2012 (11) TMI 185 - HC - Income Tax

Refund of TDS u/s 195 - Whether any latter amendment in the instructions issued by the CBDT can be the ground for declining the claim of the assessee - Whereas grounds of the assessee s case duly covered under the circular prior to amendment - Held that - 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. Therefore revenue has erred in applying subsequent circular dated 20.4.2000 on this case. Appeal disposed accordingly in favour of assessee

Summary

Issues Involved:
1. Legitimacy of the petitioner's claim for a refund of excess tax deducted at source (TDS).
2. Applicability of CBDT Circulars regarding the refund of excess TDS.
3. Timeliness and completeness of the petitioner's refund application.
4. The procedural and substantive rights created by the CBDT Circulars.

Detailed Analysis:

1. Legitimacy of the Petitioner's Claim for a Refund of Excess TDS:
The petitioner, a company, entered into a contract with a foreign company for the erection and commissioning of a flanking unit. The petitioner initially deducted tax at source based on an estimated payment, which was later found to be higher than the actual payment made. Consequently, the petitioner sought a refund of the excess TDS amounting to Rs. 3,69,157/-. The petitioner's claim was based on the assertion that the tax deducted was in excess of the tax deductible due to the reduced payment to the foreign company.

2. Applicability of CBDT Circulars Regarding the Refund of Excess TDS:
The petitioner initially relied on CBDT Circular No. 769 dated 6.8.1998, which allowed for a refund of excess TDS under certain conditions, including when the tax deducted was found to be in excess for any reason. However, this circular was superseded by Circular No. 790 dated 20.4.2000, which did not include the provision for a refund in cases where the tax deducted was in excess. The petitioner argued that their application for a refund should be considered under the earlier circular, as it was made before the issuance of the subsequent circular.

3. Timeliness and Completeness of the Petitioner's Refund Application:
The petitioner filed an application for a refund on 28.9.1999, which was not responded to by the respondents for several months. The petitioner sent multiple reminders, and it was only on 7.9.2000 that the petitioner supplied additional documents. The respondents rejected the refund claim on 15.1.2001, citing the provisions of Circular No. 790. The petitioner contended that the delay in processing their application should not penalize them, and their claim should be considered under the circular in effect at the time of their initial application.

4. The Procedural and Substantive Rights Created by the CBDT Circulars:
The court examined whether the subsequent circular could be applied retrospectively. It was determined that the circulars created substantive rights, and the subsequent circular could not retroactively affect applications made under the earlier circular. The court referred to the decision of the Bombay High Court in BASF (India) Ltd. v. W. Hasan, CIT, which held that the subsequent circular could not be given retrospective effect and applications made under the earlier circular must be decided in terms of that circular.

Conclusion:
The court found that the petitioner's application for a refund, made under Circular No. 769, was valid and should be considered under the provisions of that circular. The respondents erred in applying the subsequent circular retroactively. The court quashed the impugned communication dated 15.1.2001 and directed the respondents to consider the refund claim in terms of Circular No. 769 dated 6.8.1998. The court also allowed the department to adjust any refund against the petitioner's existing tax liabilities, if any. The petition was partially allowed, and the respondents were instructed to process the refund claim expeditiously within three months.