- 1 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 IN THE HIGH COURT OF KARNATAKA, AT DHARWAD DATED THIS THE 5TH DAY OF NOVEMBER, 2025 BEFORE THE HON'BLE MR. JUSTICE M.NAGAPRASANNA WRIT PETITION NO. 104997 OF 2025 (T-RES) BETWEEN: M/S. N.S. NAYAK AND SONS, PLOT NO.8, “SHREE SAI”, OLD INCOME TAX OFFICE ROAD, VIDYANAGAR, HUBBALLI, DIST: DHARWAD-580 021, REP. BY ITS PARTNER, SHRI NARESH S. NAYAK … PETITIONER (BY SRI.PRAMOD Y.VAIDYA & SMT. PREETI SHASHANK, ADVOCATES) AND: 1. THE BRANCH MANAGER, UNION BANK OF INDIA, NEW COTTON MARKET BRANCH, MOORUSAVIRAMATH GINNING & PRESSING BUILDING, BASAVANA VANA, HUBBALLI, DIST: DHARWAD-580 029, (FORMALLY KNOWN AS CORPORATION BANK) 2. THE MANAGING DIRECTOR AND CEO, UNION BANK OF INDIA, UNION BANK BHAVAN, NO.239, VIDHAN BHAVAN MARG, NARIMAN POINT, MUMBAI - 400 021. 3. THE INCOME TAX OFFICER, TDS WARD, CENTRAL REVENUE BUILDING, Digitally signed by SANJEEVINI J KARISHETTY Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 NAVANAGAR, HUBBALLI, DIST: DHARWAD - 580 025. 4. THE ASSISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE, CENTRAL REVENUE BUILDING, NAVANAGAR, HUBBALLI, DIST: DHARWAD - 580 025. … RESPONDENTS (BY SRI. GIRISH S.HULMANI, ADVOCATE FOR R1 & R2; SRI M.THIRUMALESH, ADVOCATE FOR R3 & R4) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO I) ISSUE A WRIT OF MANDAMUS BY DIRECTING THE RESPONDENT NO.1 AND RESPONDENT NO.2 TO TAKE STEPS FOR REFUND TDS AMOUNT OF RS.1,02,60,449/- WHICH WAS WRONGLY MADE ON FDR'S OF COURT DEPOSITS AND RE-CREDIT THE AMOUNT TO FDR'S OF COURT DEPOSIT WITH INTEREST AS APPLICABLE TO FIXED DEPOSIT FROM TIME TO TIME TILL TO THE DATE OF RE-CREDIT; II) ISSUE A WRIT OF MANDAMUS BY DIRECTING TO THE RESPONDENT NO.3 AND RESPONDENT NO.4 TO REFUND TDS AMOUNT OF RS.1,02,60,449/-WHICH WAS WRONGLY MADE ON FDR' OF COURT DEPOSITS WITH APPLICABLE INTEREST TO THE RESPONDENT NO.1 BANK FOR RE-CREDIT THE SAME TO FDR'S OF COURT DEPOSIT WITH INTEREST AS APPLICABLE TO FIXED DEPOSIT TO THE DATE OF RE-CREDIT; III) ISSUE ANY OTHER WRIT, ORDER OR DIRECTION WHICH THE PETITIONER IS FOUND ENTITLED TO IN THE PRESENT FACTS AND CIRCUMSTANCES INCLUDING COST OF THE PRESENT. THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: - 3 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 CORAM: THE HON'BLE MR. JUSTICE M.NAGAPRASANNA ORAL ORDER (PER: THE HON'BLE MR. JUSTICE M.NAGAPRASANNA) The petitioner is before this Court seeking the following prayers: i) Issue a writ of mandamus by directing the Respondent No.1 and Respondent No.2 to take steps for refund TDS amount of Rs.1,02,60,449/- which was wrongly made on FDR’s of Court Deposits and re-credit the amount to FDR’s of Court Deposit with interest as applicable to fixed deposit from time to time till to the date of re- credit. ii) Issue a Writ of Mandamus by directing to the Respondent No.3 and Respondent No.4 to refund TDS amount of Rs.1,02,60,449/- which was wrongly made on FDR’s of Court Deposits with applicable interest to the respondent No.1 bank for re-credit the same to FDR’s of Court Deposit with interest as applicable to fixed deposit to the date of re-credit. iii) Issue any other writ, order or direction which the petitioner is found entitled to in the present facts and circumstances including cost of the present. 2. Heard Sri.Pramod Y.Vaidya and Smt. Preeti Shashank, learned counsel appearing for the petitioner, Sri. Girish S.Hulamani, learned counsel appearing for respondent Nos.1 and 2, and Shri M. Thirumalesh, learned counsel appearing for respondent Nos.3 and 4. 3. The facts in brief, germane, are as follows: - 4 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 3.1. The petitioner-a partnership firm and a Class-I contractor is engaged in the business of carrying civil works in different public sectors and State machineries. The petitioner has undertaken civil works with Irrigation Department, Government of Goa and a dispute between the parties was referred to arbitration in terms of the contract entered into. An award of the arbitrator comes to be passed and the Government of Goa deposits a sum of Rs.13,35,35,872/- before the II Addl. Civil Judge Senior Division at Margao. 3.2. The petitioner files an application for withdrawal of the amount deposited by the Government of Goa. It is allowed by the concerned Court, subject to furnishing bank guarantee by the petitioner for Rs.8,00,00,000/- and had undertaken that he would not claim any interest on the deposit and in case of adverse order, the release amount should be refunded to the Court along with eligible bank interest. On 25.11.1997, the petitioner files another application for withdrawal of the remaining deposit amount which was deposited by the Government of Goa before the concerned Court, subject to bank guarantee. The High Court of Bombay at Goa passed an order in - 5 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 Civil Application No.79/2020 which is filed challenging the orders passed in arbitration case No.6/2010, grants an interim relief subject to the petitioner keeping the bank guarantees alive till the disposal of the appeal in Appeal No.6/2010 and for a further period of three months thereafter. 4. The Income Tax Department issued notices to the petitioner under section 148 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act' for short) for taxing as income the amount accrued by way of interest on the amount of the fixed deposit for the purpose of furnishing the bank guarantee. The said notices come to be challenged before this Court in W.P.Nos.101026-101028/2015. Writ Petitions come to be allowed holding that the litigation is still pending, the amount which is the subject matter of litigation cannot be subjected to and offered to tax in the hands of the petitioner. The 1st respondent deducts TDS on the fixed deposits rendered for the purpose of bank guarantee at Rs.1,02,60,449/- for the financial year 2015-16 and remits the amount to the Income Tax TDS department. On 28.03.2016, it transpires that an assessment order in respect of the assessment years 2008-09 to 2014-15 - 6 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 against respondent No.1-Bank for non-deduction of TDS in respect of fixed deposit made by the petitioner in the joint name before the Civil Court. The petitioner then makes a request to the 1st respondent-bank to return the TDS amount of Rs.1,02,60,449/- which was wrongly made by the respondent No.1 on the court deposit and re-credit the amount to the court deposit with interest as applicable to the fixed deposit. After about six years, another request was made to the bank for return of the TDS amount which was wrongly made by the respondent No.1 on the court deposit and re-credit the amount to the court deposit with interest as applicable to fixed deposit to the date of such re-credit. A legal notice is caused, even then, no steps are taken to refund the TDS that that was wrongly made on the fixed deposit receipts. It is therefore, the petitioner is before this Court seeking the aforesaid prayers. 5. Learned counsel appearing for the petitioner would vehemently contend that the deposit that is made is of a bank guarantee in two cases pursuant to two orders. The first order was on 28.04.1997 and the second on 25.11.1997. Those bank guarantees could not have been subjected to tax deduction at - 7 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 source. It was wrongly deducted, the refund of which is being claimed by this petitioner for over eight years. No refund is granted. Therefore, the petitioner is before this Court seeking a mandamus from the hands of this Court. 6. Per contra, Sri.Girish S.Hulmani, learned counsel appearing for the respondent Nos.1 and 2 and Sri.M.Thirumalesh and Smt.Roopa, learned counsels appearing for the Revenue would though refute the submission, is not in a position to dispute the fact that the bank guarantee that is placed pursuant to the orders of the Court, could not have been subjected to tax deduction at source. 7. I have given my anxious consideration to the submissions made by the learned counsel for the parties and have perused the material on record. 8. The afore-narrated facts are not in dispute. 9. The issue lies in a narrow compass. The facts are narrated hereinabove, they would not require any reiteration. An - 8 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 order comes to be passed on 25.11.1997 by the competent civil court in Margao district. The order reads as follows: "O R D E R (Delivered on thin the 25th day of the month of November of the year 1997) This is an order on exbt.13, 14 and 15. The Claimant has filed application to withdraw the amount deposited by Respondent - State of Goa in this case. In exbt. 15 Claimant has specifically given undertaking that he will not claim future interest on the amount deposited. Exbt.14 and 15 are allowed. State of Goa has given No Objection to release the amount. Amount of Rs.5,35,35,872/-(five crores thirty five lakhs thirty five thousand eight hundred and seventy two only) stands released to the Claimant on his giving bank guarantee of nationalised bank with a specific undertaking that on demand by this Court, nationalised bank giving guarantee should refund to the Court the above said amount along with eligible bank interest as on date. Bank guarantee of nationalised bank should be endorsed and identified also by Branch Manager of said bank situated in Margao. (V.C.R.Dessai) IInd Addl.Civil Judge Sr.Division, Margao." 10. The High Court of Bombay at Goa, hearing the challenge, passes an order to keep the bank guarantee alive. The order reads as follows: "Heard Mr. Padiyar learned counsel for the applicants and Mr. P. Kamat, learned Additional Government for the Respondents. By this application the appellants seek stay of the - 9 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 execution of the judgment and order dated 26/2/2010 passed by the District Judge, South Goa, Margao to the extent it quashes and sets aside the arbitral award inso far as it grants amounts as awarded towards the settlement of claims nos.1,2,3,8 and 10 and consequently the award of interest under claim no.20. Mr. Padiyar states that the appellant has already offered bank guarantees for entire amount due in terms of the award passed by the Arbitrator and the appellants undertakes to keep the bank guarantees alive till disposal of the appeal no.6/2010. Learned Additional Government Advocate appearing for the respondent confirms that the appellants have offered bank guarantees for the entire amount awarded by the Arbitrator. In view of the above, interim relief in terms of prayer clause (a) of the application is granted, subject to the appellants keeping the bank guarantee alive till the disposal of the appeal no.6/2010 and for a further period of 3 months thereafter. The application stands disposed of." 11. Notwithstanding the aforesaid facts, notice is issued by the Income Tax Department which comes to be challenged before this Court in W.P.Nos.101026-101028/2015. The writ petition comes to be disposed by the following order: "2. Sri A.Shankar, the learned counsel for the petitioner submits that the amounts accrued by way of interest on the amounts ordered to be released to the petitioner subject to the petitioner furnishing the bank guarantee cannot be offered to tax, because the entitlement of the petitioner is yet to be crystallised. In support of his submission, he relies on the Division Bench judgment dated 19.01.2015 passed in I.T.A. - 10 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 No.347/2009. Para 6 of the said decision read out by him is extracted hereunder: “6. Therefore, what emerges from the aforesaid judgment is, when an assessee receives money, either under an award or by a decree of the court, or under an award passed by the arbitrator, if the amount paid to him is not in dispute, then that amount represents his income. He should offer it to tax in the previous year of the date of payment of the said amount. But if the amount due to him is in dispute and it is subject- matter of a litigation and during the pendency of the litigation, if any interim order is made for payment of the said amount, the said payment is subject to the final result of the said proceedings. In the event the assessee looses the legal battle, the amount received by way of interim payment, has to be repaid. The amount to which he is entitled to, out of the disputed amount, would crystallize only when the litigation ends and payment is made after the finality of the litigation, then that amount is to be offered to tax in the previous year of the date of payment. Merely because by virtue of an interim order, with or without conditions, some payment is made for the purpose of Income tax Act, it would not constitute income and therefore there is no liability ot pay tax on the day such interim payment is received. Therefore, in the instant case, the assessee is liable to pay the amount covered under the cheques, only after a final conclusion of the dispute before the Andhra Pradesh High Court, as rightly held by the Appellate Authorities.” 3. He submits that the Appeal, under Arbitration Act, No.6/2010 filed by the petitioner against the order of the District Judge, Margao, is pending consideration before the High Court of Bombay at Goa. 4. The respondent’s side is in no position to dispute the factual and legal position. 5. The issue is no more res integra. As the litigation is still pending, the amount which is the subject-matter of the litigation cannot be offered to tax. Following the aforementioned Division Bench judgment, I quash the impugned notices with the liberty to the respondent to reinitiate the proceedings under Sections 147 and 148 of the Income Tax Act but depending upon - 11 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 the outcome of the proceedings in the said Appeal No.6/2010 and if the law permits." 12. The petitioner after the order passed by the learned Single Judge, submits a representation on 16.06.2016. The representation reads as follows: "01/CorpBk/Misc/2016-17 16.06.2016 To, The Deputy General Manager Corporation Bank Zonal Office Opp. Basava Vana, New Cotton Market Road, Hubli-580 029 Sir, Ref: Form No. 26AS downloaded from Income Tax website for the Financial Year 2015-16. Sub: Request to file TDS correction return and delete the interest wrongly Credited u/s 194A of the Income Tax Act, 1961 and TDS thereon for the financial year 2015-16 and re-credit the TDS of Rs. 1,02,60,449.00 wrongly made on Court Deposits of Additional Civil Judge, Senior Division, Margoa, Goa with upto date interest. We are one of the valued customers of your bank, banking with your New Cotton Market Branch for more than three decades. We have kept fixed deposits with your New Cotton Market Branch, Hubli towards margin money for various bank guarantees availed and TDS on interest @ 10% is made on those deposits as per section 194A of the Income Tax Act, 1961. But, we find from the enclosed Form No.26AS downloaded from Income Tax website that you have credited interest of Rs. 2,57,84,139.00 on 31.03.2016 and made TDS of Rs. 1,02,60,449.00. This interest does not belong to our firm and request you to file correction TDS return deleting the interest credit and TDS from our income tax PAN. As per section 1944 of the Income tax Act, 1961, you should have - 12 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 made TDS at 10% on bank interest, whereas you have TDS of nearly 40% on interest credited which is not as per provisions for income tax. Secondly, Additional Civil Judge, Senior Division, Margoa, Goa Court has kept five fixed deposits with your New Cotton Market Branch during the year 1997, on account of Arbitration Award in our favour. These are Court deposits and no TDS should have been deducted from the interest accrued on these deposits, we have given CBDT Circular dated 28.12.2015 in this regard to the branch. Further, there was an Income Tax Survey in your branch and assessment order was passed u/s 201/201(A) of the Income Tax Act, 1961 for the financial year 2007-08 to 2013-14 demanding TDS on Court deposit of Rs. 3,59,31,040.00 which has been cancelled by the Honorable Commissioner of Income Tax (Appeals) Hubli vide order dated 28.03.2016. In spite of providing CBDT Circular No. dated 28.12.2015 and the Commissioner of Income Tax (Appeals) Hubli appellate order dated 28.03.2016, your branch has made Tax deduction at source of Rs. 1,02,60,449.00 on 31.03.2016 on interest credit of Rs. 2,57,84,139.00 and filed the March 2016 TDS quarterly return putting our firm PAN, though this interest and TDS does not belong to our firm but pertains to Court deposits. Now, we request you to claim the TDS of Rs.1,02,60,449.00 wrongly made on Court deposits from Income Tax Department and re-credit the amount to Court Deposit with interest as applicable to Fixed Deposit to the date of re-credit. Your branch officials contention that, "it was a systems error" can not be accepted because you should have inserted the instruction that no TDS should be made on Court deposits in your system. Further, though TDS on interest is calculated by the system, the payment of TDS is made manually and TDS returns are prepared manually before e-filing in April 2016. The branch officials and the agency who is filing quarterly TDS Returns should have noticed this huge difference in TDS for the March 2016 quarter. Further, we request you to fix accountability for the above serious lapse and bank has to make well the loss of interest on Court deposits or else collect the same from the officials of the branch concerned. In case, the TDS and interest is not re-credited to the Court Deposit Account, we shall have - 13 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 to inform the same to the Court and your Head Office. Also we will be compelled to move to the Consumer Court at Dharwad for the lapse of your Branch officials. Kindly treat this matter as most urgent and we expect immediate action in this regard from your end. Thanking you, in anticipation of your early positive action and favorable reply. Kindly acknowledge the receipt of the same. Yours faithfully, For N S Nayak & Sons Encl: 1. Copy of Form No. 26AS 2. Copy of Deposit Statements Sd/- (Sheshagiri N. Nayak) Partner" 13. No amount is refunded. Legal notice is caused. Again, there is no action taken by the bank. While it is an admitted fact that the bank guarantee or fixed deposits that were kept which were subject to the outcome of the litigation, could not have been the subject matter of tax deduction at source. In the light of the admitted fact that it could not have been tax deduction at source, petition succeeds in issuing mandamus to the 1st respondent-bank to refund the amount of Rs.1,02,60,449/- which was wrongly made on fixed deposit receipts of court deposit, the amount that is so refunded must now be re-credited - 14 - HC-KAR NC: 2025:KHC-D:15071 WP No. 104997 of 2025 to the fixed deposit receipts of court deposit with applicable interest. 14. For the aforesaid reasons, the following: ORDER (i) The petition is allowed. (ii) The bank shall refund the amount of ₹.1,02,60,449/- and the refunded amount shall be re-credited by respondent Nos.1 and 2 to the Court Deposit Account along with applicable interest within eight (8) weeks from the date of receipt of a copy of this order. Sd/- (M.NAGAPRASANNA) JUDGE VNP/CBC List No.: 1 Sl No.: 13 Page No.14 is retyped and replaced vide court order dated 06.02.2026