Tax Authority instructed to return HSBC's voluntary deposit

7 Dec 2023 , 10:49 AM

The Hong Kong and Shanghai Banking Corporation (HSBC) has been given relief by the Bombay High Court, which has directed the tax department to return its voluntary tax deposit to the banking giant.

The bank had willingly deposited the money, according to the department of revenue, which had denied the reimbursement.

The high court found that the department was unable to provide any Finance Act of 1994 provisions that would have permitted them to keep the money, and it ruled that the rejection of the return was unlawful since it contravened Articles 265 and 14.

An audit of HSBC’s books and records was conducted from March 2007 to 2012. The auditor brought to HSBC’s attention that it had failed to pay service tax on interchange money received during the specified time frame. Despite the tax authorities not making a service tax demand, HSBC voluntarily deposited Rs 56 crore following the release of the audit findings.

Following the release of the final audit report, HSBC requested a refund since the tax department had appropriated the deposited funds without issuing a notice of cause.

The petitioner had paid the money freely, according to the tax department, and the validity of the deposit was immaterial because the Supreme Court was considering a case involving a related issue.

The GS Kulkarni and Jitendra Jain bench ruled that HSBC should not have been allowed to refuse the bank’s return since the bank had deposited the money out of protest and not because it had agreed to pay service tax on that particular account. The department of taxation stated, ‘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 was holding the money without authorization as it hadn’t made a demand for it in accordance with any legal provisions and hadn’t given the petitioner a show-cause notice, 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 judge stated.

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