Recently, the Bombay High Court quashed the rejection of an excess Dividend Distribution Tax (DDT) refund claimed under Article 10(2) of the India-Mauritius Tax Treaty, holding that the communication from tax authorities lacked a conclusive statutory order and violated the principles of natural justice. It directed the authorities to take a final decision within eight weeks, noting that the communication did not constitute a final “order” under Section 237 of the Income Tax Act admitting entitlement to the refund.
Brief facts:
The dispute arose when the Petitioner, a wholly owned subsidiary of Advertisement and Communication Services (Mauritius) Limited, which is engaged in advertising and marketing communications in India, had declared a dividend of Rs. 205,17,52,200/- to its shareholder ACSL Mauritius, and had paid DDT of Rs. 27,47,97,292/- under Section 115-O of the IT Act at an effective rate of 20.358%. Subsequently, upon realising that it had paid DDT at the wrong rate as per the Indo Mauritius DTAA, the Petitioner sought for refund of the excess DDT. However, said request was rejected on the ground that the refund request was not based on a statutory order, and the petitioner was advised to file a rectification application under Section 154 specifying the order which is to be rectified for arriving at the refund under Section 237 along with the supporting documents. This led to the initiation of the present petition seeking a direction to the respondents to grant a refund along with interest.
Contentions of the Petitioner:
The counsel appearing for the petitioner submitted that the communication dated 29 November 2018 constitutes satisfaction of the Respondent authority in terms of Section 237 of the IT Act, in which the refund of Rs. 20,73,06,062/- was determined. He submitted that the said communication still holds the field since it is neither withdrawn nor revised by any authority. He therefore challenged the communication dated 16 June 2022 on the ground that no statutory orders are required for determining a refund under Section 237 of the IT Act. He further submitted that the petitioner is entitled to the refund since, under the Treaty between India and Mauritius, the petitioner was required to pay DDT @ 5% only and not @ 20.358%, which it had erroneously paid.
Contentions of the Respondent:
The counsel for the respondent opposed and argued that the sine qua non for claiming a refund is that the assessee should file its return and make a claim in the said returns, and since the petitioner neither made any claim for the refund of the DDT nor protested the intimation under Section 143(1) and assessment order under Section 143(3) by raising a plea that the respondents have not granted the refund of DDT based on the communication dated 29 November 2018, the petitioner is not entitled for any refund.
Observations of the Court:
While explaining when a refund becomes ‘conclusively due’, the Bench of Justice M.S. Sonak and Justice Jitendra Jain rejected the petitioner’s hair-splitting of preliminary communication, and observed that the petitioner was not allowed to address the tentative grounds or reasons for which the refund was rejected.
Since the impugned communication does not examine the petitioner’s claim for a refund of the excess DDT paid on the merits, the Bench observed that the petitioner’s refund claim cannot be said to have been finally rejected. At the same time, the Court explained that the tentative reasons as to why the respondents believed that no refund was due to the petitioner were neither disclosed, nor was the petitioner given an effective opportunity to address the tentative grounds or reasons.
Since there was no examination of the refund claim on merits by adverting to the transaction and the corresponding provisions of the treaty by which they were governed, the Court refrained from delving deeply into contentious issues affecting the merits or demerits of the refund claim. Moving further, the Court emphasized that “merely because there is no reference to the Section under which the said communication was issued cannot be reason enough to conclude that it is not a statutory order. The reference to a section or provision is also inconclusive on such an issue. Neither did the Petitioner quote any specific section, article, or legal provision when applying for a refund, nor does the communication dated 29 November 2018, quote any in response”.
Referring to Section 237 of the IT Act, the Court noted that in case a person “satisfies” the AO that the amount of tax paid by him exceeds the amount with which he is properly chargeable, then he shall be entitled to a refund of the excess sum.
Although the respondents have neither disputed the non-provision in the ITR form to claim a refund of DDT till the filing of the reply to this petition, and no tax shall be levied or collected except by authority of law as per Article 265 of the Constitution, the Court clarified that “the communication dated 29 November 2018 is an order, it being like a preliminary, prima facie, or interlocutory order and not a final order, the Petitioner cannot base their claim on this communication to allege breach of Article 265 of the Constitution”.
Further, the Court emphasized that an “order” to be treated as such must decide matters affecting the valuable rights of a taxpayer and should satisfy the requirement of finality, which is absent in the communication floated by the AO while rejecting the refund claim.
The decision of the Court:
Since there is no final determination that the refund was indeed due and payable to the petitioner, the Court refused to issue mandamus to the respondents for the refund of the excess DDT paid by the petitioner based solely on the communication dated 29 November 2018. However, the Court quashed the said communication and directed the AO to pass a fresh final order.
Case Title: Fcbulka Advertising Pvt Ltd vs Assistant CIT and Ors.
Case Number: Writ Petition No. 3442 of 2022
Coram: Hon’ble Justice Jitendra Jain and Hon’ble Justice M.S. Sonak
Counsel for Petitioner: Senior Advocate J.D. Mistri and Advocates Gautam Thakkar & Sameer Dalal
Counsel for Respondent: Advocates Tejinder Singh and Suresh Kumar
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