(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a communication dated 15.1.2001 and further prayed for a direction for refund of the sum of Rs.3,69,157/- with interest from 1.2.1999 till actual payment.
2. Brief facts are as under.
2.1 The petitioner is a company registered under the Companies Act, 1956. In the year 1998, the petitioner had awarded a contract to a foreign company one M/s Niro Kestner S.A. of France (hereinafter to be referred to as “the foreign company”) for erection and commissioning of flanking unit. For such purpose, the petitioner had opened a Letter of Credit originally for a sum of FRF 5,50,000. The same was, however, subsequently modified to FRF 7,36,000. On such payment being made to a non-resident in terms of section 195 of the Income Tax Act, 1961 (“the Act” for short), the petitioner was required to deduct tax at source. The petitioner after grossing up the said payment of FRF 7,36,000 to the foreign company, calculated the requirement of tax to be deducted at source at FRF 1,84,000 at the rate of 20% on FRF 9,20,000. Accordingly, an amount of Rs.11,69,395 equivalent to FRF 1,84,000 was deposited with the Government of India by way of tax deducted at source.
2.2 Ultimately upon completing the execution of the contract, it was found that considering the quantum of work done by the foreign company, such company was entitled to receive a sum of FRF 6,33,100 only. Accordingly, it was this revised amount of FRF 6,33,100 which was paid to the foreign company by the petitioner. A certificate of tax deducted at source for a sum of Rs.8,00,238/- (FRF 1,26,620) was issued in favour of the said foreign company.
2.3 According to the petitioner, since the petitioner company had deposited a total sum of Rs.11,69,395/- by way of TDS as against the tax which ultimately was found to be deductible of Rs.8,00,238/-, a sum of Rs.3,69,157/- (i.e. Rs.11,69,395 – Rs.8,00,238) was deposited in excess with the Government of India. The petitioner, therefore, filed an application dated 28.9.1999 to the Income Tax Officer (TDS), Ahmedabad and requested that such excess amount of Rs.3,69,157/- be repaid to the petitioner. In the said letter, the petitioner stated as under :
“This is in reference to Form No.27 filed by our company for the A.Y. 1998-99, with TDS-Central, Ahmedabad.
As you are aware that we have deposited excess TDS of Rs.3,69,157/-. We have paid the TDS on the basis of amount of letter of credit opened for Rs.58,46,950/-, whereas the amount of actual services provided by NIRO KESTNER SA, France was only Rs.40,01,192/- and the TDS paid on the balance amount of Rs.18,45,758/- at the rate of 20% i.e. Rs.3,69,157/- has become refundable.
We request you to refund the amount immediately with interest, as our company is passing through the severe liquidity crunch. We would also like to inform you that as on the date we have 'Nil' tax liability and we are assessed with Central Circle – 2(2), Ahmedabad.”
2.4 It is not in dispute that for several months after the petitioner filed such application, there was no response from the respondents. The petitioner, therefore, addressed another letter dated 22.02.2000 and reiterated the request for refund of the excess tax deposited. Copy of this letter was also forwarded to the Joint Commissioner of Income Tax. Yet again, since there was no reply from the respondents, another reminder was sent by the petitioner on 7.9.2000. Yet another communication of the same date 7.9.2000 was sent by the petitioner to the Income Tax Officer (TDS) in which he referred to his earlier letters demanding refund of the excess tax and also referred to some personal hearing which had taken place during the previous week and supplied further documents, including a copy of the contract awarded to the foreign company, a copy of the TDS certificate of Rs.8,00,238/- issued in favour of such foreign company and such other relevant details.
2.6 The application of the petitioner, however, came to be dismissed by the respondent No.2 by impugned order dated 15.1.2001. In such order, it was stated as under :
“2. As directed by CIT-I, Gujarat vide his letter No. HQ- I/PG-200485/2000-01 dtd. 5.1.2001 and the same is intimated to this office vide Addl. CIT's letter No. Addl. CIT/TDS/PG/2000-01 dtd. 10.1.2001 your claim is not entitled for any refund because the contract was not cancelled (para 8 and 9 of Circular No.790). Though excess tax was deducted at source, refund of same is not permissible to the person who is deducting the tax in view of specific prohibition in para-9 of Circular No.790 dtd. 20.4.2000. Therefore, your claim is to be treated as filed.”
3. Facts are more or less not in dispute. The petitioner claims refund of excess tax deducted at source and deposited with the Government of India on the strength of a Circular No.769 dated 6.8.1998 issued by the C.B.D.T. in which one of the categories where such refund could be considered, was that the tax deducted at source is found to be in excess of the tax deductible for any reason.
4. The respondents contend that such circular dated 6.8.1998 was subsequently superseded by a Circular No.790 dated 20.4.2000 in which above noted category was dropped. We shall take note of the provisions made in this circular at a slightly latter stage. However, to complete the recording of successive circulars issued by the C.B.D.T., we may notice that the Circular No.790 dated 20.4.2000 came to be superseded by a fresh Circular No.7/2007 dated 23.10.2007. In such latter circular, several categories were envisaged under which the deductor could claim refund of excess TDS collected and deposited with the Government of India.
5. On the basis of the above documents on record, counsel for the petitioner contended that the respondents gravely erred in rejecting the claim of the petitioner. He submitted that when the petitioner made application for refund, it was the first circular dated 6.8.1998 which held the field. In such circular, the case of the petitioner was covered. Any latter amendment in the instructions issued by the C.B.D.T. cannot be the ground for declining the claim of the petitioner. In other words, the contention of the counsel was that the case of the petitioner should be decided on the basis of the first circular dated 6.8.1998 and not under any subsequent circulars which may have been issued after the petitioner made the application for refund. Counsel further submitted that the respondents did not reply to the petitioner's application for a long time. It was not open for the respondents to sit tight over the petitioner's refund claim and thereafter deny the same on the ground that by virtue of subsequent circular, the petitioner was not entitled to such refund.
5.1 In support of his contention, counsel relied on the decision of the Bombay High Court in case of BASF (India) Ltd. v. W. Hasan, Commissioner of Income-tax, reported in (2006) 151 TAXMAN 31 (BOM), wherein under similar circumstances, referring to the Board's circulars dated 6.8.1998 and 20.4.2000, a Division Bench of Bombay High Court held that the subsequent circular dated 20.4.2000 could not be given retrospective effect and the application made for refund where the circular dated 6.8.1998 was applicable, must be decided in terms of the provisions made in such circular.
5.2 Counsel also relied on an unreported decision of a Division Bench of this Court dated 28.06.2011, wherein it was opined that the Department could not decide the application of the assessee after indefinite period of time and apply the rule position which emerged out of the circulars subsequently issued.
6. On the other hand, learned counsel Shri Varun Patel for the revenue put up a stiff resistance contending that the petitioner's first application dated 28.9.1999 for refund was incomplete. Relevant documents such as contract between the petitioner and the foreign company, undertaking that no refund is claimed by the foreign company and other relevant documents were never supplied to the Department. It was only on 7.9.2000 that the petitioner supplied such documents by which time, the Board's circular dated 20.4.2000 was already issued. The case of the petitioner, therefore, was rightly rejected since the same did not fall in any of the categories specified in the circular dated 20.4.2000.
6.1 Counsel further submitted that the circular dated 20.4.2000 was only clarificatory in nature and that, therefore, must be held to apply to all pending cases. He further submitted that the petitioner's application for refund was never examined on merit. Several considerations including the question whether the foreign company had made a refund claim or not, and whether even if the petitioner was entitled to refund, such refund was to be adjusted towards other tax liability of the petitioner, were the questions not examined by the competent authority.
7. Having thus heard the learned counsel for the parties and having perused the documents on record, what emerges virtually as an undisputed position is that the petitioner deducted a tax of Rs.11,69,395/- pursuant to a contract entered into with the foreign company on the premise that a total payment of FPF 9,20,000 would be made to such foreign collaborator. However, upon execution of the works under the said contract, a total payment that the foreign company was found entitled to, came down to only FPF 6,33,100 in comparison to FPF 7,36,000 originally envisaged. Under the circumstances, the liability to deduct the tax at source was reduced to Rs.8,00,238/-.
8. The petitioner's application dated 28.9.1999 for refund of such excess tax received no response from the respondents for a considerable period of time. On 22.2.2000, the petitioner, therefore, sent a reminder and followed up with another reminder dated 7.9.2000.
9. When the petitioner made his first application in September, 1999, the situation was governed by the circular of the C.B.D.T. dated 6.8.1998. In such circular, it was considered that there are instances where the tax on foreign remittance are deducted at source and deposited with the Government of India, but subsequently it is found that no such tax or part of it was payable. The circular envisaged three instances where such a situation may arise. Such instances were as under :-
“[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;”
10. Recognizing that there is no statutory provision empowering the Assessing Officer to refund tax deducted at source to the deductee and in certain situations, the foreign company would not be interested in filing refund claims which would lead to a hardship, the circular 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.”. Such circular, of course, provided for certain procedural safeguards to ensure that there are no instances of claims of double refund by the deductor as well as the foreign company. The circular also provided that such refund could be adjusted against the existing tax liability of the assessee. It is not in dispute that the case of the petitioner would fall under clause (i)(c) of the circular dated 6.8.1998; of course subject to other procedural safeguards provided in the circular.
11. Such circular dated 6.8.1999 came to be superseded by the circular dated 20.4.2000. In such subsequent circular, instances for refund of tax deducted in excess of the ultimate liability, were confined to only first two categories which found place in the previous circular dated 6.8.1998. In para 9 of the said circular dated 28.4.2000, it was clarified that the refund shall not be issued to the deductor of tax in cases referred to in clause (i) (c) of para 1 of the Circular No.769 dated 6.8.1998.
12. Thus, it emerges that the subsequent circular dated 20.4.2000 did not cover the case of the petitioner. As noted, it is equally undisputed that in the original circular dated 6.8.1999, the case of the petitioner was covered.
13. The Bombay High Court in case of BASF (India) Ltd. v.
W. Hasan, Commissioner of Income-tax (supra) considered a very similar situation and held that the circular dated 20.4.2000 was not merely a procedural circular and both the circulars dated 6.8.1998 and 20.4.2000 give rise to substantive rights. The circular dated 20.4.2000, therefore, could not be applied retrospectively so as to cover those cases where the applications were already made prior to issuance of the circular when the earlier circular dated 6.8.1998 held the field. The Court held as under :
“31. Having said so, we need to consider one more contention raised by the revenue that Circular No.790, dated 20.4.2000 being procedural one has a retrospective operation; as such said circular will be applicable to the refund application moved by the petitioners. This argument need not detain us. At the first flush, both circulars give an impression that they are procedural but on deeper scrutiny we find that they are not. There is no provision under the Act permitting the deductor to claim refund of the amount of Tax Deducted at Source (TDS) and subsequently, it was recognized by Circular No.790 issued by the C.B.D.T. Thus, the said circulars created a vested right in favour of the deductor to claim refund of TDS. Therefore, the said circulars cannot be said to be the circulars merely providing for procedure for refund of TDS. In that view of the matter, applying the very same test, the subsequent circular in question, i.e., Circular No.790, dated 20.4.2000 cannot be said to be merely a procedural one so as to give it retrospective effect. Since the petitioners have been non-suited only on the ground of applicability of the second circular, the said view is, no longer sustainable for the reasons recorded hereinabove. In our considered view, this petition is liable to be allowed on this count alone. Refund to the petitioners is liable to be granted applying the first circular. So far as other contentions are concerned, they need no consideration for the view taken by us.”
14. We need not go to the extent of laying down such a proposition of absolute nature. Without even going to such an extent, in the facts of the present case, we are of the opinion that the respondents erred in applying subsequent circular dated 20.4.2000. The petitioner had already made an application on 20.9.1999 giving details of the refund claim.
The respondents did not respond to such an application for a considerable period of time despite reminders from the petitioner. More than six months passed before the application of the petitioner was even attended to. If later on the rule position changed by virtue of the subsequent circular issued by the Board, the petitioner can hardly be penalized by withholding the refund claim which was covered under the earlier circular dated 6.8.1998. A Division Bench of this Court, in an order dated 28.6.2011, of course, in different factual background, held that the Department could not process the application of the assessee after an indefinite period of time and apply rule position that may have changed in the meantime by virtue of change in circular. It was observed as under :
“Question, however, is somewhat different. The Question is whether the respondents can collect higher charges as per the revised guidelines having not responded to the petitioner's request for nearly two years. Facts are undisputed. As already noted, on 20th June 2006, the petitioner wrote to the Department requesting for compounding of the offences and showing its willingness to pay compounding charges. First response to such request was made by the Department only on 20th March 2008 and thereafter on 8th August 2008. The Department thus took nearly 20 months to respond to the petitioner's request for compounding the offences. It is, of course, true that compounding of offence is not a matter of right and must depend on the facts and circumstances of the case and in particular must meet with the requirements of the guidelines issued by the CBDT from time to time. This, however, is not the same thing as suggesting that the assessee's request for compounding can either be turned down without any valid reasons or that the same may be attended to after indefinite period of time. An assessee by virtue of equality clause enshrined under Article 14 of the Constitution of India, would have a right to be treated equally like all others and would have a right to insist that his application for compounding of offences be considered in terms of guidelines issued by the CBDT prevailing at the relevant time. Had the Department attended to the petitioner's request for compounding the offences within reasonable period, the piquant situation arising in the present case would not have occasioned. On 20th June 2006, the petitioner in clear terms indicated his desire to compound the offences and pay necessary compounding fees for the same. Such a request was at least required to be considered in light of the CBDT guidelines vide its circular dated 30th September 1994 as amended by circular dated 29th July 2003. This was not done for a long period of time. No explanation comes forward on the record why such application remained unattended or dormant for nearly 20 months. It is not the case of the respondents that the petitioner was called upon to furnish certain details which it did not do. No other or further reasons are stated by the Department why the application received no response for an inordinate long time.
Counsel for the Revenue pointed out that in the guidelines of 2008, there is provision that an application be considered preferably within six months. No corresponding provision was made in the previous guidelines and no time limit, therefore, was prescribed. We are of the opinion that merely because in the previous guidelines no such time limit was prescribed does not mean that the application of the assessee can be attended to after indefinite period of time. The respondents were required to process the application of the petitioner within a reasonable time. What could be stated to be reasonable period of time is always a question of fact to be considered in the facts and circumstances of a given case. In the present case, we find that for nearly 20 months, the petitioner's application did not receive any response and further that there is no explanation for such delay coming forth from the respondents, the period consumed cannot be stated to be reasonable.
Counsel for the Revenue also submitted that the prosecution was lodged way back in the year 1995 and the petitioner itself applied for compounding of offences in the year 2006. We do not find that this could be a ground on which the application could have been turned down. Guidelines nowhere prescribe a period within which after initiation of prosecution compounding can be requested.
The inescapable conclusion, therefore, we arrive at is that the Department did not process the request of the petitioner for a long period of time without any explanation whatsoever. In the meantime, if the guidelines were amended, we are of the opinion that revised guidelines could not have been applied to the petitioner for levying compounding charges to process the request of the petitioner. This is not to suggest that other requirements for compounding the offences are not to be examined. This is only to hold that the respondents cannot collect compounding charges as per the revised guidelines in the facts of the present case.”
15. We may also briefly record that by subsequent circular dated 23.10.2007, the C.B.D.T. yet again enlarged the instances where such refund of tax deductible at source could be granted.
16. The contention of the counsel for the respondents that the first application of the petitioner dated 20.9.1999 was invalid since it did not give material particulars, cannot be accepted. In the circular dated 6.8.1998, there was neither any prescribed format in which such application should be made, nor specific details were insisted upon. Of course, to process any such application, the Department would require material particulars. It was always, therefore, open to the Department to call for such details if the petitioner had not supplied with the application itself. However, in absence of any such prescription in the circular giving rise to such refund claim, it would not be possible to treat the application of refund as invalid.
17. The contention of the counsel for the respondents, however, that other aspects of the refund claim must be permitted to be examined by the respondents, is required to be accepted. Such examination, however we clarify, must be in terms of circular dated 6.8.1998.
18. In the result, by partially allowing the petition, we quash the impugned communication dated 15.1.2001 and direct the respondents and more particularly the respondent No.2, to consider the refund claim of the petitioner in terms of circular dated 6.8.1998. Since considerable time has passed, the same shall be done expeditiously and preferably within three months from the date of receipt of the copy of this judgement. We also clarify that even if the petitioner is held entitled to the refund, it would be open to the Department to adjust the same against the existing tax liability of the petitioner, if any.
19. The petition is disposed of accordingly. There shall be no order as to costs.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] parmar*