Income Tax illegally levied must be refunded: Bombay HC


Income Tax illegally levied must be refunded: Bombay HC




  1. Petitioner had set up a Gas-based Sponge Iron Plant in India for which it entered into a Foreign Technical Collaboration Agreement with one M/s. Davy Mckee Corporation (DAVY) and another party. DAVY was to deliver to Petitioner the necessary design, drawing and data with respect to the Sponge Iron Plant outside India.
  1. Petitioner agreed to pay a sum of US $ 16,231,000/- net of Indian Income-tax, if any, leviable. In other words, it was agreed that if any withholding tax was required to be deducted, it will be borne by Petitioner and DAVY would be paid the net amount of US $ 16.23 millions.
  1. Petitioner sought from Assistant Commissioner of Income Tax (ACIT) to facilitate remittance of the amount due to DAVY on account of the above services without deduction of tax at source. However, ACIT stated that 30% tax is payable on the amount remitted. Accordingly, petitioner paid the sum under protest.
  1. Petitioner, along with DAVY, filed Writ Petition No.448 of 1994 in this Court challenging the constitutional validity of the provisions of Section 9(1)(vii) of the Act, the assessment orders for Assessment Year 1990-91 and 1991-92 in the case of DAVY and the taxability of the amount received by DAVY under the agreement under Section 9(1) (vii) of the Act.
  1. By an order dated 5th May 2010, Hon Bombay HC was pleased to hold that the assessment orders passed by Respondents No.4 and 5 subjecting the income received by DAVY from Petitioner under the agreement dated 22nd October 1989 was not correct and Respondents were directed to pass fresh assessment orders excluding the income received by DAVY by way of fees for technical services from Petitioner under the agreement.
  1. Finally, by an order dated 24th August 2012, the revenue refused to give effect to the order of this Court holding that Petitioner was not entitled to the refund of withholding tax deposited by Petitioner as the same was on behalf of DAVY and, therefore, no effect can be given in the case of Petitioner.

Hon Bombay HC held as below:

  1. In New India Industries Ltd & Anr. v Union of India & Anr. (AIR 1990 Bom. 239) this Court held that taxes illegally levied must be refunded. The doctrine of unjust enrichment has to be applied after having regard to the facts of each case.
  1. Once the appellant succeeds in the Appeal, the Revenue Authorities must proceed on the basis that the appellant did not have any obligation to make the payment.
  1. Thus, the amount wrongly deducted or paid to the Revenue Authorities where it was not required to be paid would become refundable to the appellant.