a reasonable period from the petitioner making application for such purpose, the interest liability to that extent could have been avoided. However, such application was firstly not decided for a long time and thereafter, was according to us wrongly rejected. The respondents must pay reasonable interest.
12. Under the circumstances, petition is allowed with following directions :
(1) Impugned communication dated 18.4.2001 at Annexure A is quashed and set aside.
(2) The respondents shall refund sum of Rs. 19,49,400/with simple interest at the rate of 9% for the period after expiry of four months from the date of receipt of the application dated 2.11.1998 till actual payment.
(3) Such refund however, would be open to be adjusted against any existing tax liability of the petitioner. After verifying such aspect, actual refund shall be made. Entire exercise shall be completed preferably within four months from the date of receipt of this order.
13. The petition is disposed of. Rule made absolute to above extent with no order as to costs.
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