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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. Brief facts are as follows:
1.1 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 account as
on 31.3.1998 at the prevailing exchange rate.
1.2 On such provision made, the petitioner deducted tax at source u/s 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.
1.3 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.
1.4 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.
1.5 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.
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.
2.1 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 Tax. 31.
2.2 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.
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.
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.
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 u/s 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:
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 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 (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.
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 judgment 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.
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.
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.
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 u/s 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.
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 996 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.
The petition is disposed of. Rule made absolute to above extent with no order as to costs.