Since no provision is made in the Act or the Rules for claiming refund of excess TDS deducted with respect to remittance to the foreign company, CBDT issued its circular No. 769, dated 6-8-1998 and made provision for granting such refund to the Indian assessee deductee under the following circumstances:
(i) after the deposit of tax deducted at source under section 195,
(a) the contract is cancelled and no remittance is required to be made to the foreign collaborator;
(b) the remittance is duly made to the foreign collaborator, but the contract is cancelled and the foreign collaborator returns the remitted amount to the person responsible for deducting tax at source;
(c) the tax deducted at source is found to be in excess of tax deductible for any other reason.
Under such circumstances it was provided that in the type of cases referred to above, a refund may be made independent of the provisions of the Income-tax Act, 1961 to the person responsible for deducting the tax at source from payments to the non-resident, after taking the prior approval of the Chief Commissioner concerned.
It is not in dispute that subsequently in the circular no. 790, dated 20-4-2000 the third category mentioned in clause (i)(c) of paragraph 1 of circular dated 6-8-1998 came to be deleted and only two categories mentioned in clause (i) (a>) and (b) were retained. In para (9) of the circular dated 20-4-2000, it was clarified that the refund was not to be issued to the deductor of tax in the cases referred to in clause (i)(c) of paragraph 1 of circular No. 769, dated 6-8-1998. [Para 7]
Clause (i)(c) of paragraph 1 of circular No. 769, dated 6-8-1998 was sufficiently wide and would cover variety of cases of refund of excess tax deducted at source. The assessee deposited the amount of tax twice for the same payment only due to oversight. Such overpayment was required to be refunded. This was the only ground raised in the impugned communication. In the reply filed by the Commissioner, two more grounds are sought to be raised. One that the circular dated 6-8-1998 was superseded by subsequent circular dated 20-4-2000, and two that the foreign company was liable to pay tax; the contract was executed as per the agreement and the assessee was not entitled to any refund. One is not able to accept either of the two objections. The case of the assessee was required to be considered under circular dated 6-8-1998 which was prevailing when the application was filed. Any subsequent change made long thereafter could not be applied in the instant case. The assessee filed its application promptly and shortly after the event of deducting the tax in excess of liability. Such an application which was though filed on 2-11-1998 was not decided for a long period of time despite repeated reminders from the assessee. Nearly one year and six months passed when the Board issued fresh circular dated 20-4-2000. In that view of the matter, subsequent circular could not have been applied. Simply because the contract was completed did not mean that the assessee was liable to deduct tax twice. It was a pure mistake.
The opposition in respect of both the counts, therefore, must fall. Firstly case of the assessee would fall under clause (i)(c) of para (1) of circular no. 769, dated 6-8-1998. Subsequent deletion of such provision by virtue of circular dated 20-4-2000 could not have been applied to the assessee. Quite independent of both the circulars, deduction of tax at source twice and depositing with Government twice was a pure mistake. The revenue cannot retain any amount that the assessee paid under pure mistake particularly, when the refund thereof was claimed shortly after the second payment was made and mistake was detected. Contention of the revenue that deduction at the time of remittance was not a tax and, therefore, not refundable is self contradictory when it also contends that refund of tax is not covered either under circular dated 6-8-1998 or under circular dated 20-4-2000. If the amount deposited with the Government of India was not taxable at all, there was no question of holding on such amount deposited with the Government under mistake. [Para 9]
Under the circumstances, the original sum of Rs. 19.49 lakhs must be refunded to the assessee on the application being made. Such refund should carry reasonable interest at least after reasonable period of the assessee making application for such refund. No doubt, in circular dated 6-8-1998, as also in circular dated 20-4-2000, it is clarified that on such refund no interest under section 244A would be payable since such amount is not a tax. However, such provision cannot be applied in the instant case. Firstly, present is not a case of tax deducted at source which was later on found to be in excess of the assessee liability. Present is a case where out of sheer mistake, an amount was deducted twice and also deposited with the Government. As per the revenue, the deduction of Rs. 19.49 lakhs and depositing with the Government at the time of making provision for payment was not a tax at all. If that be the position, such amount which was deposited with the Government under mistaken belief ought to have been refunded, even without reference to any of the circulars. Both the circulars essentially governed the situations where the tax at the time it was deducted at source is rightly deducted and deposited. However, due to subsequent developments such tax deposited with the Government turns out to be in excess of the liability of the deductee. Such deductee would be entitled to refund thereof. But being a foreign company and not regularly assessed to tax in India, may not be interested in pursuing such refund claims. To obviate such hardship, circulars made special provision enabling the assessee to claim refund under certain circumstances. In the instant case, the assessee deposited an amount which was not required to be deposited at all. Such amount was deposited purely on mistake. The revenue could not and should not have tried to capitalize on such a mistake. On the revenue passing the refund claim, within a reasonable period from the assessee making application for such purpose, the interest liability to that extent could have been avoided. However, such application was firstly not decided for a long time and thereafter was wrongly rejected. The revenue must pay reasonable interest. Under the circumstances, the revenue was to be directed to refund to the assessee the sum of Rs. 19.49 lakhs with simple interest for the period after expiry of four months from the date of receipt of the application dated 2-11-1998 till actual payment.