Rajasthan High Court – Jaipur
Shree Cement Limited vs Deputy Commissioner Of Income Tax on 4 August, 2025
Author: Anand Sharma
Bench: Anand Sharma
[2025:RJ-JP:29052-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
D.B. Civil Writ Petition No. 22244/2018
Shree Cement Limited, Having Registered Office At Bangur
Nagar, Beawar-30591 Rajasthan through its Joint President
Commercial, Arvind Khicha S/o Shri Inder Mal Khicha aged about
56 Years, R/o 5-6 Nanesh Nagar, Near Jawahar Bhawan, Vinod
Nagar, Beawar-305901
----Petitioner
Versus
1. Deputy Commissioner of Income Tax, International
Taxation, Jaipur.
2. Additional Commissioner of Income Tax, Range-3, New
Delhi.
----Respondents
For Petitioner(s) : Mr. Sanjay Jhanwar, Senior Advocate
assisted by Mr. Rajat Sharma
For Respondent(s) : Mr. Siddharth Bapna with
Mr. Meyhul Mittal &
Mr. Rahul Kumar
HON’BLE THE CHIEF JUSTICE MR. K.R. SHRIRAM
HON’BLE MR. JUSTICE ANAND SHARMA
Judgment
RESERVED ON :: 29th July 2025
PRONOUNCED ON :: 04 August 2025
REPORTABLE
(Per Hon’ble Anand Sharma, J.)
1. This writ petition under Article 226 of Constitution of India
has been filed by petitioner in order to assail the certificate of
determination under Section 197(1)/195 of Income Tax Act, 1961
(for short ‘Act of 1961’) dated 13th August 2018 (wrongly referred
as an ‘order’ by petitioner) relating to Tax deducted at Source (for
short, ‘TDS’), authorising petitioner to pay or credit other sums
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upto Rs.30,76,12,500/- after deducting income tax at the rate of
5% to the account of HSBC Bank (Mauritius) Limited, (HSBC
Mauritius), a foreign lender. This pertains to period between 27 th
April 2018 to 31st March 2019. Petitioner has further prayed for a
direction against respondents to refund amount of Rs. 57,71,736/-
being the tax amount deposited by petitioner under protest
pursuant to impugned determination dated 13th August 2018 along
with interest thereon.
2. Brief facts of writ petition are that petitioner, a company
incorporated under Companies Act, 2013, is engaged in
infrastructure projects and renewable energy facilities. For availing
funds for its new long-term project, petitioner entered into an
External Commercial Borrowing (for short, ‘ECB’) agreement dated
20th March 2018 with a non-resident financial institution namely
HSBC Mauritius, which is a tax resident of Mauritius.
3. Section 7(3) of ECB deals with taxes and lays down as
under:-
“7.3:Taxes
(a) All payments to be made by the
Borrower to the Bank under the Facility
Documents shall be made free and clear of
all present and future taxes and deductions
of whatever nature for or on account of tax
unless the Borrower is required to make
such a payment subject to the deduction or
withholding of tax, in which case the sum
payable by the Borrower in respect of which
such deduction or withholding is required to
be made by the Government of India or any
other agency under the Indian Government
or otherwise, shall be increased to the
extent necessary to ensure that, after the
making of the required deduction or
withholding, the Bank receives (free from
any liability in respect of any such deduction
or withholding) a net sum, equal to the sum(Downloaded on 08/08/2025 at 11:41:21 PM)
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deduction or withholding been made or
required to be made.”
4. It has been contended that India has entered into a Double
Taxation Avoidance Agreement (for short, ‘DTAA’) dated 6 th
December 1983 with Mauritius. Petitioner further contends that
Article 11 of DTAA deals with “Interest” and its sub-clause (4) lays
down that interest arising in a contracting State shall be exempted
from tax in that contracting State to the extent approved by
Government of that State, provided that transaction giving rise to
debt-claim has been approved in this regard by Government of
first mentioned contracting State.
5. Following clauses of DTAA are relevant for purpose of dispute
involved in instant writ petition:
“ARTICLE 2
TAXES COVERED
1. The existing taxes to which this
Convention shall apply are:
(a) in the case of India,-
(i) the income-tax including any surcharge
thereon imposed under the Income-tax Act,
1961 (43 of 1961);
(ii) the surtax imposed under the Companies
(Profits) Surtax Act, 1964 (7 of 1964);
DEFINITION
ARTICLE 3
GENERAL DEFINITION
(c) the terms “a Contracting State” and “the
other Contracting State” mean India or
Mauritius as the context requires;
ARTICLE -11
INTEREST
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1. Interest arising in a Contracting State and
paid to a resident of the other Contracting
State may be taxed in that other State.
2……..
3……..
3A……
4. Interest arising in a Contracting State
shall be exempt from tax in that Contracting
State to the ex approved by the Government
of that State if it is derived and beneficially
owned by any person [other than a person
referred to in paragraph (3)] who is a
resident of the other Contracting State
provided that the transaction giving rise to
the debt-claim has been approved in this
regard by the Government of the mentioned
Contracting State.” (emphasis supplied)
6. However, no separate machinery or mechanism has been
specified in DTAA for getting approval of transaction/ agreement
for purpose of taking benefit of exemption as per sub-clause (4) of
Article 11 of DTAA.
7. Petitioner indicated that in similar circumstance, Section
194LC of Act of 1961, introduced by Finance Act, 2012 provides
for dealing with income by way of interest from Indian company
and lays down that where any income by way of interest is
payable to a non-resident, person responsible for making payment
shall at time of credit of such income to account of payee deduct
income-tax at a lower rate of five percent. It further lays down
that where such interest shall be income by way of interest
payable by specified company in respect of monies borrowed by it
in foreign currency from a source outside India under a loan
agreement then such loan agreement should have been approved
by Central Government in this behalf.
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Section 194LC of Act of 1961 reads as under:
“194LC. (1) Where any income by way of
interest referred to in sub-section (2) is
payable to a non-resident, not being a
company or to a foreign company by a
specified company or a business trust, the
person responsible for making the payment,
shall at the time of credit of such income to
the account of the payee or at the time of
payment thereof in cash or by issue of a
cheque or draft or by any other mode,
whichever is earlier, deduct the income-tax
thereon at the rate of five per cent.”
(2) The interest referred to in sub-section
(1) shall be the income by way of interest
payable by the specified company or the
business trust, –
(i) in respect of monies borrowed by it in
foreign currency from a source outside
India,-
(a) under a loan agreement at any time on
or after the 1st day of July, 2012 but before
the 1st day of July 2020; or
(b) by way of issue of long-term
infrastructure bonds at any time on or after
the 1st day of July, 2012 but before the 1st
day of October, 2014; or
(c) by way of issue of any long-term bond
including long-term infrastructure bond at
any time on or after the 1st day of October,
2014 but before the 1st day of July 2020,
as approved by the Central Government in
this behalf”
8. Petitioner further pointed out that simultaneous to aforesaid
introduction of Section 194LC in Act of 1961 and to make it more
workable and effective, CBDT issued an Income Tax Circular
No.7/2012-CBDT dated 21st September 2012 providing for
parameters for approval of loan agreement for availing benefits
under Section 194LC of Act of 1961. It was also acknowledged
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that looking to large number of cases of overseas borrowings, to
mitigate compliance burden and hardship, a concept of deemed
approval was evolved in respect of loan agreements and issue of
long-term infrastructure term bond by Indian companies which
satisfy conditions mentioned in said circular dated 21 st September
2012.
Para 5 and 6 of Circular dated 21 st September 2012 read as
under:
“5. Considering the fact that there would
be a large number of cases of overseas
borrowings or bond issues to be undertaken
by Indian companies, providing a
mechanism involving approval in each and
every specific case would entail avoidable
compliance burden on the borrower/issuer of
bond. In order to mitigate the compliance
burden and hardship, the Central Board of
Direct Taxes [with the approval of Central
Government] hereby conveys the approval
of Central Government for the purposes of
section 194LC in respect of the loan
agreements and issue of long-term
infrastructure term bond by Indian
companies which satisfy the conditions
mentioned in paras A, B and C below:
A. In respect of agreements for loan
a. The borrowing of money should be under
a loan agreement.
b. The monies borrowed under the loan
agreement by the Indian company should
comply with clause (d) of sub section (3) of
section 6 of the Foreign Exchange
Management Act, 1999 read with
Notification No. FEMA3/2000-RB viz. Foreign
Exchange Management (Borrowing or
Lending in Foreign exchange) Regulations
2000, dated May 3, 2000, as amended from
time to time, (hereafter referred to as “ECB
regulations”), either under the automatic
route or under the approval route……….
………………………………………….”
6. In view of the above, any loan
agreement or bond issue, which satisfies the
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above conditions, would be treated as
approved by the Central Government for the
purposes of Section 194LC.
9. Further, it has been averred that in compliance with statutory
framework and Circular dated 21 st September 2012 issued by
CBDT, petitioner applied for and obtained approval under Section
194LC(2)(ia) of Act of 1961 in respect of aforesaid ECB agreement
dated 20th March 2018. It is contended that vide letter dated 23 rd
March 2018, Reserve Bank of India allotted loan registration
No.201803161, which was done as per ECB guidelines. This
approval was granted recognizing that borrowing was made under
an agreement approved for the purpose of providing long-term
infrastructure finance, satisfying statutory requirement for
concessional taxation under Section 194LC of Act of 1961.
10. Subsequently, while making interest payments to foreign
lender, petitioner claimed benefit of Article 11 of applicable DTAA,
which provided for reduced or NIL tax on interest income arising
in a contracting State and received by a tax-resident of other
contracting State (treaty partner country). It has been mentioned
that HSBC Mauritius i.e., foreign lender duly furnished its Tax
Residency Certificate (for short, ‘TRC’) and all other
documentation was made available to demonstrate its eligibility
under DTAA.
11. However, Assessing Officer refused to accept petitioner’s
position contending that unless a separate approval of ECB
agreement, solely accorded for purpose of benefits under DTAA is
issued, petitioner would not be entitled for benefits otherwise
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admissible in Clause 11 of DTAA and thus by issuing impugned
certificate under Section 195(2)/197, limited only for purpose of
Section 194-LC of Act of 1961, petitioner was statutorily obligated
to deduct tax at source at the rate of 5%. Since Foreign lender
was not subjected to any tax liability on interest accrued from any
transaction, by virtue of specific terms under DTAA, petitioner had
to deposit 5% TDS from its own account. Petitioner has submitted
that irrational approach of respondents based upon
misinterpretation of statutory provisions, has caused grave
prejudice and miscarriage of justice to petitioner. Hence, petitioner
has prayed for refunding aforesaid 5% TDS, which albeit not
payable as per DTAA, yet deposited under protest by petitioner.
12. Revenue, through its reply to writ petition, contends that
benefit of DTAA cannot be claimed merely on basis of Section
194LC of Act of 1961 approval. It maintains that Section 195
imposes an independent obligation on any person responsible for
paying any amount chargeable under Act to a non-resident to
deduct tax at applicable rates and if payer seeks to deduct tax at a
lower or NIL rate, a separate approval of Central Government
issued in reference to the terms and conditions of DTAA for
determination under Section 195(2) or a certificate under Section
197, is a mandatory precondition.
13. It is the stand of Revenue that approval granted under
Section 194LC(2)(ia) of Act of 1961 is limited to concessional tax
treatment under domestic law and does not automatically entitle
payer to apply DTAA rates without specific permission from tax
authority under Section 195.
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14. It has also been submitted on behalf of Revenue that taxing
statutes must be construed strictly and there should not be any
interpretation to frustrate manifest object of statute or to allow
taxpayers to circumvent tax liability by resorting to irrational
reasons.
15. An objection has also been raised by Revenue that no
application whatsoever has been filed by petitioner before
competent authority for seeking refund of TDS deposited by it
pursuant to certificate dated 13th August 2018 at the rate of 5%,
hence, relief of refund, as prayed in writ petition, is totally
inconceivable and untenable.
16. Thus, in view of aforesaid facts, first and foremost question
before this Court is whether approval granted in respect of ECB
between petitioner and HSBC Mauritius under Section 194LC(2)
(ia) of Act of 1961 was sufficient to enable petitioner to apply
DTAA rates for determination under Section 195(2) of the Act of
1961 or not?
17. In this regard, we may refer that Section 90(2) of Act of
1961 provides a statutory override in favour of taxpayers. Its bare
reading would lead to an inference that where an agreement to
avoid double tax has been entered into between Government of
India and a foreign country and agreement provides a more
beneficial treatment, then the domestic law provisions of
agreement (DTAA) shall prevail.
18. Section 194LC of Act of 1961, on other hand, is a special
provision introduced to incentivize foreign investment into India
through concessional withholding rates. Sub-section (2)(ia)
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specifically allows Central Government to approve borrowings for
the purpose of long-term infrastructure development, which then
automatically qualifies interest payment for a lower TDS rate of
5%.
19. Indisputably, approval under Section 194LC(2)(ia) of Act of
1961 was granted to petitioner that after due scrutiny by
competent authority and such approval represents a formal
recognition that borrowing qualifies for long-term infrastructure
financing and meets legislative intent of provision.
20. Now, if applicable DTAA provides for an even lower rate; or
NIL rate, as the case may be, of tax on interest income, then by
virtue of Section 90(2), that treaty rate becomes applicable. Once
foreign recipient is established to be a tax-resident of treaty
country and interest income falls within scope of Article 11 of
DTAA, payer must be allowed to apply that concessional rate.
21. Now, even if Section 195(2) is considered to be a mandatory
prerequisite to claim such benefit would negate plain language
and effect of Section 90(2). Section 195(2) is a safeguard
mechanism, and obviously not a gateway for eligibility. It is meant
to be invoked in cases where there is doubt as to chargeability of
payment and not where transaction is transparent and duly
approved by the Government.
22. The DTAA under sub-clause (4) of Article 11 only provides
that the transaction giving rise to the debt claim has to be
approved in that regard by the Government of the mentioned
contracting State, which, in this case is India. Admittedly, it has
been given approval because in the certificate dated 13 th August
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2019 issued under Section 197 (1), the Assessing Officer has
authorised the assessee-petitioner to pay interest to HSBC
Mauritius after deducting income tax @ 5%. The DTAA does not
prescribe any separate permission to be obtained.
23. Therefore, we are of the considered view that to demand
another certificate or approval of agreement addressing terms and
conditions of DTAA in such cases amounts to duplication and a
formalistic interpretation of tax law, which cannot be appreciated
in light of facts and circumstances of case. Rather requiring
multiple clearances for the same transaction not only hampers
ease of doing business but also undermines legislative intent
behind Sections 194LC and 90 of Act of 1961.
24. As regards objection raised by Revenue that petitioner has
not filed any application for refund in instant matter, it would be
sufficient to observe that petitioner was not a representative
assessee of foreign lender ‘HSBC Mauritius’, within the meaning of
Section 160 of Act of 1961 and, therefore, it could not have filed a
refund claim for tax deducted at source. Legal relationship
between petitioner and HSBC Mauritius was purely contractual,
governed by ECB agreement and petitioner was under a statutory
duty to deduct TDS only insofar as required by law. There is
nothing on record to suggest that HSBC Mauritius had authorized
petitioner to act on its behalf in tax proceedings, nor is there any
statutory deeming provision applicable in this case that would
render petitioner its representative assessee.
25. As such, the Revenue’s expectation that petitioner ought to
have filed for refund of excess TDS on behalf of HSBC is wholly
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misplaced and contrary to settled tax jurisprudence. Mere fact that
petitioner had filed an application under Section 195, even though
not strictly mandatory in light of Section 90(2) and DTAA
eligibility, reflects a bona fide effort on its part to comply with law
and avoid any future dispute. That application was, in effect,
indicative of transparency, not a precondition to DTAA benefit.
26. Moreover, approval granted under Section 194LC(2)(ia) of
Act of 1961, which Revenue itself has never disputed, was based
on a thorough evaluation of ECB agreement entered into between
petitioner and HSBC. Once such approval is granted, it logically
follows that same agreement qualifies not just for concessional
treatment under domestic law but also triggers beneficial
treatment under DTAA, wherever applicable.
27. We find that conduct of Revenue to accept validity of
agreement under Section 194LC, at one hand and, yet
simultaneously reject its relevance for DTAA purposes, is to adopt
an inconsistent and contradictory position which this Court cannot
countenance.
28. For the foregoing reasons, this Court is of firm view that
approval granted under Section 194LC(2)(ia) of Act of 1961 is
substantive and sufficient for applying DTAA rate on interest
payments to foreign lender. Foreign lender’s eligibility under DTAA
having been established through supporting documentation, no
further separate approval under Section 195(2) or Section 197
was required.
29. On the issue of entitlement of petitioner for getting refund of
TDS deposited under protest at the rate of 5%, it would be
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relevant that almost similar question arose before Bombay High
Court in case of Grasim Industries Ltd. Vs. Assistant
Commissioner of Income Tax and Ors., 1 where Division Bench
of Bombay High Court observed as under:
“20. In our view, the consequence of the
above provisions is that 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. 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. Of course,
that is subject to the condition that the person
receiving the payment has not claimed credit
for the same or is not claiming credit for the
same.
22. The Department had also issued two
Circulars No. 769 dated August 6, 1998
([1998] 232 ITR (St.) 25 ) and No. 790 dated
April 20, 2000 ([2000] 243ITR (St.) 58).
Though the petitioner is not claiming any relief
under those circulars, these circulars are also
pointers to the effect that in appropriate cases
Revenue authorities must grant refund and/or
return the sums collected without lawful
authority, independent of the provisions of the
Act.
The Central Board of Direct Taxes (“CBDT”)
issued a Circular No. 7 of 2007 dated October
23, 2007 ([2007] 294 ITR (St.) 32)
highlighting further problems regarding
procedure for refund of tax deducted at
source. Based on representation received from
taxpayers to take into account situations
where genuine claim for refund arises to the
person deducting tax at source from payment
to the non-resident, the Central Board of
Direct Taxes amended Circular No. 790 dated
April 20, 2000. In Circular No. 7 of 2007 dated
October 23, 2007, the Central Board of Direct
Taxes was conscious of situation where non-
resident may not apply for refund which would
put the resident deductor to genuine hardship
as he would not be able to deduct and deposit
as tax. The circular states that where no
income has accrued to the non-resident due to
1 2023(6)BomCR240
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accrued but no tax is due on that income or
tax is due at a lesser rate the amount
deposited to the credit of Government to that
extent under section 145 cannot be said to be
“tax”. The circular further states that this
amount can be refunded with prior approval of
the Chief Commissioner of Income-tax or the
Director General of Income-tax concerned, to
the persons who deducted it from the payment
to the non-resident under section 195 of the
Act.
23. In our view, the refusal of the
Department to return the amount and
retaining the same is unauthorised by law and
would only amount to unjust enrichment by
the Department on technical grounds.
24. The apex court in CIT v. Shelly Products
[2003] 261 ITR 367 (SC), as relied upon by
Mr. Mistri, has held that where an assessee
chooses to deposit by way of abundant caution
advance tax or self-assessment tax which is in
excess of his liability on the basis of return
furnished or by mistake or inadvertence or on
account of ignorance, included in his income
any amount which is exempted from payment
of Income-tax or is not an income within the
contemplation of law, he can certainly make
such claim before the concerned authority for
refund and he must be given that refund on
being satisfied that refund is due and payable.
Not giving the refund, in our view, would be in
breach of article 265 of the Constitution of
India which states, “no tax shall be levied or
collected except by authority of law”.
In New India Industries Ltd. v. Union of India,
AIR 1990 Bom 239 the 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.
25. In Nirmala L. Mehta v. A.
Balasubramanian, CIT [2004] 269 ITR 1 (Bom)
the court relying on a Constitution Bench
judgment of the Supreme Court in
Amalgamated Coalfields Ltd. v. Janapada
Sabha, AIR 1961 SC 964 opined that
acquiescence to illegal tax for a long time is
not a ground for denying the party the relief
that he is entitled to.
26. In Balmukund Acharya v. Dy. CIT [2009]
310 ITR 310 (Bom) the court held that the
authorities under the Act are under an
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obligation to act in accordance with the law.
Tax can be collected only as provided under
the Act. If any assessee, under a mistake,
misconceptions or on not being properly
instructed is over assessed, the authorities
under the Act are required to assist him and
ensure that only legitimate taxes due are
collected. Paragraphs 31, 32 and 33 of
Balmukund Acharya (supra) read as under
(page 318 of 310 ITR) :
“Having said so, we must observe that the
apex court and the various High Courts have
ruled that the authorities under the Act are
under an obligation to act in accordance with
law. Tax can be collected only as provided
under the Act. If any assessee, under a
mistake, misconceptions or on not being
properly instructed is over assessed, the
authorities under the Act are required to assist
him and ensure that only legitimate taxes due
are collected (see S. R. Koshti v. CIT [2005]
276 ITR 165 (Guj), C. P. A. Yoosuf v. ITO
[1970] 77 ITR237 (Ker), CIT v. Bharat General
Reinsurance Co. Ltd. [1971] 81 ITR303 (Delhi)
and CIT v. Smt. Archana R. Dhanwatay [1982]
136 ITR355 (Bom).
If particular levy is not permitted under the
Act, tax cannot be levied applying the doctrine
of estoppel. (See Dy. CST (Revenue) v. Sreeni
Printers [1987] 67 STC 279 (Ker).
This court in the case of Nirmala L. Mehta v. A.
Balasubramaniam, CIT [2004] 269 ITR 1
(Bom) has held that there cannot be any
estoppel against the statute. Article 265 of the
Constitution of India in unmistakable terms
provides that no tax shall be levied or collected
except by authority of law. Acquiescence
cannot take away from a party the relief that
he is entitled to where the tax is levied or
collected without authority of law. In the case
on hand, it was obligatory on the part of the
Assessing Officer to apply his mind to the facts
disclosed in the return and assess the
assessee keeping in mind the law holding the
field.”
30. This court entirely concurs with reasoning given by Bombay
High Court in Grasim Industries Ltd. (supra) [authored by one
of us (the CJ)] and holds that for foregoing reasons, where despite
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there being no statutory obligation petitioner bonafidely deposited
5% under protest, Revenue cannot be allowed to retain the same
and is bound to refund the same to petitioner.
31. Accordingly, writ petition is allowed. Impugned action of
Revenue in denying DTAA benefit is hereby quashed and set aside.
Respondents are directed to allow petitioner to apply beneficial
lower rate of DTAA, including NIL rate if applicable, on the interest
payable to foreign lender in accordance with terms of applicable
DTAA, read with approval granted under Section 194LC(2)(ia) of
Act of 1961.
32. Revenue is directed to extend benefit of concessional tax
deduction or NIL rate of TDS, as the case may be, under DTAA to
petitioner in respect of interest paid to HSBC Mauritius, in
accordance with valid government approval already on record.
33. In view of foregoing findings and conclusion reached
hereinabove that petitioner was under no legal obligation to
deduct tax at source under Section 195 of Act of 1961, at the rate
of 5% in light of beneficial provisions of applicable Double Taxation
Avoidance Agreement (DTAA) read with Section 90(2) of Act of
1961, it is further directed that concerned authority of Income Tax
Department shall refund 5% TDS amount deposited by petitioner
along with applicable interest under Section 244A of Act of 1961
within a period of eight weeks from the date of this judgment.
(ANAND SHARMA),J (K.R. SHRIRAM),CJ
-/57
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