Banking News

Taxman: Taxman told to refund HSBC voluntary deposit

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The Bombay High Court has granted relief to the Hong Kong and Shanghai Banking Corporation (HSBC), directing the tax department to refund its voluntary tax deposit to the banking behemoth.

The department of revenue had rejected the refund saying the bank had voluntarily deposited the amount.

The high court concluded that the rejection of the refund was illegal as it violated Article 265 read with Article 14, and observed that the department couldn’t point out any provision under the Finance Act, 1994 that it allow them to retain the amount.

HSBC had its books and records audited for the period March 2007 to 2012. The auditor pointed out that HSBC had not paid service tax on the interchange income earned during the aforesaid period. As a result of the audit report, HSBC had deposited ₹56 crore voluntarily, although no service tax demand was made by the tax department.

HSBC sought a refund after the final audit report as no show cause notice was issued about appropriation of the deposited amount by the tax department.

The tax department had argued that the petitioner had voluntarily deposited the amount, and the legitimacy of the deposited amount was irrelevant as a similar subject matter was pending before the Supreme Court.The bench of Justices GS Kulkarni and Jitendra Jain held that HSBC had deposited the amount under protest and not because it accepted any liability to pay service tax on such count so the rejection of refund to the bank was illegal. The tax department argued, “that the issues are now sub judice before the Supreme Court and as the matter would be required to be now decided by the larger bench of the Supreme Court in such a situation, the respondents would be justified in retaining the amounts.”The tax department hadn’t raised a demand for the amount under any provision of law and failed to issue a show cause notice to the petitioner; therefore, the department was holding the amount without any authority, the bench said.

“In the absence of such steps being taken, the legal character of the deposit of the said amounts…would continue to remain as amounts deposited under protest and retained by the department not as a tax or under an authority in law,” the court remarked.

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