Case: M/S. Sunflag Iron &amp; Steel Company Limited Vs. The Central Board of Direct Taxes, Ministry of Finance, Govt. of India &amp; Another

Apex Court in the case of Kerala Financial Corporation v. Commissioner of Income Tax reported in AIR 1994 SC 2416 (cited supra), which read as under :13. Shri Salve would however, urge that a little different view of the matter had been taken by two-Judge Bench of this Court in K.P. Varghese v. Income Tax Officer, 131 ITR 597 : (AIR 1981 SC 1922 ) in which it was observed at page 613 that circulars issued under the aforesaid provisions are binding on all officers "even if they deviate from the provisions of the Act". As to what was sought to be conveyed by the word deviate is not clear to us. This much, however, is apparent that this Court did not mean, while saying as above, that circulars can override any provision of the Act or to put in the language of Mukharji, J. detract from the Act. Though Shri Salve has urged that the decision in Varghese has been affirmed by a Constitution Bench in C.B. Gautam v. Union of India, (1993) 1 SCC 78 , reference to that case shows that Vargheses case was mentioned in para 22 while stating that the conclusion arrived at, namely, that the provisions of Chapter XXC of the Act are to be resorted to only where there is significant undervaluation of the immovable property with a view to evading tax, finds support from the decision in Varghese. This shows that what was stated about permissibility of circulars to deviate from the provisions of the Act was not one which was affirmed by the Constitution Bench.No doubt that it is an equally settled that the circulars issued by the Board in exercise of its powers under Section 119 of the Act would be binding on the Taxing authorities, even if they deviate from the provisions of the Act, so long as they seek to mitigate the rigor of the particular Section for the benefit of the assessee. The reference in this respect be made to the decision in Uco Bank, Calcutta .vs. Commissioner of Income Tax, W.B. reported in (1999) 4 SCC 599. However, in the present case, the respondents are not relying on any circular which can be said to mitigate the hardships of assessee. On the contrary, the reliance is sought to be placed on a communication by CBDT to the Commissioner of Income Tax, Pune in support of the contention that the refund is only made gratuitously and independent of the provisions of the Act.25. At the cost of repetition, we have no hesitation in holding that the refund made by the respondents would squarely fall within the ambit of Section 240 of the said Act, inasmuch as Their Lordships in the case of Tata Chemicals (cited supra) have clearly held that the provisions of Section 240 are wide enough and they include all sorts of proceedings. Undisputedly, the tax which was deducted and paid by the assessee was under the provisions of Sections 195 and 201 of the said Act. Undisputedly, the advance tax which was paid was more than the liability to pay the tax. The tax was deducted and paid on an anticipation that the third instalment was to be paid to the non-resident German company. However, after the agreement with the non-resident German company, whereby it had waived the third instalment, the TDS on account of the payment of the third instalment was required to be refunded by the respondent Revenue.26. If the contention as raised by the Revenue is to be accepted, it would result in causing great hardship to the honest taxpayers. If an honest taxpayer on account of anticipated liability deducts more amount of tax and deposits the same and ultimately if it is revealed that there was no liability to pay the tax, then in such a case permitting the Revenue to retain that tax and not to permit refund to the person who has honestly deposited the said amount, would be permitting unjust enrichment of the State and depriving the honest taxpayer of his legitimate due. We find that such an interpretation would not also be permissible in view of public policy.27. In the result, we find that the petitioners case is squarely covered by the provisions of Section 244A(1)(b) of the Act. However, the only question is as to from what date the respondents should be directed to pay the interest. Undisputedly, though the TDS was deducted and deposited at earlier point of time, the agreement between the petitioner and the German company was executed only on 1.7.1992 wherein the German company waived the instalment. However, even after that date, the petitioner waited till 31.1.1994 to make an application for refund. It is only when the petitioner brought to the notice of the respondent authorities that the German company had agreed to waive the third instalment and as such, the petitioner was entitled to refund of the TDS deducted and deposited on account of third instalment, the respondent Revenue would come to know about the same.28. In so far as the submission of Shri Thakur is concerned, we find that in the peculiar facts and circumstances of the case the petitioner would be entitled to refund only from the date on which the petitioner had applied for refund and brought the factual aspect to the notice of the respondent authorities. It is well-settled that the law comes to the assistance of the vigilant and diligent. If the petitioners have chosen to be in slumber for long years, the respondents cannot be fastened with the liability for a period earlier to the date on which the petitioners have woken and brought this factual position to the notice of the respondents.29. In that view of the matter, we find that in the interest of justice, it would be appropriate to restrict the claim of the petitioner for interest in accordance with the provisions of Section 244A from 31.1.1994 till the date on which the actual amount was paid to the petitioners.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10. In the light of the aforesaid import of subsection (7) of Section 2, it will be relevant to refer to the provisions of Sections 163160 of the said Act. The perusal of clause (b) ofsubsection (1) of Section163 would reveal that for the purposes of the said Act, in relation to anany person in India who has any business connection with thewould be an agent. Similarly, any person in India from or through whom the nonresident has received directly or indirectly any income would be an agent for the purposes of the said Act in relation to such aThe perusal of Section 160 would reveal that clause (i) provides that in respect ofnonresident specified in subsection (1) of9, an agent of theincluding a person who is treated as an agent under Section 163 would be a representative assessee for the purposes of the said Act. It is not in dispute that the income with which we are concerned in the present matter, is squarely covered bysubsection (1) of Section9 of the said Act. It is also not in dispute that the petitioners had a business connection with the said nonresident German company. It is also not in dispute that the income which the Germancompany had received or was entitled to receive was directly through the present petitioners. In that view of the matter, we find that the present petitioner would squarely fall within(b) of Section 2(7) of the said Act.In the background of the aforesaid legal provisions, let us examine the factual position as is appearing in the present matter. The position that would emerge is that the petitioner had entered into an agreement with the Germancompany for supply of technical knowhow. It had agreed to pay the amount to the said company in three instalments. Out of the three instalments, the first two instalments were paid to the German company. The German company failed to supply further technical knowhow and as such, agreed to waive the third instalment and as such, the said amount was not paid to the German company. The petitioner had deducted TDS as was required under Section 195 for all three instalments and also deposited the said TDS on account of all the three instalments with the Revenue as required under Section 201. If the petitioner had failed to deduct the amount or after deducting failed to deposit the same with the Revenue, he would have squarely fallen in the term of assessee in default as is provided in Section 201. We are, therefore, also of the considered view that the petitioner would also be covered by(c) of Clause 7 of Section 2 of the said Act.14. As such, the petitioner would fall in both the clauses (b)(c) of Clause 7 of Section 2 and would be an assessee within the meaning of the said Act. In that view of the matter, we find that the view taken by the respondent Department that the petitioner was not an assessee and as such, not entitled to apply for refund or interest is not a correct view in law.We further find that the contention of the Revenue that the CBDT had gratuitously granted refund and, therefore, the petitioners are not entitled to interest thereon is without substance.At the cost of repetition, we have no hesitation in holding that the refund made by the respondents would squarely fall within the ambit of Section 240 of the said Act, inasmuch as Their Lordships in the case of Tata Chemicals (cited supra) have clearly held that the provisions of Section 240 are wide enough and they include all sorts of proceedings. Undisputedly, the tax which was deducted and paid by the assessee was under the provisions of Sections 195 and 201 of the said Act. Undisputedly, the advance tax which was paid was more than the liability to pay the tax. The tax was deducted and paid on an anticipation that the third instalment was to be paid to thenonresident German company.However, after the agreement with theGerman company, whereby it had waived the third instalment, the TDS on account of the payment of the third instalment was required to be refunded by the respondent Revenue.In the result, we find that the petitioners case is squarely covered by the provisions of Section 244A(1)(b) of the Act. However, the only question is as to from what date the respondents should be directed to pay the interest. Undisputedly, though the TDS was deducted and deposited at earlier point of time, the agreement between the petitioner and the German company was executed only on 1.7.1992 wherein the German company waived the instalment. However, even after that date, the petitioner waited till 31.1.1994 to make an application for refund. It is only when the petitioner brought to the notice of the respondent authorities that the German company had agreed to waive the third instalment and as such, the petitioner was entitled to refund of the TDS deducted and deposited on account of third instalment, the respondent Revenue would come to know about the same.28. In so far as the submission of Shri Thakur is concerned, we find that in the peculiar facts and circumstances of the case the petitioner would be entitled to refund only from the date on which the petitioner had applied for refund and brought the factual aspect to the notice of the respondent authorities. It isthat the law comes to the assistance of the vigilant and diligent. If the petitioners have chosen to be in slumber for long years, the respondents cannot be fastened with the liability for a period earlier to the date on which the petitioners have woken and brought this factual position to the notice of the respondents.29. In that view of the matter, we find that in the interest of justice, it would be appropriate to restrict the claim of the petitioner for interest in accordance with the provisions of Section 244A from 31.1.1994 till the date on which the actual amount was paid to the petitioners.