Bombay High Court
Cooperatieve Robobank U A vs Commissioner Of Income Tax Mumbai ... on 26 August, 2021
Bench: S.P. Deshmukh, Abhay Ahuja
1 Judgment-WP 1025-21.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Digitally signed
by NIKITA
ORDINARY ORIGINAL CIVIL JURISDICTION
NIKITA YOGESH
YOGESH GADGIL
Date:
GADGIL
WRIT PETITION NO.1025 OF 2021
2021.08.26
11:09:11 +0530
Cooperative Rabobank U A,
20th Floor, Tower A,
Peninsula Business Park,
Senapati Bapat Marg,
Lower Parel (West),
Mumbai - 400 013. ... Petitioner
Versus
1. Commissioner of Income Tax (IT),
Mumbai-2, having his office at
17th Floor, Air India Building,
Nariman Point, Mumbai - 400 021.
2. Union of India
Through the Secretary,
Department of Finance,
Ministry of Finance,
Government of India,
North Block, New Delhi-110. ... Respondents
-------
Mr. Percy Pardiwala, Senior Counsel a/w Mr. Atul Jasani for
Petitioner.
Mrs.S.V. Bharucha for Respondents.
-------
CORAM : SUNIL P. DESHMUKH AND
ABHAY AHUJA, JJ.
RESERVED ON : 20TH JULY, 2021.
PRONOUNCED ON : 25th AUGUST, 2021.
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JUDGMENT : (PER COURT)
1. By this Petition filed under Article 226 of the
Constitution of India, 1950, Petitioner is challenging the validity of
Form-3, dated 30th January, 2021 and 26th March, 2021 issued
under Section 5 of the Direct Tax Vivad Se Vishwas Act, 2020 (the
"DTVSV Act") by the Designated Authority for Assessment Year
2003-2004.
2. Petitioner is a bank established in The Netherlands and
is part of the Rabobank Group worldwide. It is submitted that
Petitioner is a regular assessee under the Income Tax Act, 1961
(the "IT Act").
3. A return of income dated 28th November, 2003 was filed
declaring Nil income. On 7th March, 2006, an Assessment Order was
passed assessing business profits attributable to permanent
establishment (PE) at Rs.1,50,75,790/-. Aggrieved by the said
order, assessee filed an Appeal on 19th April, 2006 before the
Commissioner of Income Tax (Appeals) ("CIT(A)"). On 31st January,
2007, CIT(A) passed an order holding that Petitioner does not have
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PE in India and deleted the addition made by the Assessing Officer.
The order giving effect to the CIT(A) order was passed on 16 th April,
2007 pursuant to which a sum of Rs.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 8 th
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 29 th August,
2018, in Income Tax Appeal No.1198 of 2015 with Income Tax
Appeal No.260 of 2016 with Income Tax Appeal No.264 of 2016, this
Court set aside the orders dated 1st April, 2015 and 21st August,
2018 passed by the Tribunal and restored the Appeal to the file of
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the Tribunal for a decision afresh on merits. The following
paragraphs of the order of this Court are relevant and are quoted as
under :-
"26 In the backdrop of all this, and further facts
noted, a cryptic order has been passed by the
Tribunal. In fact, in paragraph 5 of the order under
challenge in reference to the Income Tax Appeal No.
4632/MUM/2006 for Assessment Year 2002-2003,
the Tribunal says that the Indian company had made
payment to the Assessee for providing the advisory
services to it and under the Head "Guarantee
Commission" and that the Indian company was
paying the Assesee more than 30% of its income. That
the basic issues are, as to whether the Assesee had
permanent establishment in India or not and as to
whether the services rendered by the Indian
company could be treated as the activities carried out
by the Assessee. Yet, it says that there is nothing on
record to prove that the provisions of Article 5(1) of
the Agreement are applicable. That stipulates that
the permanent establishment for the purpose of
convention meant a fixed business through which the
business of the enterprise was wholly or partly
carried on. The conclusion is that the Assessee was
not having fixed place of business in India. Hence, the
First Appellate Authority rightly held that the
provisions of Article 5 (1) were inapplicable. It is in
these circumstances we are surprised that the
Tribunal still deems it fit and proper to remand the
case. If there was indeed no material on record, then,
the above conclusion was impossible to be reached.
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27 Be that as it may, we do not wish to express
any opinion on the rival contentions for it may
prejudice both sides. In fact, resorting to such
shortcuts, results in wastage of precious judicial time
of the Tribunal as also Higher courts and delaying the
collection and recovery of Revenue, if any. It only
enables the parties to postpone the inevitable. It also
results in uncertainty and chaos. Judicial decisions
have to be consistent and all the more there should be
no confusion. There ought to be some predictability
and when given facts and circumstances give rise to
certain legal principles which parties assert are
applicable, then, as a last fact finding authority, 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.
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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 Appeals in respect of Assessment
Years 2002-03, 2003-04 and 2005-06. This Petition concerns
Assessment Year 2003-04.
5. On 17th March, 2020, the DTVSV Act was enacted,
pursuant to which Petitioner made declaration in Form-1 referring
to Appeal Reference No. ITA/3633/Mum/2007 in respect of
Assessment Year 2003-04 as pending alongwith undertaking in
Form-2 on 29th December, 2020.
6. On 30th January, 2020, Form-3 was issued by
Respondent No.1, wherein the amount payable under the DTVSV
Act was determined at Rs.63,31,832/-, i.e., 100% of the tax arrears.
The said Form-3 refers to the same Appeal Reference No. ITA/3633/
Mum/2007, as was contained in Form-1. Even the corresponding
column pertaining to schedule number referred to the pendency of
Appeal of the Department before the Income Tax Appellate Tribunal
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(the "ITAT") as on 31st January, 2020, viz., the specified date under
the DTVSV Act.
7. It is Petitioner's case that this determination by
Respondent No.1 was against Rs.31,65,916/-, i.e., 50% of the tax
arrears as computed by Petitioner as the said Appeal was stated to
be filed by the Department. Further, interest of Rs.7,75,272/-
granted earlier under Section 244A of the IT Act was sought to be
withdrawn.
8. It is submitted that to resolve this issue, Petitioner had a
discussion with the office of Respondent No.1, however, Petitioner
was informed that it is the Petitioner, and not the Respondent, that
would be treated as the Appellant before the Tribunal and,
therefore, the amount payable was correctly determined at 100% of
the tax arrears.
9. It is further contended that though there is no provision
under the DTVSV Act or the Rules for withdrawal of interest
granted earlier under Section 244A of the DTVSV Act, Respondent
No.1 has in the said Form-3 sought to withdraw the said interest by
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adding the said amount of interest to the amount declared to be paid
by Petitioner. It is submitted that, therefore, the amount payable
under the DTVSV Act was determined as Rs.63,31,832/- being
100% of the tax arrears plus Rs.7,75,272/-, being the interest paid
earlier under Section 244A of the IT Act, now sought to be
withdrawn, totalling to Rs.71,07,104/-.
10. Petitioner filed a submission to this effect vide letter
dated 19th March, 2021 before Respondent No.1 requesting for
rectification of Form-3 in line with the aforesaid discussion.
However, vide revised Form-3 dated 26 th 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 Rs.71,07,104/- as apart from treating the appeal to be an
Assessee Appeal, the interest of Rs.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
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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 pertaining to schedule number referred to pendency of
Appeal of the assessee before the ITAT as on 31st January, 2020.
12. Being aggrieved by the aforesaid action, Petitioner is
before us seeking essentially the following reliefs :-
"a. to issue a Writ of Certiorari or a Writ in the
nature of Certiorari or any other appropriate
Writ, Order or Direction under Article 226 of the
Constitution of India calling for the records of
the Petitioner's case and after examining the
legality and validity thereof, quash and set aside
the Impugned Forms No.3 dated 30th January
2021 (Exhibit "K") and 26th March 2021
(Exhibit "M") issued by Respondent No.1 for the
assessment year 2003-04;
b. to issue a Writ of Mandamus or a Writ in the
nature of Mandamus or any other appropriate
Writ, Order or Direction under Article 226 of the
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Constitution of India, ordering and directing
Respondent No.1 to forthwith withdraw and
cancel the Impugned Forms No.3 dated 30th
January 2021 (Exhibit "K") and 26th March
2021 (Exhibit "M") issued by Respondent No.1
for the assessment year 2003-04 and further
ordering and directing Respondent No.1 to issue
Form No.3 treating the Petitioner as the
Respondent and consequently determining the
amount payable under the VSV Act at 50% of the
tax arrears and further ordering and directing
Respondent No.1 not to withdraw interest
granted under section 244A of the Act;"
13. Respondent-Revenue has filed its affidavit in reply dated
11th June, 2021, additional affidavit in reply dated 3 rd July, 2021 as
well as common supplementary affidavit in reply dated 14 th July,
2021.
14. It is submitted on behalf of the Revenue that the
Revenue has filed an Appeal before the ITAT and the ITAT directed
restoration of the issue back to the Assessing Officer for fresh
adjudication. The Revenue accepted the said decision of the ITAT.
Thereafter, assessee filed an Appeal before this Court against the
order of the ITAT. This Court has restored the matter to the ITAT for
fresh orders, i.e., ITA No.3633/Mum/2007 has been restored, but on
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the assessee's Appeal, therefore, the dispute pending before the
ITAT is the assessee Appeal and not of the Revenue; the Appeal
currently in adjudication being assessee's appeal, levy of 100% tax
as per the DTVSV Act is justified.
15. With respect to the issue regarding withdrawal of
interest paid under Section 244A of the IT 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
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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
as it has got its interest liability waived off and has also got interest
on refund. It is submitted that this is not in the interest of the
Revenue nor was it the intention of the law makers while drafting
the DTVSV Scheme. Therefore, when the Department, on the one
hand, waives off assessee's liabilities, on the other hand, it is
imperative for the Department to take back the interest given to the
assessee. Also, the Department will take back the interest from the
date of issue of refund till the date of issue of Form-3 as this amount
is public money, which cannot be forgone. It is stated that hence the
Department has taken back its interest on refund given earlier to
the assessee. In this view of the matter, it is submitted that the
assessee be directed to pay disputed tax as per Form-3 issued to it.
16. Mr. Pardiwala, Learned Senior Counsel appearing on
behalf of Petitioner submits that as regards the first issue, i.e., as to
whether the Appeal pending before the ITAT is a departmental
Appeal or an assessee Appeal, he submits that the said issue is
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squarely covered by the decision of this Court in Writ Petition
No.1028 of 2021 in the case of Petitioner for the Assessment Year
2002-03. In support of his contention, he draws our attention to the
revised Form-3 issued on 26th March, 2021. He submits that for the
year under consideration, viz., Assessment Year 2003-04, the
schedule of the earlier Form-3 dated 30th January, 2020 clearly
refers to the said ITA No.3633/Mum/2007 as schedule 'A' to be filled
up in case Appeal of Department is pending before the ITAT on 31st
January, 2020, whereas the revised Form-3 refers to the same to be
filled in case Appeal of assessee is pending. He draws our attention
to the oral judgment dated 29 th August, 2018 of this Court, which is
also in respect of Petitioner herein for Annual Year 2003-04
referred to earlier, to submit that there being categorical findings by
this Court as contained in Paragraphs 26 to 30 (reproduced in
Paragraph 4 above) that this Court had restored the Revenue's
Appeal to the file of the Tribunal for a decision afresh on merits and
in accordance with law. He submits that in Writ Petition No.1028 of
2021 this Court has clearly held that having observed that pending
appeal is a Revenue appeal, the first proviso to Section 3 of the
DTVSV Act making 50% of the disputed tax would payable, would be
applicable and submits that in view of the identical facts, similar
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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 Rs.71,07,104/- and not Rs.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 Rs.31,65,916/- as the
pending Appeal is a Revenue Appeal as demonstrated earlier. Mr.
Pardiwala submits that the difference of Rs.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 Rs.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 244A, which is now sought to be recovered by
including the same in the disputed income for which there is no
power under the scheme of the DTVSV Act. Mr. Pardiwala draws our
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attention in this regard to the scheme of the DTVSV Act. He draws
our attention to Section 2(1)(j) which defines disputed tax.
18. He thereafter takes us to Section 3 of the DTVSV Act as
well as Sections 4 and 5 of the said Act. He submits that none of the
sections of the Act permit addition of any amount to the amount of
disputed tax as determined under Section 5 read with Section 3 of
the DTVSV Act. Mr. Pardiwala submits that there is no statutory
mandate for recovery or refund of this amount under the said
Scheme referring to the submissions in Paragraph 2 of additional
affidavit of the Revenue. He submits that without any statutory
mandate to withdraw or recover interest paid, the Department
cannot seek to withdraw/take back the interest given to the
assessee. He submits that the Scheme of the DTVSV Act is to settle
disputed tax and the same cannot be lost sight of. In support of his
contention, he refers to a decision of Gujarat High Court in the case
of Commissioner of Income-Tax Vs. Vishwajit M. Mehta; 254 ITR 66
to submit that without any specific power/provision to withdraw
interest, the said act of Respondents is untenable, there being no
provision in the DTVSV Act permitting them to do so. He therefore
urges this Court to intervene in the matter and direct the
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Respondents to issue revised Form-3 for an amount of
Rs.31,65,916/-.
19. On the other hand, Mrs. Bharucha, Learned Standing
Counsel for the Revenue reiterates the submissions made in the
affidavits. In particular, she refers to Paragraph 2 of the additional
affidavit to submit that on the one hand, the Department is waiving
off the interest liabilities under Sections 234A, 234B, 234C along
with penalties but on the other hand the Department had also paid
interest under Section 244A and Petitioner having received the
amount of interest under Section 244A, the said amount, being
public money, Petitioner cannot retain this additional amount, but
the same ought to be returned by Petitioner.
20. With further reference to the issue relating to interest
under Section 244A of the IT Act, Mrs. Bharucha, Learned Standing
Counsel for the Revenue has filed a common supplementary
affidavit in reply dated 14th July, 2021 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
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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 towards the Department and the
Department is duty bound to recover the same as disputed tax that
was refunded to the assessee alongwith the interest as per the IT
Act. She submits that this is a rightful claim of the Department,
which the Department is duty bound to consider as disputed tax.
She submits that in this case disputed tax is the refund alongwith
interest received by it in respect of the said disputed tax. Further,
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that non-recovery of the same will be entirely contrary to the
DTVSV Scheme and a great loss to the public exchequer and against
the interest of Revenue and a loss to tax payers money/public
money. Mrs. Bharucha relies on the following paragraphs of the
supplementary affidavit, which are set forth as under :-
"5 Our Submission : In this instant case, the amount
payable under VSV Scheme as computed, the
disputed tax includes the refund of tax on
disputed income and also the interest on such
refund received by the assessee. The VSV Act is
quite silent about interest on refund issued to
assessee u/s 244A. The VSV Act neither mentions
treatment of Interest u/s 244A issued to the
assessee nor talks about waiver off interest
received by the assessee on the refund of
disputed tax. It is true that the Scheme provides
waiver of interest chargeable or charged under
section 234A, 234B and 234C of the Act on such
disputed tax. It is also true that the Scheme
provides waiver of penalty chargeable or charged
on such disputed tax and immunity from
prosecution. It is obvious that the Scheme doesn't
offer any right to the competent authority to
waive off interest received by the assessee on
refund on account of 'disputed tax' to him. The
disputed tax is computed as per provisions and
rates prescribed in Income Tax Act, 1961 and
hence the liability under VsV Scheme to be
ascertained on the basis of disputed tax only. It
would be pertinent to mention here that there is
no variance in the amount of disputed tax being
considered for accepting under VSV with respect
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to the disputed tax arising out of Original
Assessment Order against which appeal has been
made by the assessee. Still the quantum of
disputed tax is same which is expressly
mentioned in VSV for determination of
declaration under the scheme. Therefore, the
same amount of disputed tax exists before ITAT
as existing prior to deletion by appellate
authority. The interest issued on refund u/s 244A
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 Rs.1,75,85,971 along
with interest u/s 244A of Rs.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 Act, the refund given to the assessee is not
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absolute but subjected to certain terms and
conditions. The major condition is that the refund
is given subject to decision by superior courts. If
in any subsequent year, the superior court
reverses its decision, then the assessee is duty
bound to return the refund along with the
interest u/s 244A given to the assessee.
9 For better understanding of the issue at hand, it
is submitted that the situation may be considered
alternatively for a while. A situation may kindly
be considered where the assessee would have
contested the disputed tax before the Superior
Appellate Authorities, High Court (if required)
and the Supreme Court (if required). Let us
consider that the Superior Appellate Authorities,
the High Court and the Supreme Court had
decided the matter against the assessee, in that
case the department, in order to give effect to the
Appellate order would have collected the refund
earlier issued to the assessee including the
interest already issued to the assessee u/s 244A
on the said refund. Apart from this, the
department would have charged interest u/s
234A, 234B and 234C of the Act. Further the
department would have levied penalty on the
disputed tax. Now coming back to the assessee
opting for settling the dispute under Vivaad Se
Vishvas Scheme, it is nothing but an implication
that the assessee wants to settle the dispute. The
assessee confirms the disputed tax. In such a
case, the department is duty bound to waive off
interest u/s 234A, 234B and 234C chargeable
under the Act on the said disputed income. The
department is also duty bound to waive off
penalty chargeable or charged on such disputed
income as per VsV. However, the department is
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duty bound to recover the disputed tax that was
refunded to the assessee along with the interest
issued to the assessee on such refund as per IT
Act.
11 It is submitted that in determination of demand
payable under the VSV Scheme, the Department
was duty bound to waive off interest u/s 234A,
234B and 234C of the Act. The Department was
also duty bound to waive off penalty chargeable
on the disputed tax. But the Department was
duty bound to consider the refund and interest on
the said refund issued to the assessee while
determining demand payable under VSV. Non-
recovery of the said refund and interest on the
said refund will be entirely contrary to the VSV
Scheme. 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.
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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 penalty.
22. He also once again refers to the provisions of Section 3 of
the DTVSV Act to submit that the plain language of the said Section
clearly indicates that the reference to the amount payable is in the
context of disputed tax alone and that the non-obstante language
therein conclusively suggests that irrespective of anything
contained in the IT Act or any other law, where a declarant files a
declaration to the Designated Authority in accordance with the
provisions of Section 4 in respect of the tax arrears on or before the
last date, the amount payable under the Act in the case where an
appeal is filed by the Income-tax authority, shall be one half of the
amount of the disputed tax. He also once again draws the attention
of this Court to Form-3 issued by the Designated Authority to
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reiterate that despite the above provisions, the Designated
Authority has increased the amount of disputed tax without any
authority and determined the amount payable as Rs.71,07,104/-
instead of Rs.31,65,916/-.
23. He also draws the attention of this Court to Section 6 of
the DTVSV Act to submit that even under the provisions of the said
Section, the Designated Authority is prohibited from charging any
interest under the IT Act in respect of the tax arrears. In support of
his contention that "tax" does not include interest, Learned Senior
Counsel draws our attention to the decision of the Hon'ble Supreme
Court in the case of Harshad Shantilal Mehta Vs. Custodian; [1998]
99 Taxman 216 (SC) to submit that the definition of tax under
Section 2(43) referred to therein does not include interest. He
refers to Paragraph 33 of the said decision, which is quoted as
under:-
"Question No.5
33. One other connected question remains :
Whether 'taxes' under section 11(2)(a) would
include interest or penalty as well? We are
concerned in the present case with penalty and
interest under the Act. Tax, penalty and interest
are different concepts under the Act. The definition
of 'tax' under section 2(43) does not include
Mugdha 23 of 58
24 Judgment-WP 1025-21.odt
penalty or interest. Similarly, under section 157, it
is provided that when any tax, interest, penalty,
fine or any other sum is payable in consequence of
any order passed under this Act, the Assessing
Officer shall serve upon the assessee a notice of
demand as prescribed. Provisions for imposition of
penalty and interest are distinct from the
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
Mugdha 24 of 58
25 Judgment-WP 1025-21.odt
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 course of its judgment observed that
under the Income-tax Act, 1961 the definition of
tax under section 2(43) does not include penalty
or interest and that the concepts of tax, penalty
and interest are different concepts under the Act.
Justice Sujata Manohar speaking for a Bench of
three Learned Judges of the Supreme Court
observed thus :
"We are concerned in the present case with
penalty and interest under the Income-tax Act.
Tax, penalty and interest are different concepts
under the Income-tax Act. The definition of "tax"
under section 2(43) does not include penalty or
interest. Similarly, under section 156 , it is
provided that when any tax, interest, penalty,
fine or any of other sum is payable in
consequence of any order passed under this Act,
the Assessing Officer shall serve upon the
assessee a notice of demand as prescribed. The
provisions for imposition of penalty and interest
are distinct from the provisions for imposition of
tax."
10. The decision of the Supreme Court was
delivered in an appeal which arose out of the
Special Court (Trial of Offences Relating to
Transaction in Securities) Act, 1992. The
interpretation which has been placed on the
provisions of section 2(43) and the observations
of the Supreme Court noted earlier, however, bind
this Court as regards the ground on which the
reopening of the assessment has been sought in
this case."
Mugdha 25 of 58
26 Judgment-WP 1025-21.odt
25. Mr. Pardiwala also submits that nowhere in the DTVSV
Act there is a specific reference to the waiver of interest only under
Sections 234A, 234B and 234C of the IT Act, though the same is
repeatedly being stated in the affidavits filed on behalf of the
Revenue as the Scheme of the DTVSV Act envisages complete
waiver of interest as can be gathered from the provisions thereof.
26. We have heard Mr. Pardiwala, Learned Senior Counsel,
on behalf of Petitioner and Mrs. Bharucha, Learned Standing
Counsel for Respondents and with their able assistance, we have
perused the papers and proceedings in the matter.
27. This Petition raises two issues for our consideration. The
first is whether the Appeal, that is pending before the ITAT is an
assessee Appeal or a Revenue Appeal. The second issue is whether
an interest of Rs.7,75,272/- granted under Section 244A of the IT
Act to Petitioner earlier can be recovered by the Respondents by
adding the same to the amount of disputed tax otherwise payable by
Petitioner under the DTVSV Act.
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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 remanding the matter
back to Assessing officer for fresh consideration
when the Assessing officer has not discharged the
burden of proving that the Appellant had a PE in
India?"
Mugdha 27 of 58
28 Judgment-WP 1025-21.odt
29. This Court by its order dated 29th August, 2018, in
Income Tax Appeal No.1198 of 2015 with Income Tax Appeal
No.260 of 2016 with Income Tax Appeal No.264 of 2016, answered
the substantial questions of law in favour of the assessee and
against the Revenue and set aside the order of the Tribunal,
restoring the Revenue's Appeal to the file of the Tribunal for a
decision afresh on merits and in accordance with law.
30. The matter is, therefore, pending before the ITAT for
fresh adjudication and this is the dispute, which Petitioner is
desirous of settling under the DTVSV Act. Relevant factual aspects
are not in dispute. Against order of departmental assessing officer,
appeal under Section 246 of the IT Act had been preferred by the
assessee/petitioner to the CIT(A) and the same was decided in its
favour. Aggrieved by the decision of CIT(A), the Revenue-
Respondent preferred an Appeal bearing No. 3633/Mum/2007
before ITAT as provided under Section 253 of the IT Act, which
remanded the matter back to the Assessing Officer. Against order of
remand passed by ITAT, Petitioner preferred appeal before this
Court under Section 260A of the IT Act. The substantial questions of
law in appeal before this Court were tested and the matter resulted
Mugdha 28 of 58
29 Judgment-WP 1025-21.odt
in setting aside order of ITAT, restoring the Appeal No. 3633/Mum/
2007 before ITAT for decision pursuant to aforementioned orders of
this Court. The Appeal before ITAT was not filed by the assessee
against order of CIT(A), but by the Revenue which went to ITAT
against order of CIT(A). This Court had sent back the matter to
ITAT and what was before ITAT is a matter by Revenue. Factually as
well as in law it was Revenue's matter which is revived. It is also not
the Revenue's case that they have not accepted the said decision of
this Court. This Court has in Writ Petition No.1028 of 2021
considered an identical issue with respect to Assessment Year
2002-03 in the case of the same Petitioner and held that the
pending appeal is a Revenue Appeal and the first proviso to Section
3 of the DTVSV Act would be applicable and only 50% of the
disputed tax could be payable. The following paragraphs are relvant
and are quoted as under :-
"10. Plain reading 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
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30 Judgment-WP 1025-21.odt
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 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 remanding the matter
back to Assessing officer for fresh consideration
when the Assessing officer has not discharged the
burden of proving that the Appellant had a PE in
India?"
12. This Court, by its order dated 29th
August, 2018, answered the substantial questions
of law in favour of the assessee and against the
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31 Judgment-WP 1025-21.odt
Revenue and set aside the order of the Tribunal.
This Court restored the Revenue's Appeal to the
file of the Tribunal for a decision afresh on merits
and in accordance with law.
13. The matter is, therefore, pending before
the ITAT for fresh adjudication and this is the
dispute, which Petitioner is desirous of settling
under the DTVSV Act. Relevant factual aspects
are not in dispute. Against order of departmental
assessing officer at first rung, appeal under
Section 246 of the IT Act had been preferred by
the assessee/petitioner to the CIT(A) and the
same was decided in its favour. Aggrieved by the
decision of CIT(A), the Revenue-Respondent
preferred an Appeal bearing No.
4632/MUM/2006 before ITAT as provided under
Section 253 of the IT Act. Against order of
remand passed by ITAT, Petitioner preferred
appeal before this Court under Section 260A of
the IT Act. The substantial questions of law in
appeal before this Court were tested and the
matter resulted in setting aside order of ITAT,
restoring the Appeal No.4632/MUM/2006 before
ITAT for decision pursuant to aforementioned
orders of this Court. What had been revived in
the process, is the matter before ITAT which was
preferred by the Revenue. The Appeal before
ITAT was not filed by the assessee against order
of CIT(A). Here it is the Revenue which went to
ITAT against order of CIT(A). This Court had sent
back the matter to ITAT and what was before
ITAT is a matter by Revenue. Factually as well as
in law it was Revenue's matter which stands
revived. It is also not the Revenue's case that
they have not accepted the said decision of this
Mugdha 31 of 58
32 Judgment-WP 1025-21.odt
Court. Going by the above discussion, 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 the present case becomes
an Appeal by Petitioner, as ITA No.
4632/MUM/2006 has been restored to the ITAT
on the Assessee's Appeal to High Court and not of
the Revenue. Considering that the objective of the
Scheme is to not only benefit the tax payer, but
also the Revenue's collection, we do not wish to
say any further.
Mugdha 32 of 58
33 Judgment-WP 1025-21.odt
14. Having observed that the pending Appeal
No. 4632/MUM/2006 is a Revenue Appeal, the
first proviso of Section 3 of the DTVSV Act would
become applicable and, accordingly, the amount
payable by the Petitioner would be 50% of the
amount, viz., 50% of the disputed tax.
15. Accordingly, we quash and set aside
Form-3 dated 26th March, 2021 issued by
Respondent No.1 for Assessment Year 2002-
2003. We, further direct Respondent No.1 to
issue fresh Form-3 in accordance with our above
discussion within two weeks from the date of
pronouncement of this judgment."
31. In the light of the above discussion and following our
decision in Writ Petition No.1028 of 2021, we have no doubt in
arriving at the conclusion that pending Appeal 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 disputed tax.
32. We now come to the second issue arising in this Petition
as to whether the Designated Authority was competent to withdraw
the interest granted to the assessee under Section 244A of the IT
Act by adding such amount to the amount as disputed tax payable
under Section 3 of the DTVSV Act.
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34 Judgment-WP 1025-21.odt
33. Let us first understand what is Section 244A interest.
For this purpose, it would be useful to quote Section 244A of the IT
Act as under :-
"Interest on refunds.
244A. (1) Where refund of any amount becomes
due to the assessee under this Act, he shall, subject
to the provisions of this section, be entitled to
receive, in addition to the said amount, simple
interest thereon calculated in the following manner,
namely:--
(a) where the refund is out of any tax collected at
source under section 206C or paid by way of
advance tax or treated as paid under section 199,
during the financial year immediately preceding the
assessment year, 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,--
(i) from the 1st day of April of the assessment year
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:
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35 Judgment-WP 1025-21.odt
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 clause, "date
of payment of tax or penalty" means the date on
and from which the amount of tax or penalty
specified in the notice of demand issued under
section 156 is paid in excess of such demand.
(1A) In a case where a refund arises as a result of
giving effect to an order under section 250 or
section 254 or section 260 or section 262 or section
263 or section 264, wholly or partly, otherwise than
by making a fresh assessment or reassessment, the
assessee shall be entitled to receive, in addition to
the interest payable under sub-section (1), an
additional interest on such amount of refund
calculated at the rate of three per cent per annum,
for the period beginning from the date following the
date of expiry of the time allowed under sub-section
(5) of section 153 to the date on which the refund is
granted.
(1B) Where refund of any amount becomes due to
the deductor in respect of any amount paid to the
credit of the Central Government under Chapter
XVII-B, such deductor shall be entitled to receive, in
addition to the said amount, simple interest thereon
Mugdha 35 of 58
36 Judgment-WP 1025-21.odt
calculated at the rate of one-half per cent for every
month or part of a month comprised in the period,
from the date on which--
(a) claim for refund is made in the prescribed form;
or
(b) tax is paid, where refund arises on account of
giving effect to an order under section 250 or
section 254 or section 260 or section 262,
to the date on which the refund is granted.
(2) If the proceedings resulting in the refund are
delayed for reasons attributable to the assessee or
the deductor, as the case may be, whether wholly or
in part, the period of the delay so attributable to
him shall be excluded from the period for which
interest is payable under sub-section (1) or (1A) or
(1B), and where any question arises as to the period
to be excluded, it shall be decided by the Principal
Chief Commissioner or Chief Commissioner or
Principal Commissioner or Commissioner whose
decision thereon shall be final.
(3) Where, as a result of an order under sub-section
(3) of section 115WE or section 115WF or section
115WG or sub-section (3) of section 143 or section
144 or section 147 or section 154 or section 155 or
section 250 or section 254 or section 260 or section
262 or section 263 or section 264 or an order of the
Settlement Commission under sub-section (4) of
section 245D, the amount on which interest 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
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37 Judgment-WP 1025-21.odt
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
assessment order was passed assessing business profits attributable
to PE at Rs.1,50,75,790/-, aggrieved by which, Petitioner had filed
Appeal before CIT(A). The CIT(A) deleted the said addition made by
the Assessing Officer holding that Petitioner does not have PE in
India. The order giving effect to the order of CIT(A) for the
Assessment Year 2003-04 added an amount of Rs.7,75,272/- being
Mugdha 37 of 58
38 Judgment-WP 1025-21.odt
the interest under Section 244A of the IT Act as quoted above on the
refund of Rs.73,83,538/-. Being aggrieved by order of the CIT(A),
the Department had filed an Appeal before the Tribunal, which
Appeal had been restored back to the Assessing Officer by the
Tribunal. Against the order of the Tribunal, Petitioner had filed
Appeal before this Court as well as a miscellaneous application
before the Tribunal, which miscellaneous application came to be
dismissed. Against the same also, Petitioner was before this Court.
By a judgment dated 29th August, 2018, this Court set aside the
orders dated 1st April, 2015 and 21st August, 2018 passed by the
Tribunal and restored the Revenue's Appeal to the file of the
Tribunal for a decision afresh on merits. In the meanwhile, the
DTVSV Act was enacted. Petitioner filed declaration in Form-1 and
an undertaking in Form-2 offering an amount of Rs.31,65,916/-
being 50% of the tax arrears. On 30th January, 2020, Form-3 was
issued by Respondent No.1, where an amount of Rs.63,31,832/-
being 100% of the disputed tax in addition to an amount of
Rs.7,75,272/- was determined as payable. A submission was filed by
Petitioner to issue a revised Form-3 in accordance with Form-1,
where once again an amount of Rs.31,65,916/- being 50% of the tax
arrears less amount of Rs.7,75,272/- was sought to be offered.
Mugdha 38 of 58
39 Judgment-WP 1025-21.odt
Having already held that the Appeal pending before the ITAT is a
Revenue Appeal inviting the first proviso to Section 3 making
Petitioner eligible to pay 50% of the disputed tax, we now have to
consider whether the interest amount of Rs.7,75,272/- under
Section 244A of the IT Act granted earlier to Petitioner can be
recovered by the Revenue by adding the same as disputed tax as
sought to be done under the impugned Form-3.
35. Before we deal with the rival contentions on the issue, it
would appropriate to set forth the following provisions of the
DTVSV Act :-
Section 2(1)(j) reads as follows :-
"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
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40 Judgment-WP 1025-21.odt
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) in a case where objection filed by the
appellant is pending before the Dispute Resolution
Panel under section 144C of the Income-tax Act as
on the specified date, the amount of tax payable by
the appellant if the Dispute Resolution Panel was
to confirm the variation proposed in the draft
order;
(E) in a case where Dispute Resolution Panel
has issued any direction under sub-section (5) of
section 144C of the Income-tax Act and the
Assessing Officer has not passed the order under
sub-section (13) of that section on or before the
specified date, the amount of tax payable by the
appellant as per the assessment order to be passed
by the Assessing Officer under sub-section (13)
thereof;
(F) in a case where an application for revision
under section 264 of the Income-tax Act is pending
as on the specified date, the amount of tax payable
by the appellant if such application for revision
was not to be accepted:
Provided that in a case where Commissioner
(Appeals) has issued notice of enhancement under
section 251 of the Income-tax Act on or before the
specified date, the disputed tax shall be increased
Mugdha 40 of 58
41 Judgment-WP 1025-21.odt
by the amount of tax pertaining to issues for which
notice of enhancement has been issued:
Provided further that in a case where the dispute
in relation to an assessment year relates to
reduction of tax credit under section 115JAA or
section 115D of the Income-tax Act or any loss or
depreciation computed thereunder, the appellant
shall have an option either to include the amount
of tax related to such tax credit or loss or
depreciation in the amount of disputed tax, or to
carry forward the reduced tax credit or loss or
depreciation, in such manner as may be
prescribed."
Section 2(1)(o) of the DTVSV Act is quoted as under :-
(o)" tax arrear" means,--
(i) the aggregate amount of disputed tax, interest
chargeable or charged on such disputed tax, and
penalty leviable or levied on such disputed tax; or
(ii) disputed interest; or
(iii) disputed penalty; or
(iv) disputed fee,
as determined under the provisions of the
Income-tax Act.
Explanation.-For the removal of doubts, it is
hereby clarified that the expression tax arrear
shall not include and shall be deemed never to
have been included any sum payable either by
way of tax, penalty or interest pursuant to an
order passed by the Settlement Commission
under Chapter 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
Mugdha 41 of 58
42 Judgment-WP 1025-21.odt
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. Nature of tax arrear. Amount Amount payable
No. payable under this Act on
under this Act or after the 1st day
on of April, 2020
or before the but on or before
31st day of the last date.
March, 2020.
(a) where the tax arrear amount of the the aggregate of
is the aggregate disputed tax. the amount of
amount of disputed disputed tax and
tax, interest ten per cent. of
chargeable or charged disputed tax:
on such disputed tax
and penalty leviable Provided that
or levied on such where the ten per
disputed tax. cent. of disputed
tax exceeds the
aggregate
amount of
interest
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43 Judgment-WP 1025-21.odt
chargeable or
charged on such
disputed tax and
penalty leviable
or levied on such
disputed tax, the
excess shall be
ignored for the
purpose of
computation of
amount payable
under this Act.
(b) where the tax arrear the aggregate the aggregate of
includes the tax, of the amount the amount of
interest or penalty of disputed disputed tax and
determined in any tax and thirty-five per
assessment on the twenty-five cent. of dispute
basis of search under per cent. of tax:
section 132 or the disputed
section 132A of the tax: provided that
Income-tax Act. provided that where the thirty-
where the five per cent. of
twenty-five dispute tax
per cent. of exceeds the
disputed tax aggregate
exceeds the amount of
aggregate interest
amount of chargeable or
interest charged on such
chargeable or disputed tax and
charged on penalty leviable
such disputed or levied on such
tax and disputed tax, the
penalty excess shall be
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44 Judgment-WP 1025-21.odt
leviable or ignored for the
levied on such purpose of
disputed tax, computation of
the excess amount payable.
shall be
ignored for the
purpose of
computation
of amount
payable under
this Act.
(C) where the tax arrear twenty-five thirty per cent. of
relates to disputed per cent. of disputed
interest or disputed disputed interested or
penalty or disputed interest or disputed penalty
fee. disputed or disputed fee:
penalty or
disputed fee.
Provided that in a case where an appeal or
writ petition or special leave petition is filed by the
income-tax authority on any issue before the
appellate forum, 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 further that in a case where an
appeal is filed before the Commissioner (Appeals) or
objections is filed before the Dispute Resolution
Panel by the appellant on any issue on which he has
already got a decision in his favour from the Income
Tax Appellate Tribunal (where the decision on such
issue is not reversed by the High Court or the
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45 Judgment-WP 1025-21.odt
Supreme Court) 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 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
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46 Judgment-WP 1025-21.odt
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. Sub-clause (A) of Clause (j) of
Section 2(1) of the DTVSV Act refers to that the amount of tax
payable by Petitioner would be the amount, if such Appeal was to be
decided against Petitioner. There is no dispute about the tax that
would be payable but the question is whether any interest can be
included as disputed tax? Learned Senior Counsel for Petitioner has
vehemently argued that there is no provision in the DTVSV Act,
which authorises or empowers the Designated Authority to add any
amount to the disputed amount, whether by way of interest already
received or otherwise and has also referred to various decisions in
support of his contentions.
37. On the other hand, Mrs. Bharucha, Learned Standing
Counsel for the Revenue has sought to argue that the definition of
disputed tax would include the amount of interest under Section
244A or any other such interest already paid to Petitioner since the
refund that had been granted to Petitioner was at the stage of the
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47 Judgment-WP 1025-21.odt
order giving effect to the order of the CIT(A) and that the said
refund alongwith interest was subject to the decision of the superior
courts. Drawing our attention to the language of Section 2(1)(j)(A)
of the IT Act, she sought to submit that if the decision in the Appeal
was to be decided against the eligible appellant, then the interest
that has been paid to Petitioner under Section 244A of the IT Act
would obviously have to be recovered alongwith further interest,
though by virtue of the DTVSV Scheme further interest would be
waived.
38. 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.
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48 Judgment-WP 1025-21.odt
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 refundable on
regular assessment,
the assessee shall be liable to pay simple interest at
the rate of one-half per cent on the whole or the
excess amount so refunded, for every month or
part of a month comprised in the period from the
date of grant of refund to the date of such regular
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49 Judgment-WP 1025-21.odt
assessment.
(2) 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 or an order of the Settlement
Commission under sub-section (4) of section 245D,
the amount of refund granted under sub-section
(1) of section 143 is held to be correctly allowed,
either in whole or in part, as the case may be, then,
the interest chargeable, if any, under sub-section
(1) shall be reduced accordingly.
Explanation 1.--Where, in relation to an
assessment year, an assessment is made for the
first time under section 147 or section 153A, the
assessment so made shall be regarded as a regular
assessment for the purposes of this section.
Explanation 2.--For the removal of doubts, it is
hereby declared that the provisions of this section
shall also apply to an assessment year
commencing before the 1st day of June, 2003 if the
proceedings in respect of such assessment year is
completed after the said date.
40. In response, Mr. Pardiwala, Learned Senior Counsel
referring to sub-section (2) of Section 234D of the IT Act submits
that if as a result of an order under Section 254 of the IT Act (ITAT
order, as in this case), an amount of refund is held to be correctly
allowed, then the interest chargeable under Section 234D(1) is only
to be reduced accordingly. He submits that there is no power to
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50 Judgment-WP 1025-21.odt
enhance the interest, but is only to reduce the interest. Further,
Section 234D(1) only refers to regular assessment, whereas, this is
not a case of regular assessment, but it would be an assessment as a
result of an order under Section 254 of the IT Act. To elucidate his
point, he submits that Section 234B(4) in contradistinction to
Section 234D(2) expressly allows both increase or reduction, as a
result of order under Section 254. For the sake of convenience
Section 234B is extracted as under :-
"Interest for defaults in payment of advance tax.
234B. (1) .....................
(2) ........................
(2A) .....................
(3) where, as a result of an order of reassessment
or recomputation under section 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 recomputation 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 recomputation exceeds the tax on
the total income determined under sub-section (1)
of section 143 or on the basis of the regular
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51 Judgment-WP 1025-21.odt
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 Officer shall serve on the assessee a
notice of demand in the prescribed form specifying
the sum payable and such notice of demand shall be
deemed to be a notice under section 156 and the
provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the
excess interest paid, if any, shall be refunded;
(5) ...................."
He, therefore, submits that when there is no specific
power under Section 234B(2) to increase, but only reduce, then
there can be no question of the Department taking recourse to
Section 234D to recover the interest paid under Section 244A to the
assessee.
41. In response to this rejoinder, Mrs. Bharucha, Learned
Standing Counsel for the Revenue, upon instructions, submits that
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52 Judgment-WP 1025-21.odt
the reference to Section 234D is only being made to explain the
principle for recovery of excess interest though she admits that
there is no power or provision to do so under the DTVSV Act. To
this, Mr. Pardiwala fairly points out that the Department ought to
have taken recourse not to Section 234B, but to the provisions of
Section 244A(3), where he submits there is a power to increase or
reduce interest after giving notice to assessee. He, however, submits
that the Revenue having failed to avail of this provision cannot now
take recourse to the IT Act or the DTVSV Act to include this amount
without any authority or power.
42. We will leave this discussion here for the time being and
will come back to it later as let us continue our discussion on the
powers of the Designated Authority under the DTVSV Act to recover
the interest that has been received by Petitioner under Section
244A of the IT Act in the manner it is sought to be done.
43. In pursuance of the Scheme under the DTVSV Act, a
declaration is filed in respect of the tax arrears (which is defined in
Section 2(1)(o) of the DTVSV Act), but the determination of the
amount payable would be in accordance with Section 3 which refers
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53 Judgment-WP 1025-21.odt
to the amount of the disputed tax. Disputed tax is defined in Section
2(1)(j) of the DTVSV Act. With respect to the case at hand, the
computation would be with reference to Section 2(1)(j)(A) of the
DTVSV Act where disputed tax means the income tax including
surcharge and cess, which is referred to as an amount of tax that
would become payable by Petitioner, if the Appeal is decided against
Petitioner. We are of the view that disputed tax 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
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54 Judgment-WP 1025-21.odt
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 decisions in the case of Harshad Shantilal
Mehta Vs. Custodian (supra) as well as in the case of Arthur
Anderson & Co. Vs. Assistant Commissioner of Income-tax (supra)
relied upon on behalf of Petitioner to submit that the definition of
"tax" under Section 2 (43) does not include interest, having
perused the aforesaid decisions, we find that the said decisions
though rendered in different contexts would lend support to the
view expressed by us that the amount of disputed tax as per the
definition of "disputed tax" would not include interest. Both the
decisions very categorically hold that definition of "tax" under
Section 2(43) of the IT Act does not include penalty or interest.
Since we are concerned with the "disputed tax" under the DTVSV
Act, the definition of the "tax" under Section 2 (43) of the IT Act,
would also be relevant for the purposes of interpretation, as the
word "tax" is not defined in the DTVSV Act, although disputed tax,
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55 Judgment-WP 1025-21.odt
amount of tax, tax arrears have all been defined therein.
46. Mr. Pardiwala, Learned Senior Counsel also referred to
the decision of the Gujarat High Court in the case of Commissioner
of Income-Tax Vs. Vishwajit M. Mehta (supra), to submit that unless
there is a provision to withdraw the interest or power to recover the
interest, the action of the Designated Authority is not justified. It
was a case where the Court was called upon to decide whether for
Assessment Year 1979-1980, the assessee could have been made
liable to pay additional interest under the provisions of Section
215(3), as a result of the order passed under Section 155 read with
Section 154 of the IT Act. The Assessing Officer had passed an order
whereby income of the assessee had been increased and, therefore,
interest under Section 215(3) had been levied. The Commissioner of
Income-Tax Appeal had quashed the order on the ground of
violation of principles of natural justice. Upon an appeal by the
Revenue to the Tribunal, the Tribunal had held that at the relevant
time, Section 215(3) did not permit increase in the interest. While
coming to the conclusion that the Assessing Officer at the relevant
time was not empowered to levy or increase the amount of interest
under Section 215(3) of the IT Act, the Gujarat High Court
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56 Judgment-WP 1025-21.odt
interpreted the provisions of Section 215(3) for the Assessment
Year 1979-1980 to conclude that the Assessing Officer has no power
to levy 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 Rs.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
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57 Judgment-WP 1025-21.odt
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 the IT Act by
adding the same to the amount of disputed tax in
the manner sought to be done, thereby making the
addition of Rs.7,75,272/- to disputed tax in Form-3
bad in law.
49. We, therefore, quash and set aside Form-3 dated 26 th
March, 2021 issued by Respondent No.1 for Assessment Year 2003-
04. We direct Respondent No.1 to issue fresh Form-3 to Petitioner
determining the amount of disputed tax in accordance with our
above discussion within three weeks from the date of
pronouncement of this judgment and thereafter Petitioner to make
payment of the disputed tax so determined within a period of two
weeks of the issuance of revised Form -3.
50. Having observed as above, we now come back to the
discussion on the recovery of the excess interest and the argument
of Mr. Pardiwala that even Section 6 of the DTVSV Act prohibits the
Department from recovering any interest. While we have already
considered that Section 6 of the DTVSV Act does not permit
Designated Authority to charge interest on tax arrear defined under
the DTVSV Act, however to say that there is a complete prohibition
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58 Judgment-WP 1025-21.odt
from recovery, may not be correct as the restraint to institute
proceedings is only in respect of an offence but not for recovery of
interest on refund concerned in the present matter. It is also not
necessary for us to dwell into whether the Revenue can take
recourse to Section 244A(3) of the IT Act as suggested by Learned
Senior Counsel Mr. Pardiwala or take recourse to Section 234D of
the IT Act as suggested on behalf of the Revenue, as it is always
open for the Revenue to take steps as per law.
51. Petition is allowed in the above terms. There shall be no
order as to costs.
(ABHAY AHUJA, J.) (SUNIL P. DESHMUKH, J.)
Mugdha 58 of 58
