2018 (10) TMI 809 - HC - Income Tax

Refund claim - deduction of tax known as security transaction tax by BSE - ED directed the BSE to annul the trade in the shares of KRBL Limited and refund the money back to the petitioners - Held that - The refund was made of the amount and forwarded for trading in the shares by the petitioners, by the BSE. It is the BSE, who, according to the petitioners, deducted the tax known as security transaction tax and refunded the balance amount to the petitioners. The amount of the security transaction tax deducted by the BSE has been remitted to the Income Tax Department by the BSE. Therefore, the stand of the Income Tax Department and from the pleadings in the writ petition itself is that it is the BSE who will have to seek refund and the petitioners cannot seek refund from the Income Tax Department and by impleading the BSE as party respondent. This stand taken by the Income Tax Department appears to be correct. Nothing more is required other than the pleadings in the writ petition to come to a conclusion that it is respondent no. 3 who will have to seek the refund, if at all it is of the view that the security transaction tax collected and remitted ought to be refunded. Presently, the stand of the Income Tax Department, based on the pleadings in the writ petition that it is not their obligation to refund any tax amount to the petitioners, as no tax is collected by the Department from the petitioners, is accurate. That justifies the disposal of the writ petition by holding that the petitioners have alternate efficacious remedies so as to recover the sum allegedly erroneously retained by the BSE. None prevents the BSE to adopt appropriate proceedings, including moving the Income Tax Department with the claim of refund.

Summary

Issues:
Recovery of shortfall amount from the Department of Income Tax due to security transaction tax deducted by the Bombay Stock Exchange (BSE).

Analysis:
The petitioners, through their Fund Manager, instructed the Broker to buy shares on the platform of BSE. The Enforcement Directorate (ED) intervened, directing BSE to annul the trade in shares of a company called KRBL Limited and refund the money back to the petitioners due to certain issues. The petitioners received the refund from BSE but noted a shortfall of approximately ?38 lakhs, considered to be the security transaction tax collected and transferred to the Income Tax Department.

The petition was filed to seek recovery of the shortfall amount from the Income Tax Department as a claim of refund. However, it was revealed that the BSE deducted the security transaction tax and refunded the balance amount to the petitioners. The tax amount deducted by BSE was remitted to the Income Tax Department by BSE. The Income Tax Department contended that it is the BSE's responsibility to seek a refund, not the petitioners. The court agreed with this stance, stating that the petitioners have alternative remedies to recover the sum retained by BSE, such as taking legal action against BSE in a civil court. The court held that the dispute, being factual, cannot be resolved in writ jurisdiction, and the Income Tax Department is not obligated to refund any tax amount to the petitioners as they did not collect any tax from them.

Therefore, the writ petition was disposed of with the clarification that the petitioners have other avenues to recover the amount from BSE, and the BSE can approach the Income Tax Department for a refund if deemed necessary.