Wp/2505/2012 Of Grasim Industries Ltd v. Assistant Commissioner Of Income Tax, 6(3) And 4 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO. 2505 OF 2012 Mr. Akhileshwar Sharma, with Shipla Goel, Advocate for Respondents-Revenue. CORAM:K. R. SHRIRAM &DR. N. K. GOKHALE, JJ.DATED:1[st] September 2023 ORAL JUDGMENT:(Per K. R. SHRIRAM, J) 1.Petitioner had set up a Gas-based Sponge Iron Plant in Indiafor which it entered into a Foreign Technical CollaborationAgreement dated 22[nd] October 1989 (“agreement”) with one M/s.Davy Mckee Corporation (“DAVY”) and another party. Under theagreement, DAVY agreed to render to Petitioner outside Indiacertain engineering and other related services in relation to theproject. Petitioner also entered into another agreement(Supervisory Agreement) with DAVY to provide certain supervisoryservices to Petitioner in India. Under the agreement DAVY was todeliver to Petitioner the necessary design, drawing and data withrespect to the Sponge Iron Plant outside India. DAVY also agreedto train outside India, certain number of employees of Petitioner inorder to make available to such employees technical information,scientific knowledge, expertise, etc. for commissioning, operationand maintenance of the Plant. 2.Petitioner agreed to pay a sum of US $ 16,231,000/- net ofIndian Income-tax, if any, leviable. In other words, it was agreedthat if any withholding tax was required to be deducted, it will beborne by Petitioner and DAVY would be paid the net amount of US$ 16.23 millions. 3.Petitioner, by a letter dated 5[th] December 1989, sought fromAssistant Commissioner of Income Tax (“ACIT”), Central Circle-I a‘No Objection Certificate’ to facilitate remittance of the amount toDAVY without deduction of tax at source. Petitioner in itsapplication informed the ACIT that the technical services specifiedin the agreement, having been rendered outside India and the feesrequired also to be paid outside India in foreign currency, theincome embedded in the said fees accrues and arises to DAVYoutside India. It was also stated that no operation involved in theexecution of the said contract is to take place within India and noactivity is to be carried on by DAVY for rendering the technicalservices in India. It was submitted that as the fees being receivedby DAVY are not taxable in India and no tax at source was requiredto be deducted out of the fees payable to DAVY, Petitioner,therefore, Petitioner was entitled to a No Objection Certificate for remittance of the fees payable to DAVY under the agreement.ACIT, Central Circle-I vide order dated 5[th] December 1989 held thatthe amount payable to DAVY was taxable as income in India andPetitioner was required to deduct tax at source and deposit the taxso deducted with the Income Tax Department. The ACIT in factrecorded that “I have no objection for remitting the amountprovided you pay 30% tax in accordance with the provisions ofSection 115A of the Income Tax (I.T.) Act, 1961” Therefore, on 6[th]December 1989, Petitioner paid under protest a sum ofRs.2,73,73,084/- as withholding tax for the first instalment ofpayments to be made to DAVY. Petitioner made a further paymenton 5[th] September 1990 of Rs.2,81,83,272/- under protest aswithholding tax on the second instalment paid to DAVY. It was Petitioner’s stand that since withholding tax wasborne by Petitioner and if the payment made to DAVY was heldnon-chargeable to tax, then Petitioner would be entitled to therefund of the same. 4.DAVY submitted its return of income for Assessment Year1990-91 and Assessment Year 1991-92 on 31[st] March 1992 and It was Petitioner’s stand that since withholding tax wasborne by Petitioner and if the payment made to DAVY was heldnon-chargeable to tax, then Petitioner would be entitled to therefund of the same. 4.DAVY submitted its return of income for Assessment Year1990-91 and Assessment Year 1991-92 on 31[st] March 1992 and 25[th] November 1992, respectively. Davy declared nil income forthe consideration received by them under the agreement on theground that the income received by DAVY from Petitioner neitheraccrues in India nor is received in India and hence not chargeableto tax in India. Assessment order dated 30[th] November 1992 forAssessment Year 1990-91 and 16[th] March 1993 for Assessment Year1991-92 in the assessment of DAVY came to be passed wherebyRespondent No.4-ACIT, Circle-12(2) held that the amount earnedby DAVY under the agreement was chargeable to tax in India.Accordingly, the withholding tax that Petitioner paid was adjustedtowards DAVY’s tax liability. 5.DAVY challenged both the assessment orders before theCommissioner of Income Tax (Appeals). Thereafter, Petitioner,along with DAVY, filed Writ Petition No.448 of 1994 in this Courtchallenging the constitutional validity of the provisions of Section9(1)(vii) of the Act, the assessment orders for Assessment Year1990-91 and 1991-92 in the case of DAVY and the taxability of theamount received by DAVY under the agreement under Section 9(1)(vii) of the Act. By an order dated 5[th] May 2010, this Court waspleased to hold that the assessment orders passed by Respondents No.4 and 5 subjecting the income received by DAVY fromPetitioner under the agreement dated 22[nd] October 1989 was notcorrect and Respondents were directed to pass fresh assessmentorders excluding the income received by DAVY by way of fees fortechnical services from Petitioner under the agreement. 6.By a letter dated 1[st] July 2010, Petitioner called uponRespondent No.1-ACIT, Circle 6(3) to pass an order giving effect tothe order passed by this Court on 5[th] May 2010. Reminders weresent, but no action was forthcoming. 7.In the meanwhile, Kvaerner U.S. Inc., New Jersey, USA,which is the successor-in-interest to DAVY, by a letter dated 13[th]July 2012 addressed to Respondent No.1 and Respondent No.4,gave a ‘no objection’ to Petitioner receiving the refund inconnection with the taxes paid by Petitioner under the saidagreement. Copy of the same was also sent to Petitioner. Onreceipt of the copy of the said letter, Petitioner again wrote areminder to Respondent No.1 with copy to Respondent No.2,Respondent No.4 and Additional CIT, Range 12(2), Mumbai, bringing the ‘no objection’ letter to their notice and once againrequesting them to give effect to the order of this Court. 8.Finally, by an order dated 24[th] August 2012, RespondentNo.1 refused to give effect to the order of this Court holding thatPetitioner was not entitled to the refund of withholding taxdeposited by Petitioner as the same was on behalf of DAVY and,therefore, no effect can be given in the case of Petitioner. 9.Petitioner, therefore, had no option but to approach thisCourt by way of this Petition. 10.It is Petitioner’s case that Respondents were not correct inholding that Petitioner was not entitled to refund of the taxdeducted at source (“TDS”) that Petitioner deposited under theagreement. According to Petitioner, as per the agreement, thewithholding tax, if any, was to be borne by Petitioner and DAVYwas entitled to receive the full amount. Petitioner has paid the fullamount to DAVY and paid the withholding tax from its own pocketand hence it was only Petitioner who is entitled to the refund ofTDS since this Court has already held that the amount received by 9.Petitioner, therefore, had no option but to approach thisCourt by way of this Petition. 10.It is Petitioner’s case that Respondents were not correct inholding that Petitioner was not entitled to refund of the taxdeducted at source (“TDS”) that Petitioner deposited under theagreement. According to Petitioner, as per the agreement, thewithholding tax, if any, was to be borne by Petitioner and DAVYwas entitled to receive the full amount. Petitioner has paid the fullamount to DAVY and paid the withholding tax from its own pocketand hence it was only Petitioner who is entitled to the refund ofTDS since this Court has already held that the amount received by DAVY was not chargeable to income tax. It is Petitioner’s case thatit is not correct on the part of Respondents to hold that the TDSdeposited by Petitioner was on behalf of DAVY as the amount ofTDS is in addition to the full consideration under the agreementand the withholding tax liability was that of Petitioner. It is alsoPetitioner’s case that the order giving effect to this Hon’ble Court’sorder should be passed in the case of DAVY, but the refund of TDSdeposited should be given to Petitioner. Petitioner also submittedthat in view of the ‘no objection’ given by DAVY to Petitioner toreceive the refund from the Department, Department has to onlyaccept the no objection from DAVY (through Kvaerner) andhandover the refund amount to Petitioner. 11.Mr Mistri also submitted that Petitioner had jointlyapproached this Court with DAVY challenging the orders ofassessment passed by Respondent No.4 and the order in appealpassed by CIT(A). He pointed out that this Court had already heldthat the income by way of fees for technical services paid byPetitioner to DAVY was not liable to income tax under the Act andthe income received by DAVY cannot be deemed to have arisen oraccrued in India because the services under the agreement were not rendered within India. Mr. Mistri submitted that theconsequence of the order would be that the income under theagreement would be excluded from the income of DAVY whereby itwould become entitled to a refund of the tax deducted at source byPetitioner and if the amount is paid to DAVY, DAVY would remitsuch refund to Petitioner. Since DAVY is succeeded by Kvaernerand Kvaerner has issued its no objection to Respondents giving therefund amount to Petitioner, the tax ought to be paid to Petitioner. In the alternative, since the amount receivable by DAVYunder the agreement is not chargeable to tax in India, thedirections to Petitioner by the order dated 5[th] December 1989 todeduct tax at source was not in accordance with law and,therefore, the amount so deducted and paid must be repaid toPetitioner. 12.Section 248 of the Act was amended by the Finance Bill2007 which envisages and deals with a situation where refundcould be made to the person by whom the income is payable andwho has borne the withholding tax. The consequence of theprovision is that once the appellant succeeds in the Appeal, the Revenue Authorities have to proceed on the basis that Appellantdid not have any obligation to make the impugned deduction oftax at source and the amount wrongly paid to Revenue wouldbecome refundable to Appellant, of course subject to the conditionthat person receiving the payment has not claimed credit for thesame nor was it claiming credit for the same. 13.Admittedly, though in the original returns filed, refund wasclaimed, subsequently DAVY has not claimed any refund.Moreover, DAVY through its successor-in-interest Kvaerner haseven given a ‘no objection’ to Respondents to refund the amount toPetitioner. 14.Mr. Sharma reiterated the various replies filed on behalf ofRespondents. Revenue Authorities have to proceed on the basis that Appellantdid not have any obligation to make the impugned deduction oftax at source and the amount wrongly paid to Revenue wouldbecome refundable to Appellant, of course subject to the conditionthat person receiving the payment has not claimed credit for thesame nor was it claiming credit for the same. 13.Admittedly, though in the original returns filed, refund wasclaimed, subsequently DAVY has not claimed any refund.Moreover, DAVY through its successor-in-interest Kvaerner haseven given a ‘no objection’ to Respondents to refund the amount toPetitioner. 14.Mr. Sharma reiterated the various replies filed on behalf ofRespondents. Mr. Sharma also submitted; (a) Respondents have evenaddressed a notice to DAVY which was returned as undelivered.Mr. Mistri responded to this saying that a notice was addressed toArthur Anderson & Co., the erstwhile Chartered Accountants ofDAVY but Arthur Anderson & Co. itself has ceased to exist. Respondents could have at least written to DAVY directly or askedPetitioner for the correct address; (b) When this Court disposedWrit Petition No. 448 of 1994, there was no specific direction toallow the refund amount to Petitioner; (c) It was only DAVY who isentitled to credit of the TDS deposited by Petitioner and there is noprovision in law which permits Respondents to give benefit of anorder passed in the case of one assessee to another assessee; (d)Since Petitioner had paid the tax as TDS on behalf of DAVY andDAVY in its return of income filed for AY 1990-91 and 1991-92 hadclaimed the credit of such TDS deposited by Petitioner on behalf ofDAVY, Petitioner was not entitled to refund of the TDS depositedand, therefore, no effect could be given to the order of this Courtin the case of Petitioner; (e) In accordance with Section 199 of theAct credit can only be given to DAVY; (f) The effect of the order ofthis Court can be given only in the case of DAVY and henceRespondents cannot refund the TDS deposited by Petitioner onbehalf of DAVY to Petitioner as there is no provision in the Act forthe same. 15.On 11[th] March 2014, when this Court was pleased to issuerule, the Court also passed an elaborate order. It will be useful toreproduce the said order which reads as under: “1.Rule. 2.By this petition under Article 226 of theConstitution of India, the Petitioner has challengedthe order dated 24 August 2012 of Respondent no.1-Assistant Commissioner of Income Tax, 6(3), Mumbaideclining to grant the Petitioner's claim for refundpursuant to the order dated 5 May 2010 passed bythis Court in Writ Petition No.448 of 1994. 3.Brief facts leading to filing of this petition areas under. (a)On 22 October 1989, the Petitioner enteredinto a Foreign Technical Collaboration for BasicEngineering and Training Agreement (‘BEATAgreement') with Davy Mckee Corporation (‘Davy’) toset up a gas based Sponge Iron Plant in India. Interms of the BEAT agreement, Davy was to deliver tothe Petitioner the designs, drawings and data withrespect to the Sponge Iron Plant outside India besidestraining certain number of employees of thePetitioner outside India for commissioning, operationand maintenance of the Sponge Iron Plant. For theabove services, the Petitioner agreed to pay asconsideration to Davy under the BEAT agreement asum of US $ 16.23 Millions net of Indian Income-tax,if any, levible. In other words, if any withholding taxwas required to be deducted, it will be born by thePetitioner and Davy would be paid the net amount ofUS $ 16.23 Millions; (b)The Petitioner by a letter dated 5 December1989 sought no objection certificate from theRespondents to remit the consideration payable to (b)The Petitioner by a letter dated 5 December1989 sought no objection certificate from theRespondents to remit the consideration payable to Davy under the BEAT agreement without deductionof tax at source. The Respondents did not accept thePetitioner's contention and by order dated 5December 1989 directed the Petitioner to deduct taxat source on the amounts being remitted to Davy.Accordingly, the Petitioner initially paid tax ofRs.2,73,73,084/- on 6 December 1989 under protestas withholding tax for the first installment ofpayments to Davy. The Petitioner again on 5September 1990 paid tax of Rs.2,81,83,272/- underprotest as withholding tax on the second instalmentof payment to Davy. These amounts were paid by thePetitioner over and above the total amount payable toDavy by Petitioner under BEAT agreement; (c)In its return of income-tax for the A.Ys.1990-91and 1991-92, Davy declared nil income as chargeableto tax in India. This was on the ground that theincome received by Davy from the Petitioner underthe BEAT Agreement head had not accrued in India.However, by assessment order dated 30 November1992 for the A.Y. 1990-91 and by assessment orderdated 16 March 1993 for the A.Y. 1991-92, the A.O.of Davy held that the amounts received by Davyunder BEAT agreement were chargeable to tax inIndia. Accordingly, the withholding tax paid by thePetitioner was adjusted towards Davy's tax liabilityarising on account of Respondents holding that thereceipt by Davy under the BEAT agreement is taxablein India; (d)Aggrieved by the above assessment ordersdated 30 November 1992 and 16 March 1993respectively, Davy filed appeals before Commissionerof Income Tax (Appeals). We are informed that theCommissioner of Income Tax (Appeals) dismissed theappeals. The Petitioner and Davy thereafter filed WritPetition No.448 of 1994 before this Court on 27January 1994 challenging: (i)the constitutional validity of theprovisions of Section 9(1)(vii) of the IncomeTax Act, 1961 (‘the Act’); and (ii)the assessment orders for the A.Ys.1990-91 and 1991-92 dated 30 November 1992 and16 March 1993 respectively; (e)At the hearing of Writ Petition No.448 of 1994,the challenge to the constitutional validity of Section9(1)(vii) of the Act was not pressed but the Courtadjudicated other controversites and rendered itsjudgment on 5 May 2010. The operative part of thejudgment read as under: “17.Examined on this test, the incomereceived by the Petitioner no.2 cannot bedeemed to have arisen or accrued in Indiabecause the services under the BEAT agreementwere not rendered within India though thedrawings, designs received from Petitioner no.2may have been utilized by the Petitioner no.1 inIndia. The law requires both the conditions tobe satisfied viz services rendered in India andutilized in India. For these reasons, we are ofthe view that the income by way of fees fortechnical services by the Petitioner is not liableto the Indian income tax under the Act.Consequently, petition is allowed and theassessment order made by the Respondentnos.2 and 3 in original or in appeal subjectingthe income received by the Petitioner no.2 formPetitioner no.1 under the BEAT agreementdated 22 October 1989 to Indian income taxare quashed and set aside. The Respondentsare directed to pass fresh orders excluding theincome received by Petitioner no.2 by way of afees for technical services from Petitioner no.1under the BEAT agreement. Rule is madeabsolute in the extent indicated above.” (f)The present Petitioner was Petitioner no.l whileDavy was Petitioner no.2 in the Writ Petition No.448of 1994. Post the above order dated 5 May 2010, thePetitioner herein time and again requested theRespondents to comply with the same and give effectto it. The Petitioner also submitted letter dated 13July 2012 of Kvaerner U.S. Inc. addressed to theRespondents informing that Kvaerner U.S. Inc. is thesuccessor in interest of Davy has no objection toPetitioner receiving the refund in connection withtaxes paid relating to agreement dated 22 October1989. The letter was signed by the President andGeneral Counsel of Kvaerner U.S.Inc. Ultimately, byreply dated 24 August 2012, the Respondent no.1herein informed the Petitioner as under: “Sub: Order of Hon'ble Bombay High Courtdt.05.05.10 in Writ Petition No.448 of 1994 inthe case of Grasim Industries Ltd.-Regarding. Ref : Your letter dated 24.07.2012 Kindly refer to your above mentioned letterwherein it is requested to pass order givingeffect to the order of the High Court andrelease the refund of TDS. It is stated here thatyou have paid the tax as TDS on behalf of Davyand Davy, in its return of income filed forA.Ys.1990-91 and 1991-92 had claimed thecredit of such TDS deposited by you on itsbehalf. In such circumstances, it is clear thatyou are not entitled for refund of the TDSdeposited by you on behalf of Davy and noeffect to the order of the Hon'ble High Courtcan be given in your case.” 4.Aggrieved by the above communication, Mr.Mistry, learned Senior Advocate appearing on behalfof the Petitioner submitted that the Petitioner had topay the withholding tax under protest in view of thestand of Revenue in the order dated 5 December1989 that the amount payable by the Petitioner to Davy under BEAT agreement was taxable in India.This resulted in the Petitioner paying amountsaggregating Rs.5.54 crores to the Revenue out of itsfunds under protest, in December-1989 and inSeptember-1990, as tax deducted at source. It issubmitted that once this Court holds by order dated 5May 2010 that the income by way of fees fortechnical services paid by the Petitioner to Davyunder the BEAT Agreement was not liable to IndianIncome Tax, then the amounts paid by the Petitionerout of its own funds as withholding tax, becomesrefundable to the Petitioner. The counsel also invitesour attention to the letter given by Kvaerner U.S. Inc.who is the successor in interest of Davy that it has noobjection if the above amounts of the tax paid as taxdeducted at source are paid to the Petitioner. It issubmitted that under Clause 5.1 of the BEATagreement between the Petitioner and Davy, it wasspecifically provided as under: “5.1 TAXES, CHARGES AND DUTIES: ………In the event that DAVY isable to obtain any tax credit in U.S.A. Orelsewhere in respect of tax paid in India asaforesaid by GRASIM, then DAVY shall refundto GRASIM an amount equivalent to such creditobtained. DAVY will provide GRASIM with acertificate issued by DAVY's auditors, of theamount so credited.” In any case after the order of this Court dated 5 May2010 quashing and setting aside the assessmentorders, the Respondents were bound to pass freshassessment orders excluding the amounts received byDavy by way of fees for technical services fromPetitioner as its income under the BEAT agreement.However, the Respondents are not complying withthe above directions of this Court only with a view todeprive the Petitioner of the funds legitimately due tothem. It is, therefore, submitted that the Petitioner has beendeprived of its funds for about twenty five years and,therefore, this Court should direct the Respondents torefund the above amounts to the Petitioner withinterest in accordance with law. In any case after the order of this Court dated 5 May2010 quashing and setting aside the assessmentorders, the Respondents were bound to pass freshassessment orders excluding the amounts received byDavy by way of fees for technical services fromPetitioner as its income under the BEAT agreement.However, the Respondents are not complying withthe above directions of this Court only with a view todeprive the Petitioner of the funds legitimately due tothem. It is, therefore, submitted that the Petitioner has beendeprived of its funds for about twenty five years and,therefore, this Court should direct the Respondents torefund the above amounts to the Petitioner withinterest in accordance with law. 5.Mr. Mistry also placed reliance upon theCircular No.769 dated 6 August 1998 as also asubsequent Circular being Circular No.790 dated 20April 2000 issued by CBDT substituting the earlierCircular No.769, dated 6 August 1998. However, it issubmitted that the underlying principle even underthe new Circular dated 20 April 2000 would apply incases where ultimately it is found that no tax waspayable by the foreign entity, the refund of the taxpaid by the Indian enterprise as tax deducted atsource should be given to the Indian enterprise. It issubmitted that the Petitioner is, therefore, entitled toget the benefit of the said principle even if thepresent case may not strictly fall under the circulardated 20 April 2000. 6.On the other hand, the petition has beenopposed by the learned counsel for Revenue relyingupon submissions made in the affidavit-in-reply ofMr. Anil Gupta, Deputy Commissioner of Income Tax,Range 6(3). It is submitted that since tax wasdeducted at source at the relevant time on behalf ofDavy in accordance with Section 199 of the Act,credit can only be given to Davy and the benefit ofthe order of this Court rendered on 5 May 2010 canonly be given to Davy who had filed its return ofincome for the A.Y. 1990-91 and 1991-92. It is,therefore, submitted that the Petitioner cannot claimrefund of tax deducted at source which was depositedby the Petitioner on behalf of Davy, as there is noprovision in the Act for the same. Besides, attentionof the Court was also invited to Section 195A of theAct. It is further stated that Davy has been assessedwith ITO3(1)(4), Mumbai to whom the matter hasbeen forwarded for taking necessary action. The said officer had issued notice to Davy, however, Davy wasnot available at the address. It is submitted that thePetitioner has no locus standi to claim refund onbehalf of Davy. Learned counsel for Respondents alsoplaces on record a copy of letter dated 30 December2013 issued by ITO 3(1)(4) to Davy. 7.In rejoinder, learned counsel for Petitionerpoints out that the letter dated 30 December 2013sent by ITO 3(1)(4) was sent on the followingaddress: “To, The Principal Officer,Davy McKee Corporation, C/o.Arthur Anderson & Co;66, Maker Towers, ‘F’, Cuffe Parade, Mumbai-400005” It is submitted that Arthur Anderson & Co, was aChartered Accountant's firm, and were CharteredAccountant of Davy. The said firm has been closeddown in Mumbai and Davy had also merged withKvaerner U,S, Inc. Hence, the Department hasdeliberately sent notice to an address which was notthe address of Davy. The officer could have at thevery least sent a notice to Davy at its address shownin the cause title of Writ Petition No.448 of 1994. 7.In rejoinder, learned counsel for Petitionerpoints out that the letter dated 30 December 2013sent by ITO 3(1)(4) was sent on the followingaddress: “To, The Principal Officer,Davy McKee Corporation, C/o.Arthur Anderson & Co;66, Maker Towers, ‘F’, Cuffe Parade, Mumbai-400005” It is submitted that Arthur Anderson & Co, was aChartered Accountant's firm, and were CharteredAccountant of Davy. The said firm has been closeddown in Mumbai and Davy had also merged withKvaerner U,S, Inc. Hence, the Department hasdeliberately sent notice to an address which was notthe address of Davy. The officer could have at thevery least sent a notice to Davy at its address shownin the cause title of Writ Petition No.448 of 1994. 8.Having heard the learned counsel for parties,we are of the view that when this Court in its orderdated 5 May 2010 specifically directed theRespondents to pass fresh assessment ordersexcluding the income received by Davy for providingtechnical services to Petitioner pursuant to BEATagreement, the Respondents are duty bound tocomply with the said direction. There appears to besome substance in the grievance made by the counselfor Petitioner that notice was sent to the address ofChartered Accountant of Davy which has been closeddown and, therefore, the notice on Davy would neverbe served. In any case, the Respondents have notchallenged the judgment and order dated 5 May 2010 in Writ Petition No.448 of 1994 rendered bythis Court. We are, therefore, of the view that thePetitioner has made out a case for grant of interimrelief. 9.By this interim order, we direct the ITO-3(1)(4)to pass a fresh assessment orders in case of Davy forthe A.Ys. 1990-91 and 1991-92 after excluding theincome received by Davy as fees for providingtechnical services to the Petitioner under BEATagreement dated 22 October 1989. Thereafter theITO-3(1)(4) i.e. the A.O. (according to Respondent)will pass consequential orders including refund, ifany, in accordance with law. 10.As regards the question whether the Petitioneris entitled to get such refund, we do not express anyopinion at this stage. However, we direct that if anyamount deducted at source for the A.Ys.1990-91 and1991-92 is required to be refunded to Davy pursuantto the judgment dated 5 May 2010 in Writ PetitionNo.448 of 1994 of this Court, the Respondents shalldeposit the said amount along with interest inaccordance with law in this Court. The Respondentsshall carry out the above exercise by 30 April 2014. 11.Stand over to 15 May 2014.” 16.The Department has given effect to the order dated 5[th] May2010 passed by this Court in Writ Petition No. 448 of 1994. Asdirected by this Court in its order dated 11[th] March 2014 in thisPetition, the Income Tax Department has arrived at net amountrefundable as on 6[th] August 2014 at Rs.8,92,08,881/- forAssessment Year 1990-91 and Rs.8,67,76,753/- for AssessmentYear 1991-92 and after deducting TDS of Rs.2,61,13,257/- for Assessment Year 1990-91 and Rs.2,47,43,964/- for AssessmentYear 1991-92, has deposited with the Prothonotary and SeniorMaster, High Court, Bombay, a sum of Rs.6,30,95,624/- andRs.6,20,32,789/- for Assessment Years 1990-91 and 1991-92,respectively. These amounts have been invested by theProthonotary and Senior Master in fixed deposit pursuant to anorder dated 14[th] July 2014. The amount has continued to beinvested in fixed deposit. Assessment Year 1990-91 and Rs.2,47,43,964/- for AssessmentYear 1991-92, has deposited with the Prothonotary and SeniorMaster, High Court, Bombay, a sum of Rs.6,30,95,624/- andRs.6,20,32,789/- for Assessment Years 1990-91 and 1991-92,respectively. These amounts have been invested by theProthonotary and Senior Master in fixed deposit pursuant to anorder dated 14[th] July 2014. The amount has continued to beinvested in fixed deposit. 17.The indisputable position is that it has always beenPetitioner’s stand that the technical services specified under theagreement with DAVY was rendered outside India and the fees alsowere paid outside India in foreign exchange and the incomeimbedded in the said fees accrues and arises to DAVY outsideIndia. There is no operation involved in the execution of the saidagreement to take place within India. No activity was also carriedout in India under the said agreement. The fees received by DAVY,therefore, are not taxable in India and consequently, no tax atsource was required to be deducted out of the fees payable byPetitioner to DAVY. When Petitioner made these submissions andrequested for issuance of a ‘No Objection’ Certificate by its letter dated 5[th] December 1989, it was the ACIT, Central Circle-I, whoinsisted that no objection would be issued only if Petitionerdeposited 30% of the amount to be remitted to DAVY. Theagreement between Petitioner and DAVY was that US $ 16.23millions were to be paid net of tax and withholding tax, if any, byPetitioner to DAVY and hence Petitioner had no option but todeposit the 30% extra under protest. Petitioner’s stand was finallyvindicated by an order passed by this Court on 5[th] May 2010 inWrit Petition No. 448 of 1994. Technically, even though theamount deposited by Petitioner would be called as ‘tax deductibleat source’, what Petitioner paid was ‘an ad hoc amount nottechnically a TDS amount’. Moreover, since it is also confirmed bythis Court that the amount paid to DAVY was not chargeable to taxin India, Respondents’ insistence on Petitioner paying that amountwas not in accordance with law and the amount so paid over mustbe refunded to Petitioner. 18.In fact, in view of such problems faced by various parties, inour view, Section 248 of the Act was amended by the Finance Bill2007 which envisages and deals with a situation where a refundcould be made to the person by whom the income was payable who has borne the withholding tax. Clause 63 of Notes on Clausesto Finance Bill 2007 reads as under: “Cause 63 of the Bill seeks to substitute section 248of the Income-tax Act relating to provision of appealby a person denying liability to deduct tax. The provisions of section 248 lay down that whereany person has deducted and paid tax in accordancewith the provisions of sections 195 and 200 inrespect of any sum chargeable under this Act, otherthan interest and who denies his liability to makesuch deductions, may make an appeal to theCommissioner (Appeals) to be declared not liable tomake such deductions. In such situation claim ofrefund of tax deducted and paid, may be, bydeductee as well as deductor. It is proposed to substitute section 248 so as toprovide that where under an agreement or otherarrangement, the tax deductible on any income,other than interest, under section 195 is to be borneby the person by whom the income is payable, andsuch person having paid such tax to the credit of theCentral Government, claims that no tax was requiredto be deducted on such income, he may appeal to theCommissioner (Appeals) for a declaration that no taxwas deductible on such income. It is therefore proposed to amend clause (a) of sub-section (2) of Section 249 providing that where theappeal is under section 248, the prescribed time shallbe counted from the date of payment of tax. This amendment is consequential in nature and willtake effect from 1[st] June, 2007.” It is proposed to substitute section 248 so as toprovide that where under an agreement or otherarrangement, the tax deductible on any income,other than interest, under section 195 is to be borneby the person by whom the income is payable, andsuch person having paid such tax to the credit of theCentral Government, claims that no tax was requiredto be deducted on such income, he may appeal to theCommissioner (Appeals) for a declaration that no taxwas deductible on such income. It is therefore proposed to amend clause (a) of sub-section (2) of Section 249 providing that where theappeal is under section 248, the prescribed time shallbe counted from the date of payment of tax. This amendment is consequential in nature and willtake effect from 1[st] June, 2007.” 19.The memorandum explaining the provisions in Finance Bill2007 reads as under: “Provision of appeal a person denying liability todeduce tax. Under the existing provisions of section 248, it isprovided that where any person has deducted andpaid tax in accordance with the provisions of section195 and 200 in respect of any sum chargeable underthe Act, other than interest and who denies hisliability to make such deductions, may make anappeal to the Commissioner (Appeals) to be declarednot liable to make such deductions. It is proposed to substitute section 248 so as toprovide that where under an agreement or otherarrangement, that tax deductible on any incomeother than interest, under section 195 is be borne bythe person by whom the income is payable, and suchperson having paid such tax to the credit of theCentral Government, claims that on tax was requiredto be deducted on such income, he may appeal to theCommissioner (Appeals) for a declaration that no taxwas deductible on such income.” 20.In our view, the consequence of the above provisions is that once the appellant succeeds in the Appeal, the Revenue Authoritiesmust proceed on the basis that the Appellant did not have anyobligation to make the payment. Thus the amount wronglydeducted or paid to the Revenue Authorities where it was notrequired to be paid would become refundable to Appellant. Of course, that is subject to the condition that the person receiving thepayment has not claimed credit for the same or is not claimingcredit for the same. 21.It is indisputable that for the past over 13 years neitherKvaerner nor DAVY has claimed any amount from the RevenueAuthorities under the issue at hand. Moreover, Kvaerner, who isthe successor-in-interest of DAVY has also addressed its ‘noobjection’ to Respondent No.1 conveying that the amount can bereturned or refunded to Petitioner. 22.The Department had also issued two Circulars No. 769 dated6[th] August 1998 and No. 790 dated 20[th] April 2000. ThoughPetitioner is not claiming any relief under those Circulars, theseCirculars are also pointers to the effect that in appropriate casesRevenue Authorities must grant refund and/or return the sumscollected without lawful authority, independent of the provisions ofthe Act. The Central Board of Direct Taxes (“CBDT”) issued a CircularNo.7 of 2007 dated 23[rd] October 2007 highlighting further 22.The Department had also issued two Circulars No. 769 dated6[th] August 1998 and No. 790 dated 20[th] April 2000. ThoughPetitioner is not claiming any relief under those Circulars, theseCirculars are also pointers to the effect that in appropriate casesRevenue Authorities must grant refund and/or return the sumscollected without lawful authority, independent of the provisions ofthe Act. The Central Board of Direct Taxes (“CBDT”) issued a CircularNo.7 of 2007 dated 23[rd] October 2007 highlighting further problems regarding procedure for refund of tax deducted atsource. Based on representation received from tax payers to takeinto account situations where genuine claim for refund arises tothe person deducting tax at source from payment to the non-resident, the CBDT amended Circular No. 709 dated 20[th] April2000. In Circular No.7 of 2007 dated 23[rd] October 2007, the CBDTwas conscious of situation where non-resident may not apply forrefund which would put the resident deductor to genuine hardshipas he would not be able to deduct and deposit as tax. The Circularstates that where no income has accrued to the non-resident due tocancellation of contract or where income has accrued but no tax isdue on that income or tax is due at a lesser rate the amountdeposited to the credit of government to that extent under Section145 cannot be said to be “tax”. The Circular further states that thisamount can be refunded with prior approval of the ChiefCommissioner of Income Tax or the Director General of Income Taxconcerned, to the persons who deducted it from the payment tothe non-resident under Section 195 of the Act. 23.In our view, the refusal of the Department to return theamount and retaining the same is unauthorized by law and would only amount to unjust enrichment by the Department on technicalgrounds. 24.The Apex Court in Commissioner of Income Tax v. ShellyProducts[1], as relied upon by Mr. Mistri, has held that where anassessee chooses to deposit by way of abundant caution advancetax or self-assessment tax which is in excess of his liability on thebasis of return furnished or by mistake or inadvertence or onaccount of ignorance, included in his income any amount which isexempted from payment of income tax or is not an income withinthe contemplation of law, he can certainly make such claim beforethe concerned authority for refund and he must be given thatrefund on being satisfied that refund is due and payable. Nongiving the refund, in our view, would be in breach of Article 265 ofthe Constitution of India which states, “no tax shall be levied orcollected except by authority of law”. In New India Industries Ltd & Anr. v Union of India & Anr.[2] the Court held that taxes illegally levied must be refunded. The 1(2003) 261 ITR 367 (SC).2AIR 1990 Bom. 239. doctrine of unjust enrichment has to be applied after having regardto the facts of each case. 25.In Nirmala L. Mehta v. A. Balasubramanian, Commissioner ofIncome-tax,[3] the Court relying on a Constitution Bench Judgmentof the Supreme Court in Amalgamated Coalfies Ltd. v. JanapadaSabha[4]opined that acquiescence to illegal tax for a long time is nota ground for denying the party the relief that he is entitled to. 26.In Balmukund Acharya v Deputy Commissioner of Income-tax, Special Range[5]the Court held that the authorities under theAct are under an obligation to act in accordance with the law. Taxcan be collected only as provided under the Act. If any assessee,under a mistake, misconceptions or on not being properlyinstructed is over assessed, the authorities under the Act arerequired to assist him and ensure that only legitimate taxes due arecollected. Paragraphs No. 31,32 and 33 of Balmukund Acharya(supra) read as under: 3(2004) 269 ITR 1 (Bombay).4AIR 1961 SC 964.5(2009) 310 ITR 310 (Bombay).4AIR 1961 SC 964.5(2009) 310 ITR 310 (Bombay). 26.In Balmukund Acharya v Deputy Commissioner of Income-tax, Special Range[5]the Court held that the authorities under theAct are under an obligation to act in accordance with the law. Taxcan be collected only as provided under the Act. If any assessee,under a mistake, misconceptions or on not being properlyinstructed is over assessed, the authorities under the Act arerequired to assist him and ensure that only legitimate taxes due arecollected. Paragraphs No. 31,32 and 33 of Balmukund Acharya(supra) read as under: 3(2004) 269 ITR 1 (Bombay).4AIR 1961 SC 964.5(2009) 310 ITR 310 (Bombay).4AIR 1961 SC 964.5(2009) 310 ITR 310 (Bombay). “31.Having said so, we must observe that the ApexCourt and the various High Courts have ruled thatthe authorities under the Act are under an obligationto act in accordance with law. Tax can be collectedonly as provided under the Act. If any assessee,under a mistake, misconceptions or on not beingproperly instructed is over assessed, the authoritiesunder the Act are required to assist him and ensurethat only legitimate taxes due are collected (see S.R.Kosti v. CIT [2005] 276 ITR 165 (Guj.), CPA Yoosuf v.ITO [1970] 77 ITR 237 (Ker.), CIT v. Bharat GeneralReinsurance Co. Ltd. [1971] 81 ITR 303 (Delhi), CITv. Archana R. Dhanwatey [1982] 136 ITR 355(Bom.).32.If particular levy is not permitted under theAct, tax cannot be levied applying the doctrine ofestoppel. (See Dy. CST v. Sreeni Printers [1987] 67SCC 279.33.This Court in the case of Nirmala L. Mehta v. A.Balasubramaniam, CIT [2004] 269 ITR 1 has heldthat there cannot be any estoppel against the statute.Article 265 of the Constitution of India inunmistakable terms provides that no tax shall belevied or collected except by authority of law.Acquiescence cannot take away from a party therelief that he is entitled to where the tax is levied orcollected without authority of law. In the case onhand, it was obligatory on the part of the AssessingOfficer to apply his mind to the facts disclosed in thereturn and assess the assessee keeping in mind thelaw holding the field.” 27.In the circumstances, the rule is made absolute in terms of prayer clauses (a) and (b) which read as under: “a. this Hon'ble Court may be pleased to issue a writof Certiorari, or a writ in the nature of Certiorari, orany other appropriate writ, order or direction underarticle 226 of the Constitution of India, calling for the records of the Petitioner's case so far as theyrelate the impugned order (Exhibit "P") refusing topass an order giving effect to the order of thisHon'ble Court in WP No. 448 of 1994 and grantingrefund to the Petitioner and after going through andexamining the question of the validity, propriety andlegality thereof, be pleased to quash the impugnedorder; b. this Hon'ble Court may be pleased to issue a writof mandamus or a writ in the nature of mandamus orany other appropriate writ, order or direction underArticle 226 of the Constitution of India, ordering anddirecting the Respondents to (a) pass the ordersgiving effect to the order of this Hon'ble Court inWrit Petition No. 448 of 1994; (b) forthwith grantrefund of tax along with interest in accordance withthe law and as per the direction of the Hon’bleSupreme Court of India in respect of amounts whichhave been wrongfully detained by the Department;” 28.The amounts having been deposited with Prothonotary andSenior Master, High Court, Bombay, the Prothonotary and SeniorMaster shall foreclose the fixed deposit and pay over the amountincluding interest to Petitioner. 29.The statement of Mr. Mistri on instructions that Petitionershall pay the entire income tax on the interest earned in theFinancial Year in which the amount is received is accepted as anundertaking to this Court. Petitioner will, of course, be entitled tocredit of any TDS that the bank would have deducted and also to 28.The amounts having been deposited with Prothonotary andSenior Master, High Court, Bombay, the Prothonotary and SeniorMaster shall foreclose the fixed deposit and pay over the amountincluding interest to Petitioner. 29.The statement of Mr. Mistri on instructions that Petitionershall pay the entire income tax on the interest earned in theFinancial Year in which the amount is received is accepted as anundertaking to this Court. Petitioner will, of course, be entitled tocredit of any TDS that the bank would have deducted and also to the TDS that Respondents had deducted while depositing theamounts with the Prothonotary and Senior Master, High Court,Bombay as per the figures mentioned above in the same financialyear when the tax is being paid. 30.Mr. Mistri’s statement on instructions that if there is anyclaim made by DAVY or Kvaerner, its successor-in-interest,Petitioner will indemnify and keep indemnified the Departmentharmless including legal fees, if any, is accepted as an undertakingto this Court. No order as to costs. 31.Mr. Sharma seeks for a stay of this order for 90 days. Stay isrefused, particularly in view of the fact that (a) the money is out ofthe hands