Wp/1246/2021 Of Mantelone Investment Ltd v. The Commissioner Of Income-Tax (It), Mumbai-3 And 2 Ors

Sharayu Khot.IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1246 OF 2021 Mantelone Investment Ltd.…PetitionerDimitriouKaratasou 15,Anastasio Building, 6th Floor, Office 601,2024, Nicosia, CyprusVersus1. The Commissioner of Income-tax (IT) …RespondentsMumbai – 3.2. The Deputy Commissioner of Income Tax (International Tax) – 3 (2) (1), Mumbai.3. Union of India, Thru Secretary, Department of Revenue, New Delhi – 110 001 ---------- Shri Percy Pardiwalla, Senior Advocate a/w Shri Madhur Agrawali/by Shri Atul K. Jasani for the Petitioner.Shri Parag A. Vyas for the Respondents. ----------CORAM : K.R. SHRIRAM & R.I. CHAGLA, JJ. (V.C.) SHARAYUPANDURANGKHOTDigitallysigned bySHARAYUPANDURANGKHOTDate:2021.09.2917:23:41+0530PER :- K.R. SHRIRAM, J. DATE : 15 September 2021 1.Petitioner is impugning Form No. 3 dated 11th December 448-WP-1246-21.doc 2020 issued by respondent No. 1 under the Direct Tax Vivad seVishwas Act, 2020 (“the VSV Act”) for the assessment year 2015-16and seeks direction to respondents to settle the dispute of petitionerand/or issue revised Form No. 3 for settlement of the dispute ofpetitioner for assessment year 2015-16 without withdrawing theinterest already granted under Section 244A of the Income Tax Act,1961 (“the Act”) at the time of completion of the assessmentproceedings. 2.The facts in brief are as under :- A) Petitioner is a Company incorporated in Cyprus on 17[th]December 2008 as a Private Limited Liability Company underthe Cyprus Company Law, CAP-113.December 2008 as a Private Limited Liability Company underthe Cyprus Company Law, CAP-113. B) Petitioner filed its return of income for the assessment year2015-16 on 30[th] September 2015, declaring total income at Rs.28,35,66,580/-. The income of petitioner, inter-alia, consisted ofthe interest income earned by petitioner by subscribing tointerest bearing securities from Indian entities. Petitioner hadoffered the said interest income at the rate of 10% as per Article2015-16 on 30[th] September 2015, declaring total income at Rs.28,35,66,580/-. The income of petitioner, inter-alia, consisted ofthe interest income earned by petitioner by subscribing tointerest bearing securities from Indian entities. Petitioner hadoffered the said interest income at the rate of 10% as per Article 448-WP-1246-21.doc 11 of the India-Cyprus Double Taxation Avoidance Agreement(‘DTAA’). For the year under consideration, tax of Rs.8,50,69,973/- was deducted by the payer and was claimed ascredit on the income so offered to tax by petitioner. As perpetitioner, the total tax liability was Rs. 2,83,56,658/- for theassessment year 2015-16. Petitioner had claimed a refund of Rs.5,67,13,320. C) Respondent No. 2 passed the assessment order dated 6[th]February 2018 under section 143(3) read with section 144C(13)of the Act read with rectification order dated 30 March 2018under section 154 of the Act for the assessment year 2015-16,holding that petitioner is not entitled to the benefit of the India-Cyprus DTAA as petitioner is not the beneficial owner of theinterest income. Respondent No. 2, accordingly, held that theinterest income of petitioner would be chargeable to tax at therate of 20% under section 115AD(1)(a)(i) of the Act.Respondent No. 2, computed the total refund of Rs.2,37,34,523/- and interest on the said amount under section244A of the Act at Rs. 42,72,210. Out of the total refund of Rs.2,80,06,730, refund of Rs. 2,62,11,376 was received through 448-WP-1246-21.doc cheque dated 11[th] April 2018. The balance refund of Rs.17,95,354 was not received by way of cash or by way of creditof tax deducted at source before filing the application in FormNo. 1. However, vide rectification order dated 28 December2020 passed under section 154 of the Act for assessment year2019-20, respondent No. 2 granted the refund of Rs. 17,95,354by way of TDS credit. 448-WP-1246-21.doc cheque dated 11[th] April 2018. The balance refund of Rs.17,95,354 was not received by way of cash or by way of creditof tax deducted at source before filing the application in FormNo. 1. However, vide rectification order dated 28 December2020 passed under section 154 of the Act for assessment year2019-20, respondent No. 2 granted the refund of Rs. 17,95,354by way of TDS credit. D) On 17[th] March 2020, the Government of India promulgated theVSV Act for settlement of disputes between assessees and thedepartment. Assessees were eligible under the VSV Act, initially,up to 31[st] March 2020 to apply for settlement of disputes. Theapplicability of the VSV Act, however, has been extended fromtime to time.VSV Act for settlement of disputes between assessees and thedepartment. Assessees were eligible under the VSV Act, initially,up to 31[st] March 2020 to apply for settlement of disputes. Theapplicability of the VSV Act, however, has been extended fromtime to time. E) On 25[th] November 2020, petitioner, made an application inForm No. 1, as prescribed under the VSV Act for settlement of itsdispute with respect to assessment proceedings for assessmentyear 2015-16. Petitioner, computed the ‘disputed tax’ at Rs.3,29,78,793 (i.e. revised tax liability of Rs. 6,13,35,450 minustax liability as per the return of income of Rs. 2,83,56,658). OnForm No. 1, as prescribed under the VSV Act for settlement of itsdispute with respect to assessment proceedings for assessmentyear 2015-16. Petitioner, computed the ‘disputed tax’ at Rs.3,29,78,793 (i.e. revised tax liability of Rs. 6,13,35,450 minustax liability as per the return of income of Rs. 2,83,56,658). On 448-WP-1246-21.doc 1[st] December 2020, petitioner explained in detail the standadopted by petitioner while filing Form No. 1 and the basis ofcomputation of the amount refundable to Petitioner. F) Respondent No. 1 has thereafter, issued the impugned FormNo.3 dated 11[th] December 2020 by uploading the same in theincome tax portal but raised a demand of Rs. 42,72,203 for theassessment year 2015-16. The said amount has been computedby Respondent No. 1 on the alleged basis that the interest undersection 244A of the Act, which was granted at the time of givingrefund to petitioner, as per the assessment order under section143(3) of the Act read with rectification order under section 154of the Act, is no longer available to Petitioner and, hence, anadditional amount to the extent of the said interest is liable tobe paid by Petitioner. No reason has been given in the said formfor taking the said stand by Respondent No. 1, except stating asunder in the remarks column of Form No. 3. “Refund claimed in the return is Rs 56713320 whereasrefund released including 244A is Rs 28 006730 ,hencerefund reduced is Rs 28706590. The same has beenconsidered and allowed in form 3.” 448-WP-1246-21.doc 3.Shri. Vyas submitted that as per the explanation toSection 7(a) of VSV Act where the amount paid before filing thedeclaration under Section 4 exceeds the disputed tax, the same shallbe refunded but the assessee will not be entitled to any interest underSection 244A of the Act. According to Shri Vyas, on a combinedreading of Section 3 and Section 7 of the VSV Act, the assessee is notentitled to any interest under Section 244A and therefore, theamount of interest which was paid on the undisputed component asper the revised assessment order dated 30th March 2018 is to bereturned to respondent. 4.Shri Vyas further submitted that if the interest wasallowed to be repaid by petitioner, it would amount to discriminationbetween assessees who have been granted interest under Section244A and other assessees who have a net refund amount under theVSV Act without 244A interest. Mr. Vyas added that the Governmentforgoes interest and penalty and assessee pays tax and forgoesinterest or forgoes amount equivalent to interest received underSection 244A. Referring to Explanation to Section 7 of the VSV Act, 448-WP-1246-21.doc 4.Shri Vyas further submitted that if the interest wasallowed to be repaid by petitioner, it would amount to discriminationbetween assessees who have been granted interest under Section244A and other assessees who have a net refund amount under theVSV Act without 244A interest. Mr. Vyas added that the Governmentforgoes interest and penalty and assessee pays tax and forgoesinterest or forgoes amount equivalent to interest received underSection 244A. Referring to Explanation to Section 7 of the VSV Act, 448-WP-1246-21.doc Shri. Pardiwalla submitted that the restriction on payment of interestunder Section 244A of the Act is only when an assessee is eligible fora refund pursuant to making an application under the VSV Act, thatis, when the tax paid by the assessee exceeds the amount payableunder Section 3 the assessee would be entitled to refund, but withoutinterest. Shri. Pardiwalla submitted that in the present caseinterest under Section 244A of the Act of Rs. 42,72,210/- was notdetermined as payable under the VSV Act but was paid as per theassessment order passed for the said assessment year which wasbefore making the application under the VSV Act. According to Shri.Pardiwalla, the explanation to Section 7 therefore is not applicable tothe present case. 6.Shri. Vyas however, as an officer of the Court, admittedthat under the VSV Act, Section 2(1)(j)(A), the term disputed tax isthe amount of tax that is payable, if the Appeal was decided againstthe appellant. Shri Vyas also agreed that as per Section 3(a) of theVSV Act, amount payable under the VSV Act is the amount of thedisputed tax. 7.Petitioner, as stated earlier, had filed return of income forassessment year 2015-16 in which petitioner had computed incomeof Rs. 28,35,66,576/- and total tax payable of Rs. 2,83,56,658/- at10% of the total income. Petitioner had TDS credit in the sum of Rs.8,50,69,973/- and had claimed refund of Rs. 5,67,13,320/-.Petitioner had thereafter, revised its returns and as per the revisedassessment order dated 30th March 2018, the Department held thatthe tax payable by petitioner was 20% of its total income amountingto Rs. 5,67,13,315/- and after adjusting the TDS of Rs. 8,50,69,973/-and adding Sur-charge of Rs. 28,35,666/- and Education cess of Rs.17,86,469/-, concluded that the total tax and interest payable wasRs. 6,13,35,450/-. After adjusting the taxes paid, according torespondent, the amount refundable was only Rs. 2,37,34,523/-against what petitioner had claimed in its return of income of Rs.5,67,13,315/-. On this amount of Rs. 2,37,34,523/- refundableinterest of Rs. 42,72,210/- was also paid. Petitioner therefore, gotrefund of a net amount of Rs. 2,80,06,730/-. According to petitioner,as the department had wrongly charged to tax at sum of Rs.3,29,78,793/- (Rs. 6,13,35,450/- Less Rs. 2,83,56,658/-), petitionerfiled an appeal before the CIT(A) on 5th March 2018 under referenceNo. 423991101050318 which was pending. 8.The VSV Act was enacted to provide for resolution ofdisputed tax and for matters connected therewith or incidentalthereto. The Government of India wanted to reduce the litigationspending and decided to resolve all disputed tax matters. When theVSV scheme was enacted, petitioner decided to take benefit of thescheme under the Act and filed a declaration and undertaking inForm No. 1 under the VSV Act read with relevant rules wherebypetitioner decided to settle the appeal by paying the disputed tax ofRs. 3,29,78,793/-. When we say decided to pay, it does not mean thatpetitioner had to pay that additional amount, but this amount wasalready paid to the Government by way of TDS deducted andpetitioner was seeking a refund. Petitioner decided to forego thatrefund claim of Rs. 3,29,78,793/-. After considering petitioner’sdeclaration/application respondent issued Form No. 3 being form forcertificate under Sub-Section (1) of Section 5 of the VSV Act readwith VSV Rules, 2020, accepting that the tax arrear payable was Rs.3,29,78,793/-. Respondents, however, sought return of the amount ofRs. 42,72,203/- being interest which it had granted on theundisputed amount of refund of Rs. 2,37,34,523/-. The provisions of VSV Act relevant for this Petition, Section 2(1)(j)(A), Section 2(1)(o), Section 3(a) and Section 7 read as under:- “2. (1) In this Act, unless the context otherwise requires,— (a) ……. (j)"disputed tax", in relation to an assessment year or financialyear, as the case may be, means the income-tax, includingsurcharge and cess (hereafter in this clause referred to as theamount of tax) payable by the appellant under the provisions ofthe Income-tax Act, 1961, as computed hereunder: (A) in a case where any appeal, writ petition or special leavepetition is pending before the appellate forum as on the specifieddate, the amount of tax that is payable by the appellant if suchappeal or writ petition or special leave petition was to be decidedagainst him; …….. (o)"tax arrear" means, (i) the aggregate amount of disputed tax, interest chargeable orcharged on such disputed tax, and penalty leviable or levied onsuch disputed tax; or (ii) disputed interest; or (iii) disputed penalty; or (iv) disputed fee, as determined under the provisions of the Income-tax Act. 3.Subject to the provisions of this Act, where a declarant files 1[under the provisions of this Act on or before such date as maybe notified], a declaration to the designated authority inaccordance with the provisions of section 4 in respect of taxarrear, then, notwithstanding anything contained in the Income-tax Act or any other law for the time being in force, the amountpayable by the declarant under this Act shall be as under,namely:— Sl.Nature of tax Amount payableAmount payable under thisNo.arrearunder this ActAct on or after the [3][1st dayon or before theof January, 2021 or such later date as may benotified] but on or beforethe last date 2[31st day ofDecember, 2020or such laterdate as may benotified] ….. 7.Any amount paid in pursuance of a declaration made undersection 4 shall not be refundable under any circumstances Explanation.—For the removal of doubts, it is hereby clarifiedthat where the declarant had, before filing the declarationunder sub-section (1) of section 4, paid any amount under theIncome-tax Act in respect of his tax arrear which exceeds theamount payable under section 3, he shall be entitled to a refundof such excess amount, but shall not be entitled to interest onsuch excess amount under section 244A of the Income-tax Act.” 10. Under the VSV Act, Section 3(a) provides that where a declarant files a declaration to the designated authority inaccordance with the provisions of Section 4 in respect of ‘tax arrear’,the amount payable by the declarant shall be, where the ‘tax arrear’ 448-WP-1246-21.doc Explanation.—For the removal of doubts, it is hereby clarifiedthat where the declarant had, before filing the declarationunder sub-section (1) of section 4, paid any amount under theIncome-tax Act in respect of his tax arrear which exceeds theamount payable under section 3, he shall be entitled to a refundof such excess amount, but shall not be entitled to interest onsuch excess amount under section 244A of the Income-tax Act.” 10. Under the VSV Act, Section 3(a) provides that where a declarant files a declaration to the designated authority inaccordance with the provisions of Section 4 in respect of ‘tax arrear’,the amount payable by the declarant shall be, where the ‘tax arrear’ 448-WP-1246-21.doc is the aggregate amount of disputed tax, the amount of the disputedtax, if it is paid before the date mentioned or extended and if it ispaid beyond such a date, the amount of disputed tax plus 10% of thedisputed tax. In the case at hand, the question of interest chargeableor charged on disputed tax or penalty does not arise because thedisputed tax relates to the excess TDS deducted or paid on behalf ofpetitioner. Tax arrear is defined to mean the aggregate amount of‘disputed tax’, interest chargeable or charged on such ‘disputed tax’,and penalty leviable or levied on such ‘disputed tax’. ‘Disputed tax’ asdefined and applicable to the present case is the amount of tax that ispayable by appellant if such appeal was to be decided against him.Therefore, if the appeal which had been filed by petitionerchallenging the revised assessment order dated 30th March 2018 wasdismissed by the CIT appeal, the disputed tax would be Rs.3,29,78,793/- and not a penny more. Therefore, as per the schemeand the provisions of the Act, the amount that will be payable underthe VSV Act will be the amount of Rs. 3,29,78,793/- which is thedisputed tax and nothing more. The amount of Rs. 42,72,203/- asdetermined to be payable as per Form No. 3, is not payable bypetitioner because that is not part of the disputed tax which was thesubject matter of the appeal. , 448-WP-1246-21.doc 11.Shri Vyas’s reliance on explanation to Section 7 ofthe VSV Act is misplaced in as much as the restriction on payment oninterest under Section 244A of the Act is only when an assessee iseligible for a refund pursuant to making an application under theVSV Act, i.e., when the tax paid by the assessee exceeds the amountpayable under Section 3. In such a case, the assessee would beentitled to refund but without interest. In the case at hand, interest ofRs.42,72,210/- paid under Section 244A of the Act was notdetermined as payable under the VSV Act but was paid as per theassessment order passed for the Assessment Year which was morethan 2 1/2 years before the declaration under the VSV Act was filedby petitioner. Therefore, the explanation is not applicable to the caseat hand. Petitioner has not asked for interest under Section 244A ofthe Act on the amount of refund claimed in form no.1. In theexplanation to Section 7 of the VSV Act, the term specifically used isany amount paid “in respect of” tax arrear. The term “tax arrear”, isdefined to mean aggregate amount of disputed tax and the term“disputed tax” is defined to mean the tax payable by petitioner as ifthe appeal is decided against petitioner. So, the explanation onlyrefers to the amount paid in respect of tax arrear which is refundedunder the VSV Act and not any other refund amount. This implies 448-WP-1246-21.doc 448-WP-1246-21.doc that the reference in which the restriction of interest under section244A of the Act is made is towards any excess payment of tax inrespect of the tax arrears which is the disputed tax. Therefore, theVSV Act clearly envisages that no interest under section 244A of theAct is payable on the amount of tax paid towards the disputed taxwhich is in excess of the amount determined payable as per Section 3of the VSV Act. The amount payable towards disputed tax will onlyarise post the assessment order is passed. In the case at hand,petitioner has not made any payment post the assessment order, infact, respondent no.2 has determined a refund to petitioner in therevised assessment order after adjusting all the disputed tax. Therefund determined by respondent no.2 in the assessment order is outof tax deducted at source and taxes paid prior to filing of the returnof income and not on account of any amount paid towards tax arrearprior to applying under the VSV Act which has resulted in excesspayment of the tax arrear (disputed tax) determined as per Section 3of the VSV Act. The interest on refund that was paid was on theundisputed part of the excess tax paid and not on the disputed tax. 12.In the circumstances, Form - 3 dated 11thDecember 2020 issued by respondent No. 1 is hereby set aside. Respondent No. 1 is directed to issue revised Form -3/fresh Form No.3 in terms of the order mentioned above. 13.Mr. Pardiwalla states that the scheme has now been extended only upto 30th September 2021. Therefore, revisedForm - 3 to be issued within a period of one week of the order beinguploaded. 14. Petition disposed. [R.I. CHAGLA J.] [K.R. SHRIRAM, J.]