Over an issue of tax refund, a division bench of the Gujarat high court has rejected the income tax departments appeal against Nirma Chemicals Works Limited (NCWL).

The department challenged the order of Income Tax Appellate Tribunal (ITAT) before a bench comprising Justices Akil Kureshi and Sonia Gokani. The ITAT had held that NCWL was entitled to get the refund.

Nirma Chemicals Works Limited had filed returns of income on 20.11.2000 for assessment year 2000-2001. During the year under consideration, it had purchased 54,368 special premium notes (SPNs) of Nirma Ltd at the rate of Rs. 355 per note having face value of Rs. 200.

Such SPNs were redeemed during the same year at the rate of Rs. 361. NCWL thus earned net income of Rs.268908 and offered it as its business income.

Since Nirma Ltd had deducted tax at source on entire difference between face value of Rs.200 and redemption price of Rs. 361 and thus collected Rs.1925715, NCWL claimed refund of such TDS.

However, the Assessing Officer declined the claim. This issue was raised before the CIT (Appeals) who also declined the claim. However, the ITAT in appeal accepted the case of the company.

Referring to Section 199 of the Income Tax Act and putting stress on words for the assessment year for which such income is assessable, the tribunal had found that there was no dispute that NCWL was owner of the security which after purchase from market was redeemed.

It observed that the tax was deducted from amount payable to the NCWL and it alone was entitled to claim credit for such security. The Tribunal opined that in transaction for earning this income NCWL had already offered such income to tax and income corresponding to the tax deducted at source was not included as income of the NCWL.

The division bench noted in an order made available today, When M/s. Nirma ltd had deducted tax at source on such transaction and when it was found that such tax was in excess of tax liability of the assessee, tribunal in our opinion rightly directed the Assessing Officer to refund the same.

Senior counsel Manish Bhatt along with Mauna Bhatt appeared for the income tax department.