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TMI Blog2021 (8) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... aration is in accordance with Section 4, then notwithstanding anything contained in the IT Act or any other law, the amount payable shall be as set out in the Table in Section 3. In the case of Petitioner, Section 3(a) read with the first proviso would be applicable which would be 50% of the amount of disputed tax. Disputed tax in accordance with the definition set forth above would mean the income tax including surcharge and cess, referred therein as the amount of tax payable by the Appellant, computed as contained in Clause (A) therein. It is also undisputed fact that interest under Section 244A has been received by Petitioner as that is the amount of interest which was levied on the refund granted to Petitioner, pursuant to order giving effect to the order of CIT(A) pending the proceedings before the ITAT. It is also not in dispute that ordinarily if the Appeal before the ITAT is decided against Petitioner, the said amount already paid to Petitioner, would be recovered in the order giving effect to the order of the ITAT, as interest or as an amount is due from Petitioner to the Department. Upon a query from the Court, as to how the Department would recover the interest pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On 31st January, 2007, CIT(A) passed an order holding that Petitioner does not have PE in India and deleted the addition made by the Assessing Officer. The order giving effect to the CIT(A) order was passed on 16th April, 2007 pursuant to which a sum of ₹ 7,75,272/- was paid by the Revenue to Petitioner as interest under Section 244A of the IT Act on the refund due to the Petitioner. Aggrieved by the order of the CIT(A), the Department filed an Appeal before the Tribunal on 8th May, 2007. On 1st April, 2015, the Tribunal passed an order partly allowing Revenue's Appeal and restoring the issue whether Petitioner has a permanent establishment in India under certain provisions of the India-Netherlands double taxation avoidance agreement to the Assessing Officer. 4. Aggrieved by the order of the Tribunal, Petitioner filed an Appeal before this Court and also a miscellaneous application before the Tribunal. The Tribunal dismissed the miscellaneous application vide its order dated 21st August, 2018 against which also Petitioner was before this Court. By judgment dated 29th August, 2018, in Income Tax Appeal No.1198 of 2015 with Income Tax Appeal No.260 of 2016 with Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity, the Tribunal could have summoned all records and thereafter should have arrived at a categorical conclusion whether the First Appellate Authority was right or the Assessing Officer. This having admittedly not been done, we are of the firm opinion that the Tribunal failed to act as a last fact finding authority. It failed to discharge its duty and function expected of it by the law. We have no hesitation, therefore, in answering question nos.1 and 2 as reproduced above in favour of the Assessee and against the Revenue. 28. Having thus answered these substantial questions of law, we set aside the order of the Tribunal. We cause no prejudice to the parties but balance their rights and equities. We restore the Revenue's Appeal to the file of the Tribunal for a decision afresh on merits and in accordance with law. 29. Needless to clarify therefore, that the initial order dated 1st April, 2015 and the order on the Miscellaneous Applications for rectification are quashed and set aside There shall be no order as to costs. 30. All the three Appeals are disposed of accordingly. It is to be noted that the aforesaid order was with reference to three Income Tax Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussion. However, vide revised Form-3 dated 26th March, 2021, ITA No.3633/Mum/2007, which was in the earlier Form-3 stated to be filed by Revenue, was in the revised Form-3 stated to be filed by Petitioner and the amount payable under the DTVSV Act remained at ₹ 71,07,104/- as apart from treating the appeal to be an Assessee Appeal, the interest of ₹ 7,75,272/- was also not reversed. In the remarks column of the revised Form-3, the following reason was given :- The assessee is requested to pay the amount as per the DTVSV scheme. The revenue filed appeal before ITAT vide appeal no.3633/Mum/2007. The Hon ble ITAT directed to restore back the issue to AO for fresh adjudication. The revenue accepted the decision of the ITAT. The assessee filed appeal before the Hon ble HC Bombay against the said order. The Hon ble court has restored back the matter to ITAT for fresh order. Therefore, the ITA No 3633/Mum/2007 has been restored but on the assessee s appeal therefore the dispute pending before ITAT is assessee s appeal not of the revenue. 11. In addition to the abovesaid remark, which was absent in the earlier Form-3, in the revised Form-3, the corresponding column ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, it is submitted in the additional affidavit that the difference between the disputed tax and the amount payable in Form-3 is interest paid under Section 244A of the IT Act. It is submitted that assessee was already given a refund alongwith interest under Section 244A pursuant to the order giving effect to the order of CIT(A); the money was in possession of the assessee from the date of issue of refund and after assessee filed for the DTVSV, the total payable demand was raised. In this context, it has been stated in the affidavit that on the one hand, the assessee had taken refund from the Department and on the other hand he has also taken interest under Section 244A of the IT Act on the said refund and has been earning interest on interest during this period. It is submitted that the VSV Scheme is a beneficiary scheme by the Department, whereby the Department is waiving off the interest to be charged under Section 234A, 234B and 234C alongwith penalties. Thus, on the one hand, the Department is waiving off interest liabilities and, on the other hand the Department had given interest to Petitioner under Section 244A, which means that assessee has been benefited from both ends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable and submits that in view of the identical facts, similar treatment be given in this matter as well and this Court direct the Respondents to accept 50% of the disputed tax. 17. With respect to the issue relating to withdrawal of interest granted earlier under Section 244A of the IT Act, Mr. Pardiwala submits that in Form-3 no reason has been given and there is no mention as to why the amount payable under the DTVSV Act is ₹ 71,07,104/- and not ₹ 63,31,832/- being the tax arrears determined by the income tax authority, although, the said amount is also erroneous, as the same should be ₹ 31,65,916/- as the pending Appeal is a Revenue Appeal as demonstrated earlier. Mr. Pardiwala submits that the difference of ₹ 7,75,272/- has not been specified and no reason has been furnished in the Form-3 to pay a higher amount. He submits that Exhibit L , to which is annexed the income tax computation form for giving effect to the CIT(A) order, the said amount of ₹ 7,75,272/- is shown as interest payable under Section 244A. He submits that only the additional affidavit on behalf of the Revenue admits this amount as interest paid to Petitioner under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 on behalf of Respondents. She fairly points out the statement therein that the DTVSV Act is silent about the interest on refund issued to assessee under Section 244A of the IT Act. She submits that although the DTVSV Act neither mentions treatment of interest under Section 244A granted to the assessee nor talks about waiver of interest received by the assessee on the refund of disputed tax, all the same, the Scheme does not offer any right to the competent authority to waive off the interest received by the assessee on refund on account of disputed tax to it. She submits that the disputed tax has to be computed as per the provisions and rates prescribed in the IT Act and, hence, liability under the VSV Scheme is to be ascertained on the basis of disputed tax only. She submits that the interest that was issued on the refund to the assessee under Section 244A was for the benefit to the assessee, but subject to the final decision in favour of either of the parties before superior forum. Therefore, the same amount of disputed tax exists prior to deletion by appellate authority. She submits that the interest received by the assessee under Section 244A is a liability of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44A was a benefit to the assessee subject to final decision in favour of either of the parties by Superior Courts. 6. In view of the above, it is amount paid to the assessee over and above refund of tax on disputed income. Once the dispute is adjudicated by superior Court or under any Scheme brought through any legislation (If immunity is not provided under any relevant provisions) on disputed tax, the assessee is bound to return the interest. In this instant case, the assessee has declared the disputed tax under the scheme in its application and hence the tax liability would be determined as per VSV Scheme along with recovery of interest while considering assessee s application under VSV Scheme as these are all public monies. 7. In the instant case, consequent to appellate order of CIT(A), the assessee was issued refund on the entire disputed tax along with interest u/s 244A on refund of such disputed tax. The assessee was already given a refund of ₹ 1,75,85,971 along with interest u/s 244A of ₹ 62,42,923 on 17.3.2016. This money was in possession of the assessee from the date of issue of refund till the date of issue of form 3 under VsV. As per Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Such an action of not recovering of interest received by the assessee on refund as requested by the assessee will be contrary to the VSV Scheme and great loss to the public exchequer and against the interest of revenue and a loss of the taxpayer s money/public money for the unreasonable plea made by the assessee. 12. In view of what is stated above the respondents humbly pray that the assessee may be directed to pay the disputed tax as per form 3 issued by the CIT-IT-2, Mumbai for all the assessment years in dispute which the Petitioner desires to settle through VsV. She submits that therefore the act of the Department is legitimate and Petitioner be directed to pay the amount as per Form-3 issued. 21. In rejoinder, Mr. Pardiwala, Learned Senior Counsel draws the attention of this Court to Paragraphs 5 and 12 of the common supplementary affidavit of the Respondents to reiterate that the DTVSV Scheme envisages payment with respect to the disputed tax alone. He once again takes us through the definition of the disputed tax as contained in Section 2(1)(j) of the DTVSV Act to reiterate that the said definition includes only surcharge and cess, but not interest or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions for imposition of tax. Learned Special Court Judge, after examining various authorities in paragraphs 51 to 70 of his Judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection . 24. Learned Senior Counsel submits that the above finding of the Hon ble Supreme Court has been usefully referred to by this Court in the decision of this Court in the case of Arthur Anderson Co. Vs. Assistant Commissioner of Income-tax [2010] 190 Taxman 279 (Bombay), wherein it was observed that the definition of tax under Section 2(43) of the IT Act does not include penalty or interest and that concepts of tax, penalty and interest are different concepts under the IT Act. Paragraphs 9 and 10 of the said decision are quoted as under :- 9. Apart from the fact that there has been no failure on the part of the assessee to make a full and true disclosure of all material facts, it will be necessary to advert to the decision of the Supreme Court in Harshad Shantilal Mehta v. Custodian [1998] 231 ITR 871. The Supreme Court, in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by Petitioner under the DTVSV Act. 28. Coming to the first issue, we observe that in this case, Assessing Officer had made addition with respect to permanent establishment in the case of Petitioner and consequently denied it benefit of the double taxation avoidance agreement. The entire income was taxed at 40% instead of 10% as declared by Petitioner. Then the matter was appealed to CIT(A). The additions were deleted. Against the said deletions, the Department filed an Appeal before the ITAT being ITA No. 3633/Mum/2007 against the order of CIT(A). The Tribunal restored the matter back to the Assessing Officer for fresh examination. It is stated that the Department had accepted this order of the ITAT. However, Petitioner challenged this order before this Court by way of an Appeal raising the following two questions :- (i): Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in not concluding that the Appellant does not have a Permanent Establishment in India and instead setting aside the order of the CIT (A)? (ii): Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in remandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the table in the above Section of the DTVSV Act suggests that in the case of an eligible Appellant, if it is a non search case, then the amount, that is payable would be 100% of the disputed tax, if it is a search case, then it would be 125% of the disputed tax. However, in a case where the Appeal is filed by the Income Tax authority, the amount payable shall be one-half of the amount calculated. The question is whether Petitioner is eligible for payment of 50% of disputed tax or 100%. 11. In this case, assessing officer had made addition with respect to permanent establishment in the case of Petitioner and consequently denied it benefits of the double taxation avoidance agreement. The entire income was taxed at 40% instead of 10% as declared by Petitioner. Then the matter was appealed to CIT(A). The additions were deleted. Against the said deletions, the Department filed an Appeal before the ITAT being ITA No.4632/ MUM/2006 against the order of CIT(A). The Tribunal restored the matter back to the assessing officer for fresh examination. It is stated that the Department had accepted this order of the ITAT. However, Petitioner challenged this order before this Court by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, to our mind, there is no doubt that Appeal No.4632/MUM/2006, which is pending, is Revenue's Appeal, which has also all along in Form-1 as well as in Form-3 been referred to as an Appeal by the department. Moreover, this fact is also clearly borne out by the oral judgment of this Court dated 29th August, 2018. This would leave nothing more for us to say except that the Revenue has completely misunderstood the facts. In the whole process, what is resurrected under orders of High Court is not the proceeding in ITAT by Petitioner, but of the Revenue preferred under Section 253 of the IT Act bearing No. 4632/MUM/ 2006, where the Revenue is Appellant. May be the Appeal by the Revenue is revived at the instance of Petitioner because of its proceedings in the High Court, but that would by no stretch of imagination make the appeal bearing No. 4632/MUM/2006 before ITAT, an appeal by Petitioner under Section 253 of the IT Act. Setting aside of order of the ITAT in the Appeal by Revenue and remand to ITAT postulates revival of appeal by the Revenue. It would therefore not be correct to say that the matter bearing Appeal No.4632/MUM/2006 under Section 253 of the IT Act before the ITAT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or (ii) from the date of furnishing of return of income to the date on which the refund is granted, in a case not covered under sub-clause (i); (aa) where the refund is out of any tax paid under section 140A, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted: Provided that no interest under clause (a) or clause (aa) shall be payable, if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 143 or on regular assessment; (b) in any other case, such interest shall be calculated at the rate of [one-half per cent] for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. Explanation .-For the purposes of this clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly. (4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years: Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures 1989 , the figures 2006 had been substituted. It is clear from the above provision that Section 244A interest is granted on any refund that may be due to an assessee. 34. It would now be pertinent to appreciate the undisputed facts of this case relevant to the issue at hand. This is a case where pursuant to Nil return of income filed by Petitioner, on scrutiny, an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1)(j) disputed tax , in relation to an assessment year or financial year, as the case may be, means the income-tax, including surcharge and cess (hereafter in this clause referred to as the amount of tax) payable by the appellant under the provisions of the Income-tax Act, 1961, as computed hereunder:- (A) in a case where any appeal, writ petition or special leave petition is pending before the appellate forum as on the specified date, the amount of tax that is payable by the appellant if such appeal or writ petition or special leave petition was to be decided against him; (B) in a case where an order in an appeal or in writ petition has been passed by the appellate forum on or before the specified date, and the time for filing appeal or special leave petition against such order has not expired as on that date, the amount of tax payable by the appellant after giving effect to the order so passed; (C) in a case where the order has been passed by the Assessing Officer on or before the specified date, and the time for filing appeal against such order has not expired as on that date, the amount of tax payable by the appellant in accordance with such order; (D) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XIX-A of the Income-tax Act. (2) The words and expressions used herein and not defined but defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act. Section 3 reads as follows :- 3. Subject to the provisions of this Act, where a declarant files under the provisions of this Act on or before the last date, a declaration to the designated authority in accordance with the provisions of section 4 in respect of tax arrear, then, notwithstanding anything contained in the Income-tax Act or any other law for the time being in force, the amount payable by the declarant under this Act shall be as under, namely:- Sl.No. Nature of tax arrear. Amount payable under this Act on or before the 31st day of March, 2020. Amount payable under this Act on or after the 1st day of April, 2020 but on or before the last date. (a) where the tax arrear is the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax. amount of the disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) or the High Court (where the decision on such issue is not reversed by the Supreme Court), the amount payable shall be one-half of the amount in the Table above calculated on such issue, in such manner as may be prescribed: Provided also that in a case where an appeal is filed by the appellant on any issue before the Income Tax Appellate Tribunal on which he has already got a decision in his favour from the High Court (where the decision on such issue is not reversed by the Supreme Court), the amount payable shall be one-half of the amount in the Table above calculated on such issue, in such manner as may be prescribed. Section 6 reads as follows :- 6. Subject to the provisions of section 5, the designated authority shall not institute any proceeding in respect of an offence; or impose or levy any penalty; or charge any interest under the Income-tax Act in respect of tax arrear. 36. From a bare reading of the aforesaid provisions, it emerges that once a declarant has filed a declaration to the Designated Authority in respect of the tax arrears, which declaration is in accordance with Section 4, then notwithstanding anything contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner, would be recovered in the order giving effect to the order of the ITAT, as interest or as an amount is due from Petitioner to the Department. 39. Upon a query from the Court, as to how the Department would recover the interest paid under Section 244A, in the absence of the DTVSV Act, if the Tribunal order was decided against the assessee, it is being clarified on behalf of Revenue that such interest granted earlier under Section 244A of the IT Act would be recovered from the assessee by charging interest under Section 234D of the IT Act at the rate stated therein on the whole of the excess amount refunded and not separately, as the rate at which Section 234D interest would be levied is higher than the rate which is given to assessee under Section 244A of the IT Act. For the sake of ready reference, Section 234D(1) of the IT Act is reproduced as under :- Interest on excess refund. 234D. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143, and- (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or re-computation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or re-computation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be; (4) where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- (i) in a case where the interest is increased, the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as clearly defined in Section 2(1)(j)(A) of the DTVSV Act only refers to income-tax including surcharge and cess, but not interest or penalty. The eligible assessee who files a declaration of tax arrears (which includes interest and penalty), but the determination by the Designated Authority is of disputed tax (which does not include interest or penalty). Therefore, the amount payable by a declarant would not include interest or penalty in the disputed tax. In fact, Section 6 of the DTVSV Act also does not permit charging of interest in respect of tax arrears. In our view the term in respect of would not only refer to interest contained in the definition of tax arrears, but also to any interest over and above the tax arrears. 44. From a conjoint reading of Section 2(1)(j)(A), Section 2(1)(o)(i), Section 3, Section 5 and Section 6 of the DTVSV Act, it is clear that there is no provision in the DTVSV Act, which authorises recovery of interest paid earlier by the Department under Section 244A as disputed tax, there being no statutory mandate for the Designated Authority to recover interest as disputed tax in the manner sought to be done in this case. 45. Coming to the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further interest under Section 215(3) of the Act. This decision, in our view, supports the case of Petitioner. In the case at hand also, there is neither any provision nor any power under the DTVSV Act, which authorises the Designated Authority to recover interest paid earlier to Petitioner under Section 244A as disputed tax in the manner sought to be done. 47. The above discussion leads to that there is no provision in the DTVSV Act which authorises recovery of interest paid earlier by the Department under Section 244A of the IT Act by adding the same to the amount of disputed tax in the manner sought to be done. In this view of the matter, the addition of ₹ 7,75,272/- to the disputed tax in the impugned Form-3 is bad in law. 48. Before we close, we summarise our conclusions as under :- (i) pending Appeal ITA No.3633/Mum/2007 is a Revenue Appeal and the first proviso to Section 3 of the DTVSV Act would become applicable and, accordingly, the amount payable by Petitioner would be 50% of the amount, viz., 50% of the disputed tax, (ii) there is no provision in the DTVSV Act which authorises recovery of interest paid earlier by the Department under Section 244A of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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