No provision in DTVSV Act authorizing recovery of interest paid earlier by the Department u/s 244A of the IT Act

Writ Petition is filed under Article 226 of Constitution of India before the Bombay HC challenging the validity of Form-3, dated 30th January, 2021 and 26th March, 2021 issued under Section 5 of the Direct Tax Vivad Se Vishwas Act, 2020 (the “DTVSV Act”) by the Designated Authority for Assessment Year 2003-2004.

This Petition raises two issues for our consideration:

1. The first is whether the Appeal, that is pending before the ITAT is an assessee Appeal or a Revenue Appeal.
2. The second issue is whether an interest of Rs.7,75,272/- granted under Section 244A of the IT Act to Petitioner earlier can be recovered by the Respondents by adding the same to the amount of disputed tax otherwise payable by Petitioner under the DTVSV Act.

Facts

• Petitioner is a bank established in The Netherlands and is part of the Rabobank Group worldwide. It is submitted that Petitioner is a regular assessee under the Income Tax Act, 1961 (the “IT Act”).
• A return of income dated 28th November 2003 was filed declaring Nil income. On 7th March 2006, an Assessment Order was passed assessing business profits attributable to a permanent establishment (PE) at Rs.1,50,75,790/-.
• Aggrieved by the said order, the assessee filed an appeal on 19th April 2006 before the Commissioner of Income Tax (Appeals) (“CIT(A)”). On 31st January 2007, CIT(A) passed an order holding that Petitioner does not have PE in India and deleted the addition made by the Assessing Officer.
• The order giving effect to the CIT(A) order was passed on 16th April 2007 pursuant to which a sum of Rs.7,75,272/- was paid by the Revenue to Petitioner as interest under Section 244A of the IT Act on the refund due to the Petitioner.
• Aggrieved by the order of the CIT(A), the Department filed an Appeal before the Tribunal on 8th May, 2007. On 1st April, 2015, the Tribunal passed an order partly allowing Revenue’s Appeal and restoring the issue of whether Petitioner has a permanent establishment in India under certain provisions of the India-Netherlands double taxation avoidance agreement to the Assessing Officer.
• Aggrieved by the order of the Tribunal, Petitioner filed an Appeal before this Court

Observations and Findings

Assessing Officer had made addition with respect to a permanent establishment in the case of Petitioner and consequently denied it benefit of the double taxation avoidance agreement.

The entire income was taxed at 40% instead of 10% as declared by Petitioner. Then the matter was appealed to CIT(A). The additions were deleted. Against the said deletions, the Department filed an Appeal before the ITAT being ITA No. 3633/Mum/2007 against the order of CIT(A). The Tribunal restored the matter back to the Assessing Officer for fresh examination. It is stated that the Department had accepted this order of the ITAT.

There is no provision in the DTVSV Act that authorizes recovery of interest paid earlier by the Department under Section 244A of the IT Act by adding the same to the amount of disputed tax in the manner sought to be done. In this view of the matter, the addition of Rs.7,75,272/- to the disputed tax in the impugned Form-3 is bad in law.

Judgment

Bombay HC ordered to quash and set aside Form-3 dated 26th March 2021 issued by Respondent No. 1 for Assessment Year 2003- 04. We direct Respondent No.1 to issue fresh Form-3 to Petitioner determining the amount of disputed tax. Petitioner to make payment of the disputed tax so determined within a period of two weeks of the issuance of revised Form -3.

Section 6 of the DTVSV Act prohibits the Department from recovering any interest. Section 6 of the DTVSV Act does not permit Designated Authority to charge interest on tax arrears defined under the DTVSV Act, however, to say that there is a complete prohibition from recovery, may not be correct as the restraint to institute proceedings is only in respect of an offense but not for recovery of interest on refund concerned in the present matter. It is also not necessary for us to dwell into whether the Revenue can take recourse to Section 244A (3) of the IT Act as suggested by Learned Senior Counsel Mr. Pardiwala or take recourse to Section 234D of the IT Act as suggested on behalf of the Revenue, as it is always open for the Revenue to take steps as per law.