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

2. The facts in the present case are not in dispute. The petitioner is a steel manufacturing company. The petitioner when it was in the process of establishing an integrated steel plant at Bhandara entered into an agreement with M/s. Mannesmann Demag (MDH) Germany (hereinafter referred to as the German company) on 8.11.1985 for transfer of technical knowhow. As per the said agreement, the petitioner company was required to make the payment of technical knowhow fee in three instalments of Rs.25,48,333/That the petitioner Company in pursuance to the said agreement deducted tax at source (TDS) and paid/deposited thesame with respondent as detailed below :Amount paid to MDH (Germany) in D.M.TDS in Rs.Date of payment Offor the third and final instalment and deposited the same in advance with the Assistant Commissioner of Income Tax, SurveyPermanent Account No.2 in accordance with the provisions of Section 195 of the Act.4. Subsequently, since the German company was not able to fulfil its obligations, an agreement was entered into on 1.7.1992 between the petitioner company and the German company vide which the German company agreed to waive the payment of third instalment of technical knowhow fee, amounting to Rs.25,48,334/DM and treat the payment of first and second instalments as full and final payment against the contract. The petitioners subsequently on 31.1.1994 filed an application claiming refund of the amount of Rs.53,70,567/which was deposited as advance TDS towards the third instalment of the payment which was to be made to the German company and in fact which payment was not made to the German company. The petitioners as directed by the Department executed an indemnity bond for the said amount of Rs.53,70,567/on 18.2.1994. On 24.3.1994 the Deputy Commissioner of Income Tax, SpecialNagpur addressed a communication to the Commissioner of Income Tax, Vidarbha, Nagpur stating that since in the present case there was no excess tax liability, he was of the opinion that the excess tax deducted at source should be refunded to the assessee company. However, since going through note of his predecessor on theit was noticed that in similar situation the Chief Commissioner of Income Tax had referred the matter to the Central Board of Direct Taxes, he requested the Chief Commissioner of Income Tax to give necessary clarification.5. The Central Board of Direct Taxes vide the communication dated 18.7.1995 informed the Chief Commissioner of Income Tax, thereby conveying the authorization of the Board for grant of refund of Rs.53,70,567/independent of the provisions of the said Act to the petitioner. However, it was made subject to certain administrative safeguards. Needless to state that the conditions stipulated in the said communication were complied with by the petitioner and accordingly, on 28.2.1996 the aforesaid amount of Rs.53,70,567/was refunded to the petitioner. After the said amount was refunded, the petitioners on 19.3.1996 made an application for interest in view of the provisions of Section 244A of the Act. The said request was rejected by communication dated 20.4.1996 by the Deputy Commissioner of Income Tax, Nagpur. Since the request of the petitioner was not considered, several reminders were sent to the respondent. However, since the respondents did not consider the request for grant of interest, the petitioner moved Delhi High Court seeking a direction to the respondents to pay the interest. However, the Division Bench of Delhi High Court was of the view that it did not have territorial jurisdiction to entertain the petition and it is the Nagpur Bench of the Bombay High Court which had a territorial jurisdiction and, as such, dismissed the petition for want of territorial jurisdiction, reserving the right of the petitioner to approach this Court. After the orders were passed by the Delhi High Court on 2.7.1998, the present petition has been filed. Rule was granted in the matter on 22.12.1998. Thereafter the respondents have also filed on record their submission on affidavit.

Court's reasoning:
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.