2012 (11) TMI 184 - HC - Income Tax

Denial of Refund of excess tax deducted by source - the same payment of technical fees to the foreign company is made twice - Held that - 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. Failure 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 i.e. the tax deducted at source is found to be in excess of tax deductible for any other reason. 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 and 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 - 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 - in favour of assessee.

Summary

Issues Involved:
1. Refund of excess TDS deducted and deposited with the Government.
2. Applicability of CBDT circulars regarding refund.
3. Entitlement to interest on the refund amount.

Detailed Analysis:

1. Refund of Excess TDS Deducted and Deposited with the Government:
The petitioner, a company registered under the Companies Act, deducted tax at source twice for the same payment of technical fees to a foreign company. Initially, the petitioner deducted Rs. 19,49,400/- as TDS on 1.6.1998 and subsequently deducted Rs. 21,82,500/- on 18.8.1998. Upon realizing the mistake, the petitioner applied for a refund of the excess amount of Rs. 19,49,400/- on 2.11.1998. The respondents, however, rejected the application on 18.4.2001, citing clause (i)(c) of para (1) of CBDT circular no. 769 dated 6.8.1998.

2. Applicability of CBDT Circulars Regarding Refund:
The petitioner argued that the respondents erred in rejecting the refund claim, as the excess tax deducted should be refunded. The petitioner relied on CBDT circular no. 769 dated 6.8.1998, which allowed refunds under certain circumstances, including excess tax deducted. The respondents contended that the circular was superseded by circular no. 790 dated 20.4.2000, which deleted the provision for refund of excess tax deducted. However, the court held that the petitioner's case fell under clause (i)(c) of para (1) of the circular dated 6.8.1998, and the subsequent circular dated 20.4.2000 could not be applied retroactively to the petitioner's application filed on 2.11.1998.

3. Entitlement to Interest on the Refund Amount:
The court found that the petitioner was entitled to a refund of the excess tax deducted. Despite the circulars stating that no interest under section 244A of the Income Tax Act would be payable on such refunds, the court held that the petitioner should receive reasonable interest. The court reasoned that the amount deducted and deposited twice was due to a pure mistake, and the respondents could not retain the amount. The court directed the respondents to refund the amount of Rs. 19,49,400/- with simple interest at the rate of 9% from four months after the application date until the actual payment.

Conclusion:
The court quashed the impugned communication dated 18.4.2001 and directed the respondents to refund the sum of Rs. 19,49,400/- with interest. The refund could be adjusted against any existing tax liability of the petitioner, and the entire process should be completed within four months from the date of receipt of the order. The petition was disposed of with no order as to costs.