Based upon an inconclusive or tentative opinion of an AO, no breach of Article 265 can be alleged or established: Bombay HC
Fcbulka Advertising Pvt Ltd vs Assistant Commissioner Of Income Tax (WP No. 3442 of 2022)
Facts:
1. Petitioner paid DDT @ 20.358% on dividend to its Mauritius shareholder, while it claimed that under Article 10(2) of the India–Mauritius DTAA, the correct rate was only 5%.
2. So it sought a refund of ₹20.73 crore (excess DDT). On 29 Nov 2018, the AO had sent a letter acknowledging the refund based on “preliminary verification”.
3. However, on 16 June 2022, the AO refused to grant the refund stating that the earlier communication wasn’t a statutory order.
4. Petitioner insisted that the 29 Nov 2018 letter should be treated as a final statutory order under Section 237 of the Income Tax Act. He also maintained that retention of tax in excess violates Article 265 of the Constitution. Also, refund was not claimed in ITR due to lack of provision in ITR-6; hence a separate application was made.
5. Revenue claimed that the refund claim is invalid without filing a revised return as per Section 239 read with Rule 41. The 29 Nov 2018 letter is not a statutory order, but only a preliminary opinion. It also opined that on merits, the DDT is a company-level tax, and treaty benefits (like Article 10) do not apply to the company paying DDT.
Hon Bombay HC held as below:
1. Before a person can be entitled to a refund, the Assessing Officer must satisfy that such an entitlement is in accordance with the provisions of the IT Act, and there must be a final determination of the correctness of the claim for refund. Based upon an inconclusive or tentative opinion of an AO, no breach of Article 265 can be alleged or established.
2. Section 237 of the IT Act refers to the phrase “satisfied”. The phrase satisfaction means fully and conclusively satisfied and not a prima facie satisfaction. On a reading of communication dated 29 November 2018, it cannot be said that Respondent No.1-Assessing Officer was fully satisfied with the entitlement of the Petitioner to the refund.
3. However, having said so, the principles of natural justice and fair play were not complied with before the issuance of the impugned communication dated 16 June 2022.
4. Communication dated 16 June 2022 is quashed. 29 November 2018 letter is not treated as a final order. AO must now determine the refund claim afresh after giving hearing and pass a speaking order within 8 weeks.
The copy of the order is as under:
