Sun Pharmaceutical Industries Ltd v. Income Tax Officer & Anr

* IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on: 21 October 2024 Judgment pronounced on 31 January 2025 + W.P.(C) 8444/2018 SUN PHARMACEUTICAL INDUSTRIES LTD. .....Petitioner Through: Mr. Ajay Vohra, Sr. Adv. with Mr. Rohit Jain, Mr. Aniket D. Agrawal and Mr. Abhishek Singhvi, Advs. versus INCOME TAX OFFICER & ANR. .....Respondent Through: Mr. Vipul Agrawal and Mr. Sanjay Kumar, SSC with Mr. Gibran Naushad and Ms. Sakshi Sherwal, Advs. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE RAVINDER DUDEJA J U D G M E N T YASHWANT VARMA, J. 1.The writ petitioner impugns the order dated 27 March 2018 in terms of which the respondent has come to reject applications filed by it seeking refund of excess tax wrongly deducted and deposited under Section 195 of the Income Tax Act, 1961[1]. The applications themselves pertained to Financial Years[2] 2010-11 to 2012-13. Since the respondent has also held against the petitioner for a perceived delay in the filing of those applications, the petitioners also mount a challenge to Circular No. 07/2007 dated 23 October 2007 issued by the Central 1 Act 2 FY Signature Not Verified Board of Direct Taxes[3]and which had introduced a prescription of limitation for the institution of such refund applications. The respondent has held against the writ petitioner not only on the ground that the applications were barred by time but also on the basis of those applications not being liable to be granted on merits. In consequence to the challenge as raised, the petitioners also seek an appropriate direction for refund of the excess tax that had come to be deposited. 2.The respondent, while dealing with those applications has firstly alluded to Circular No. 07/2007, and which according to it, had constructed a period of limitation of two years within which an application for excess tax deposited could have been preferred. It has thus held that the applications would be barred by paragraph 9 of the aforesaid circular. It has also questioned the assertion of the tax having been deducted in excess on the ground that the remittance made would not fall within the ambit of the exception which is carved out by clause (b) ofSection 9(1)(v) of the Act holding that the same would not fall within the scope of interest paid on monies borrowed and used for the purposes of a business carried on outside India nor fall under the expression ―for the purposes of making of earning any income from any ‖source outside India. 3.In order to appreciate the challenge which stands raised, we deem it apposite to take note of the following essential facts. 4.Ranbaxy Laboratories[4]was a company which was incorporated under the Companies Act, 1956 and was engaged in the business of research, manufacture and trading of drugs and pharmaceuticals. RLL issued an Offering Circular on 13 March 2006, inviting investment in 3 CBDT 4 RLL Signature Not Verified Foreign Currency Convertible Bonds[5]to the tune of USD 440 Million. The bonds were stated to be convertible at any time on or after 27 April 2006 and the conversion itself envisaged to result in the holders acquiring fully paid-up equity shares at a par value of INR 5/- each in RLL. As per the stipulations contained in the Offering Document, the shares were to be represented by Global Depository Shares[6] representing one share at a conversion price of INR 716.32/- per share at a fixed rate of exchange rate of INR 44.15/- per USD. The aforenoted zero coupon FCCBs‘ were floated by RLL for the purposes of equity infusion in its wholly owned subsidiary, Ranbaxy Netherlands BV[7] and for expansion of its global business operations. 3 CBDT 4 RLL Signature Not Verified Foreign Currency Convertible Bonds[5]to the tune of USD 440 Million. The bonds were stated to be convertible at any time on or after 27 April 2006 and the conversion itself envisaged to result in the holders acquiring fully paid-up equity shares at a par value of INR 5/- each in RLL. As per the stipulations contained in the Offering Document, the shares were to be represented by Global Depository Shares[6] representing one share at a conversion price of INR 716.32/- per share at a fixed rate of exchange rate of INR 44.15/- per USD. The aforenoted zero coupon FCCBs‘ were floated by RLL for the purposes of equity infusion in its wholly owned subsidiary, Ranbaxy Netherlands BV[7] and for expansion of its global business operations. 5.It becomes pertinent to note that RNBV acted as the holding company of Terapia, SA, a company based in Romania and whose equity share capital was majorly held by RNBV. For the purposes of funding its global business aspirations, it is also stated to have availed of loan facilities extended to it by DBS Bank Limited in 2007 as well as a further facility from the Mizuho Corporate Bank Ltd. It is also stated to have availed of a further loan facility agreement with the Bank of Tokyo-Mitsubishi UFJ Ltd. taken in 2010 in furtherance of the aforesaid objectives as well as an additional loan from the Australia and New Zealand Banking Group Limited. 6.According to RLL, acting in terms of the Offering Document as well as the stipulations contained in the various loan facility agreements, it had paid premium/ interest to various bond holders and banks during FY 2010-11 to 2012-13 without making any deductions 5FCCBs‘ 6 GDS 7 RNBV Signature Not Verified towards tax. It also claims to have deposited the entire premium and interest after grossing up under Section 195 and to have thus borne the burden of taxes withheld. From the disclosures which are made in this respect in paragraph 10 of the impugned order, it would appear that although the remittances to bond holders and banks were not subjected to any deduction at source, RLL, out of abundant caution, deposited the TDS on the entire premium and interest paid in purported discharge of its perceived obligations under Section 195 of the Act. 7. In the revised TDS returns that RLL came to file for FY‘s 2010-11 to 2012-13 on 29 March 2014, it claimed a refund of tax deposited on the aforenoted payments of premium and interest on the bonds as well as the External Commercial Borrowings[8] that it had obtained. This was followed by the filing of a formal application on 31 March 2014 with the Assessing Officer[9] seeking refund of the excess tax so deposited. 8.On 24 March 2015, RLL merged with the petitioner in terms of a Scheme of Arrangement with an effective date of 01 April 2014. The petitioner before us, acting as the successor-in-interest of RLL, is thereafter stated to have addressed various reminders in respect of the applications for refund which were pending. Those refund applications have ultimately come to be rejected in terms of the order dated 27 March 2018 which is impugned before us. 9.Mr. Vohra, learned senior counsel appearing for the writ petitioner, firstly assailed the findings rendered by the respondent of the applications for refund being barred by limitation and submitted that the Act itself stipulates no period or terminal point within which a 8 ECB 9 AO Signature Not Verified claim for refund of excess TDS may be instituted. In view of the aforesaid, it was his contention that Circular No. 07/2007is clearly ultra vires and creates a condition absent any statutory backing. According to Mr. Vohra, the CBDT could not have, by way of an administrative circular, created or introduced a condition of ineligibility insofar as a claim for refund of excess TDS was concerned. 9.Mr. Vohra, learned senior counsel appearing for the writ petitioner, firstly assailed the findings rendered by the respondent of the applications for refund being barred by limitation and submitted that the Act itself stipulates no period or terminal point within which a 8 ECB 9 AO Signature Not Verified claim for refund of excess TDS may be instituted. In view of the aforesaid, it was his contention that Circular No. 07/2007is clearly ultra vires and creates a condition absent any statutory backing. According to Mr. Vohra, the CBDT could not have, by way of an administrative circular, created or introduced a condition of ineligibility insofar as a claim for refund of excess TDS was concerned. 10.Mr. Vohra also took us through the various circulars which had come to be issued by the CBDT from time to time and which had preceded the issuance of Circular No. 07/2007. According to Mr. Vohra, even if one were to go by the spirit and intent of Circular No. 07/2007, it would become apparent that the respondent has manifestly erred in rejecting the applications for refund. According to learned senior counsel, as is manifest from a reading of paragraph 4 ofCircular No. 07/2007, the same was occasioned by the various representations which had been received by the Government and pertained to claims for refund of excess tax that may have been deducted and deposited. Mr. Vohra submitted that the CBDT, being cognizant of the genuine hardship that was faced by such deductors, formulated a procedure for the refund of taxes which had been wrongly or incorrectly deducted. It is these facts, which, according to learned senior counsel, informed the principled stand taken by the CBDT itself that tax which may have come to be deposited in respect of income which had neither accrued or on which no tax was payable or even where tax was due at a lesser rate, those excess payments were not liable to be construed as ―tax‖ at all. 11.Our attention was also drawn to the various other clauses of Circular No. 07/2007, which according to Mr. Vohra, embody the basic intent of the Board being to facilitate the refund of all amounts which did not represent tax. Since the submissions proceeded principally on the various provisions comprised in the aforenoted circular, the same is extracted in its entirety hereinbelow: - ―CIRCULAR NO.7/2007 DATED 23-10-2007 Procedure for refund of tax deducted at source under section 195 to the person deducting the tax- section 239 of the Income Tax 1961- Refunds The Board had issued Circular No. 790 dated 20th April, 2000, laying down the procedure for refund of tax deducted under section 195, in certain situations to the person deducting the tax at source from the payment to the non-resident. Representations have been received in the Board from taxpayers requesting that the said Circular may be amended to take into account situations where genuine claim for refund arises to the person deducting the tax at source from payment to the non-resident and it does not fall in the purview of the said Circular. 2.The cases which are being referred to the Board mainly relate to circumstances where, after the deposit into Government account of the tax deducted at source under section 195, a)the contract is cancelled and no remittance is made to the non-resident; resident; b)the remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source; is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source; c)the contract is cancelled after partial execution and no remittance is made to the non-resident for the non-executed part; remittance is made to the non-resident for the non-executed part; 2.The cases which are being referred to the Board mainly relate to circumstances where, after the deposit into Government account of the tax deducted at source under section 195, a)the contract is cancelled and no remittance is made to the non-resident; resident; b)the remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source; is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source; c)the contract is cancelled after partial execution and no remittance is made to the non-resident for the non-executed part; remittance is made to the non-resident for the non-executed part; d)the contract is cancelled after partial execution and remittance related to non-executed part is made to the non-resident. In such cases, the remitted amount has been returned to the person responsible for deducting the tax at source or no remittance is made but tax was deducted and deposited when the amount was credited to the account of the non-resident; related to non-executed part is made to the non-resident. In such cases, the remitted amount has been returned to the person responsible for deducting the tax at source or no remittance is made but tax was deducted and deposited when the amount was credited to the account of the non-resident; e)there occurs exemption of the remitted amount from tax either by amendment in law or by notification under the provisions of Income-tax Act, 1961; by amendment in law or by notification under the provisions of Income-tax Act, 1961; f)an order is passed under section 154 or 248 or 264 of the Income-tax Act, 1961 reducing the tax deduction liability of a deductor under section 195; Income-tax Act, 1961 reducing the tax deduction liability of a deductor under section 195; g)there occurs deduction of tax twice from the same income by mistake; mistake; h)there occurs payment of tax on account of grossing up which Signature Not Verified was not required under the provisions of the Income-tax Act, 1961; i)there occurs payment of tax at a higher rate under the domestic law while a lower rate is prescribed in there levant double taxation avoidance treaty entered into by India. law while a lower rate is prescribed in there levant double taxation avoidance treaty entered into by India. 2.1 In the cases mentioned above, income does not either accrue to the non-resident or it accrues but the excess amount in respect of which refund is claimed, is borne by the deductor. The amount deducted as tax under section.195 and paid to the credit of the Government therefore belongs to the deductor. At present, a refund is given only on a claim being made by the non-resident with whom the transaction was intended or in terms of Circular No. 790 dated 20th April, 2000. 3. In the type of cases referred to in sub-paragraph (a) of paragraph 2 the non-resident not having received any payment would not apply for a refund. For cases covered by sub-paragraph (b)to (i) of paragraph 2, no claim may be made by the non-resident where he has no further dealings with the resident deductor of tax or the tax is to be borne by the resident deductor. This resident deductor is therefore put to genuine hardship as he would not be able to recover the amount deducted and deposited as tax. 4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract or where income has accrued but no tax is due on that income or tax is due at a lesser rate, the amount deposited to the credit of Government to that 6 extent under section 195, cannot be said to be ―tax‖. 4.1 It has been decided that, this amount can be refunded, with prior approval of the Chief Commissioner of Income-tax or the Director General of Income-tax concerned, to the person who deducted it from the payment to the non-resident, under section 195. 4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract or where income has accrued but no tax is due on that income or tax is due at a lesser rate, the amount deposited to the credit of Government to that 6 extent under section 195, cannot be said to be ―tax‖. 4.1 It has been decided that, this amount can be refunded, with prior approval of the Chief Commissioner of Income-tax or the Director General of Income-tax concerned, to the person who deducted it from the payment to the non-resident, under section 195. 5. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident or if the income is accruing no tax is due or tax is due at a lesser rate. The amount paid into the Government account in such cases to that extent, is no longer "tax". In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this circular or on the refunds already granted in accordance with Circular No. 769 or Circular No. 790. 6. In case of refund being made to the person who made the payment under section 195, the Assessing Officer may, after giving intimation to the deductor, adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law. The balance amount, if any, should be refunded to the person who made such payment under section 195. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer or the Assessing Officer in favour of the "Income-tax Department" and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the major head "020-Corporation Tax" or the major head "021-Taxes on incomes other than Corporation tax" depending upon whether the payment was originally credited to the major head "020-Corporation tax" or to the major head "021-Taxes on Income other than Corporation tax". 7. A refund in terms of this circular should be granted only after obtaining an undertaking that no certificate under section 203 of the Income-tax Act has been issued to the non-resident. In cases where such a certificate has been issued, the person making the refund claim under this circular should either obtain it or should indemnify the Income-tax Department from any possible loss on account of any separate claim of refund for the same amount by the non-resident. A refund in terms of this circular should be granted only if the deductee has not filed return of income and the time for filing of return of income has expired. 8. The refund as per this circular is, inter alia, permitted in respect of transactions with non-residents, which have either not materialized or have been cancelled subsequently. It, therefore, needs to be ensured by the Assessing Officer that they disallow corresponding transaction amount, if claimed, as an expense in the case of the person, being the deductor making refund claim. Besides, in all cases, the Assessing Officer should also ensure that in the case of a deductor making the claim of refund, the corresponding disallowance of expense amount representing TDS refunded is made. 9. The limitation for making a claim of refund under this circular shall be two years from the end of the financial year in which tax is deducted at source. However, ail cases for claim of refund under items (c) to (i) of paragraph 2 which were pending before the issue of this circular and where the claim for refund was made after the issuance of Circular No. 790 may also be considered. 9. The limitation for making a claim of refund under this circular shall be two years from the end of the financial year in which tax is deducted at source. However, ail cases for claim of refund under items (c) to (i) of paragraph 2 which were pending before the issue of this circular and where the claim for refund was made after the issuance of Circular No. 790 may also be considered. 10.It has been represented to the CBDT that in CircularNo.769 dated 6th August,1998, there was no time limit for making a claim for refund. A time limit of two years, for making a refund claim, was stipulated vide Circular No. 790 dated 20th April, 2000.Some cases covered by Circular No. 769, which were also covered by Circular No. 790, now listed in item (a) and (b) of paragraph 2 of this Circular, and filed before the issue of Circular No. 790, became time-barred because of the specification of time limit in Circular No. 790. It is hereby clarified that such cases may also be considered for refund. 11. This Circular is issued in supersession of the Circular No.790/2000 dated 20th April, 2000. 12. The contents of this Circular may be brought to the notice of all officers in your region.‖ 12.Mr. Vohra further submitted that although the Board chose to create a time frame of two years, and which was described to be a period of limitation, the same clearly would not sustain absent any prescription of limitation or outer time limit having been statutorily engrafted in the Act. It was in the aforesaid light that learned senior counsel submitted that paragraph 9 of the aforenoted Circular is clearly ultra vires the Act itself. 13.While addressing submissions along those lines, Mr. Vohra also took us through Sections 200, 237 as also Section 239 of the Act to buttress his contention that the statute itself never contemplated a period of limitation within which an application for refund of TDS was liable to be submitted. 14.Section 200 as it exists in the statute book today is reproduced hereinbelow: - ―Duty of person deducting tax:- 200. [(1)] Any person deducting any sum in accordance with [the foregoing provisions of this Chapter] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. [(2) Any person being an employer, referred to in sub-section (1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.] [(2A) In case of an office of the Government, where the sum deducted in accordance with the foregoing provisions of this Chapter or tax referred to in sub-section (1A) of section 192 has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, by whatever name called, who is responsible for crediting such sum or tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed income-tax authority, or to the person authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed.] [(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed:] authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed.] [(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed:] [Provided that the person may also deliver to the prescribed authority a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under this sub-section in such form and verified in such manner as may be specified by the authority.] [Following second proviso shall be inserted after the existing proviso to sub-section (3) of section 200 by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025: Provided furtherthat no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the statement referred to in sub-section (3) is required to be delivered]‖ 15.It becomes pertinent to note that the First Proviso to Section 200 enables a person to deliver to the prescribed authority the correction statement for purposes of rectification of any mistake or even to add, delete or update information that may be contained in a statement submitted by a deductor. Of equal significance is the Second Proviso which came to be inserted in Section 200(3) by Finance (No.2) Act of 2024, with effect from 01 April 2025, and which now stipulates that no correction statement would be entertained if tendered after the expiry of six years from the end of the FY in which the principal statement may have been delivered. This we do note since in the facts of the present case, the correction statement was filed with due promptitude on 29 March 2014. Signature Not Verified 16.Section 237, which deals with the subject of refunds, reads thus:- ―Refunds. 237. If any person satisfies the [Assessing] Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess.‖ As is evident from a perusal of that provision, any person who asserts that the amount of tax paid exceeds the liability which could have been validly foisted upon it under the Act, could petitionfor refund and claim the return of monies deposited in excess subject to it satisfying the AO of its claim. 17.Section 239 then provides for the manner in which a claim for refund may be lodged and stipulates that the same would have to be in accordance with the provisions contained in Section 139 with the latter regulating the procedure for submission of returns generally. Section 239 reads as follows: - ―Form of claim for refund and limitation. 239. (1) Every claim for refund under this Chapter shall be made [by furnishing return in accordance with the provisions of section 139] (2) [***]‖ 18.Of equal significance is sub-section (2) as it existed in Section 239 and which came to be omitted by Finance (No. 2) Act, 2019 with effect from 01 September 2019. Sub-section (2) prior thereto had incorporated the following provisions: - ―(2) No such claim shall be allowed, unless it is made within the —period specified hereunder, namely: ―Form of claim for refund and limitation. 239. (1) Every claim for refund under this Chapter shall be made [by furnishing return in accordance with the provisions of section 139] (2) [***]‖ 18.Of equal significance is sub-section (2) as it existed in Section 239 and which came to be omitted by Finance (No. 2) Act, 2019 with effect from 01 September 2019. Sub-section (2) prior thereto had incorporated the following provisions: - ―(2) No such claim shall be allowed, unless it is made within the —period specified hereunder, namely: (a)where the claim is in respect of income which is assessable for any assessment year commencing on or before the 1st day of April, 1967, four years from the last day of such assessment year; for any assessment year commencing on or before the 1st day of April, 1967, four years from the last day of such assessment year; (b)where the claim is in respect of income which is assessable for the assessment year commencing on the first day of April, 1968, three years from the last day of the assessment year; for the assessment year commencing on the first day of April, 1968, three years from the last day of the assessment year; (c)where the claim is in respect of income which is assessable for any other assessment year, [one year] from the last day of such assessment year;] for any other assessment year, [one year] from the last day of such assessment year;] (d)where the claim is in respect of fringe benefits which are assessable for any assessment year commencing on or after the first day of April, 2006, one year from the last day of such assessment year.‖assessable for any assessment year commencing on or after the first day of April, 2006, one year from the last day of such assessment year.‖ It is in the aforesaid backdrop that Mr. Vohra submitted that the period of limitation which came to be introduced by the CBDT is clearly illegal and beyond jurisdiction. 19.Our attention was also drawn to the provisions comprised in Circular Nos. 769/1998 and 790/2000 and on the basis of which Mr. Vohra sought to underscore the fact that even those had never introduced any provision of limitation. Circular No. 769/1998 which was issued on 06 August 1998 was concerned with applications for refund in respect of excess or erroneous deduction of tax. The said Circular is reproduced hereinbelow: - ―1167. Procedure for refund of tax deducted at source under section 195 1. The Board has received a number of representations for granting approval for refund of excess deduction or erroneous deduction of tax at source under section 195 of the Income-tax Act. The cases —referred to the Board mainly relate to circumstances where: (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; 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; 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; deductible for any other reason; Signature Not Verified (ii) the tax is deducted at source under section 195 and paid in one assessment year and remittance to the foreign collaborator is made and/ or returned to the Indian company following cancellation of the contract in another assessment year. In all the cases mentioned above, where either the income does not accrue to the non-resident or excess tax has been deducted thereby resulting in a refund being due to the Indian enterprise which deposited the tax, at present a refund can be issued only if valid claim is made by filing a return. (c)the tax deducted at source is found to be in excess of tax deductible for any other reason; deductible for any other reason; Signature Not Verified (ii) the tax is deducted at source under section 195 and paid in one assessment year and remittance to the foreign collaborator is made and/ or returned to the Indian company following cancellation of the contract in another assessment year. In all the cases mentioned above, where either the income does not accrue to the non-resident or excess tax has been deducted thereby resulting in a refund being due to the Indian enterprise which deposited the tax, at present a refund can be issued only if valid claim is made by filing a return. 2. In the absence of any statutory provision empowering the Assessing Officers to refund the tax deducted at source to the person who has deducted tax at source, the Assessing Officers insist on filing of the return by the person in whose case deduction was made at source. Even adjustments of the excess tax or the tax erroneously deducted under section 195 is not allowed. This has led to a lot of hardship as the non-resident in whose case, the deduction has been made is either not present in the country or has no further dealings with the Indian enterprise, thus, making it difficult for a return to be filed by the non-resident. 3. The matter has been considered by the Board. It has been decided 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. 4. The excess tax deducted would be the difference between the actual payment made by the deduct or and the lax deducted at source or that deductible. This amount should be adjusted against the existing tax liability under any of the Direct Tax Acts. After meeting such liability, the balance amount, if any, should be refunded to the person responsible for deduction of tax at source. 5. Where the tax is deducted at source and paid by the branch office of the person responsible for deduction of tax at source and the quarterly statement/annual return of tax deduction at source is filed by the branch, each branch office would be treated as a separate unit independent of the head office. After meeting any existing tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. 6. The adjustment of refund against the existing tax liability should be made in accordance with the present procedure on the subject. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer in favour of the ―Income-tax Department‖ and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the sub-head ―Other refunds‖ below the minor head ―Income-tax on companies‖ major head ―020 - Corporation Tax‖ or below the minor head ―Income-tax other than Union Emoluments‖ major head ―021-Taxes on Incomes other than Corporation Tax‖, depending upon whether the payment was originally credited to the major head ―020 - Corporation Tax‖ or to the majorhead ―021- Taxes on Income other than Corporation Tax‖. 7. Since the adjustment/refund of the amount paid in excess would arise in relation to the deduction of tax at source, the recording of the particulars of adjustment/refund should be done in the quarterly statement of TDS/annual return under the signature of the ITO at the end of the statement, i.e., below the signature of the person furnishing the statement. Circular: No.769, dated 6-8-1998.‖ 20.Similar provisions were made by the CBDT in Circular No. 790/2000 which came to be issued on 20 April 2000, and in paragraph 10whereof a prescription with respect to limitation appears for the first time. That Circular is quoted hereunder: - 7. Since the adjustment/refund of the amount paid in excess would arise in relation to the deduction of tax at source, the recording of the particulars of adjustment/refund should be done in the quarterly statement of TDS/annual return under the signature of the ITO at the end of the statement, i.e., below the signature of the person furnishing the statement. Circular: No.769, dated 6-8-1998.‖ 20.Similar provisions were made by the CBDT in Circular No. 790/2000 which came to be issued on 20 April 2000, and in paragraph 10whereof a prescription with respect to limitation appears for the first time. That Circular is quoted hereunder: - ―SECTION 195 OF THE INCOME-TAX ACT, 1961- DEDUCTION AT SOURCE - OTHER SUMS -PROCEDURE FOR REFUND OF TAX DEDUCTED AT SOURCE UNDER SECTION 195 TO PERSON DEDUCTING TAX CIRCULAR NO.790, DATED 20-4-2000 [SUPERSEDED BY CIRCULAR N0.7/2007, DATED 23-10-2007] 1. The Board has issued Circular No. 769, dated 6-8-1998, laying down procedure for refund of tax deducted under section 195, in certain situations to the person deducting the tax at source from the payment to the non-resident. After reconsideration, Circular No. 769 is revoked with immediate effect and refund to the person deducting tax at source under section 195 shall be allowed in accordance with the provisions of this Circular. 2. The Board had received representations for approving grant of refund to the persons deducting tax at source under section 195 of the Income-tax Act, 1961. The cases referred to the Board mainly related to circumstances whereafter the deposit into Government —account of tax deducted at source under section 195, (a) the contract is cancelled and no remittance is made to the non-resident; (b) the remittance is duly made to the non-resident, but the contract Signature Not Verified Signature Not Verified is cancelled. In such cases, the remitted amount may have been returned to the person responsible for deducting tax at source. In the cases mentioned above, income does not accrue to the non-resident. The amount deducted as tax under section 195 and paid to credit of Government, therefore, belongs to the deductor. At present, a refund is given only, on a claim being made by the non-resident with whom the transaction was intended. 3. In the type of cases referred to in sub-paragraph (a) of paragraph 2, the non-resident not having received any payment would not apply for a refund. For cases covered by sub-paragraph (b) of paragraph 2. no claim may be made by the non-resident where he has no further dealings with the resident deductor of tax.This resident deductor is, therefore, put to genuine hardship as he would not be able to recover the amount deducted and deposited as tax. 4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract, the amount deposited to the credit of Government under section 195 cannot be said to be 'tax'. It has been decided that this amount can be refunded, with prior approval of Chief Commissioner concerned to the person who deducted it from the payment to the non-resident under section 195. 4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract, the amount deposited to the credit of Government under section 195 cannot be said to be 'tax'. It has been decided that this amount can be refunded, with prior approval of Chief Commissioner concerned to the person who deducted it from the payment to the non-resident under section 195. 5. The refund being made to the person who made the payment under section 195, the Assessing Officer may after giving intimation to the deductor, adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law. The balance amount, if any, should be refunded to the person who made such payment under section 195. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income- tax Officer or the Assessing Officer in favour of the "Income-tax Department" and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any. refunded would be debitable under the sub-head "Other refunds" below the minor head ——"Income-tax on Companies" major head "020Corporation Tax" or below the minor head "Income-tax other than Union Emoluments" major head "021—Taxes on Incomes other than Corporation Tax" depending upon whether the payment was —originally credited to the major head "020Corporation Tax" or to —the major head "021 Taxes on Income other than Corporation Tax". Since the adjustment/refund of the amount paid would arise in relation to the deduction of tax at source, the recording of the particulars of adjustment/refund, should be done in the quarterly statement of TDS/annual return under the signature of the Income-tax Officer or the Assessing Officer at the end of the statement, i.e.. below the signature of the person furnishing the statement. 6. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident. The amount paid into the Government account in such cases, is no longer 'tax'. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance with Circular No.769. 7. A refund in terms of this Circular should be granted only after obtaining an undertaking that no certificate under section 203 of the Income-tax Act has been issued to the non-resident. In cases where such a certificate has been issued, the person making the refund claim under this Circular should either obtain it or should indemnify the Income-tax Department from any possible loss on account of any separate claim of refund for the same amount by the non-resident. 8. The refund as per this Circular is permitted only in respect of transactions with non-residents, which have either notmaterialised or have been cancelled subsequently. It, therefore, needs to be ensured by the Assessing Officer that they disallow corresponding transaction amount, if claimed as an expense in the case of person making refund claim. 9. It is hereby clarified that refund shall not 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. 10. The limitation for making a claim of refund under this Circular shall be two years from the end of the financial year in which tax is deducted at source.‖ 21.Proceeding further, Mr. Vohra also questioned the correctness of the view expressed by the respondent based on the exception carved out by Section 9(1)(v) and submitted that the view as expressed by the respondents was wholly unsustainable for reasons recorded hereinafter. Mr. Vohra submitted that the funds which were generated by the issuance of bonds as well as the ECBs which were taken by RLL were exclusively intended to aid the global business operations of that entity. 9. It is hereby clarified that refund shall not 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. 10. The limitation for making a claim of refund under this Circular shall be two years from the end of the financial year in which tax is deducted at source.‖ 21.Proceeding further, Mr. Vohra also questioned the correctness of the view expressed by the respondent based on the exception carved out by Section 9(1)(v) and submitted that the view as expressed by the respondents was wholly unsustainable for reasons recorded hereinafter. Mr. Vohra submitted that the funds which were generated by the issuance of bonds as well as the ECBs which were taken by RLL were exclusively intended to aid the global business operations of that entity. 22.It was his submission that no part of the investments made leading up to the placement of funds in the hands of RLL or for that matter the ECBs‘ were either routed to India or utilized in connection with the operations of RLL in this country. It was thus submitted that the interest was clearly one which had been paid by RLL for the Signature Not Verified purposes of a business undertaken outside India as well as for the purposes of making or earning income from a source outside India. Since those funds and investments, according to Mr. Vohra, were primarily utilized to shore up the financials of Terapia, SA, the payment of interest clearly fell within the scope of the exception which clause (b) carves out from the principal part of Section 9(1)(v). 23.Mr. Vohra also assailed the view taken by the respondent that those investments and utilization of funds was not liable to be acknowledgedto be for the purposes of business carried on by RLL since the same was made as in connection with the affairs of Terapia, SA. According to learned senior counsel, since Terapia, SA was a wholly owned subsidiary, the respondent was clearly unjustified in disallowing that expense taking an extremely pedantic view that the same was not concerned with or relatable to the business of the petitioner. Learned senior counsel submitted that the investment and infusion of funds in Terapia SA was unquestionably connected with the business which RLL undertook overseas in the expectation of deriving income in the shape of dividend or profits from those ventures. 24.Mr. Vohra also sought to distinguish the opinion formed by the respondent based on the decision in Commissioner of Income-tax v.Havells India Ltd.[10] and submitted that the same was clearly distinguishable on facts. In order to appreciate the aforenoted submission, we deem it apposite to extract the following passages from that decision: - ―14. Section 9(1)(vii)(b) contemplates a source located outside India. It is difficult to conceptualise the place/situs of the person who make payment for the export sales as the source located outside India from 10 2012 SCC OnLine Del 2963 Signature Not Verified Signature Not Verified 24.Mr. Vohra also sought to distinguish the opinion formed by the respondent based on the decision in Commissioner of Income-tax v.Havells India Ltd.[10] and submitted that the same was clearly distinguishable on facts. In order to appreciate the aforenoted submission, we deem it apposite to extract the following passages from that decision: - ―14. Section 9(1)(vii)(b) contemplates a source located outside India. It is difficult to conceptualise the place/situs of the person who make payment for the export sales as the source located outside India from 10 2012 SCC OnLine D