Commissioner of Income Tax vs Haji Abdul Hameed (Decd.)

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for the opinion of this Court.

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no mistake in the order dated May 21, 1979, that could be rectified u/s 154 of the Income Tax Act, 1961 ?

The reference relates to the assessment years 1962-63, 1970-71 and 1971-72.

Briefly stated the facts giving rise to the present reference are as follows:

On giving effect to the Appellate Tribunal''s order dated June 30, 1976, for the assessment years 1962-63, 1970-71 and 1971-72, a refund of Rs. 11,44,656 became due to the assessee. This refund was withheld three times in terms of Section 241 of the Act till December 31, 1977, and then till July 31, 1978, and lastly till October 31, 1978, vide orders passed by the Commissioner of Income Tax on September 30, 1977, May 15, 1978, and July 31, 1978, respectively. Interest of Rs. 3,54,733 was allowed to the assessee vide order u/s 254 of the Act dated May 21, 1979. Subsequently, the Assessing Officer passed an order dated July 27, 1982, August, 2, 1982, u/s 154 of the Act withdrawing interest to the tune of Rs. 1,02,987 on the premise that as the period of three months was not excluded from each of the three orders u/s 241 of the Act for calculation of interest payable u/s 244(2) of the Act, as per the order dated May 21, 1979, interest to the extent of Rs. 1,02,987 was allowed in excess. In appeal, after pointing out the controversy involved in the issue, the Commissioner of Income Tax (Appeals) held that the case was not of application of Section 154 of the Act legally. Vide order dated July 26, 1987, the Assessing Officer''s order u/s 154 of the Act was annulled and the assessee''s appeal allowed. In appeal by the Department, the Tribunal vide its order dated February 28, 1992, rendered in I.T.A. Nos. 462, 463 and 464 (Alld)/1988 concurred with the interpretation of the Commissioner of Income Tax (Appeals) of the provisions of Section 244(2) of the Act. Further, it was held that even if for argument''s sake the interpretation being given by the Assessing Officer were to be applied, the type of controversy that was involved in this case cannot be resolved by resorting to Section 154 of the Act, because these provisions cannot be applied where long drawn process of reasoning was necessary. Accordingly, the order of the Commissioner of Income Tax (Appeals), quashing the order passed by the Assessing Officer was upheld and the Department''s appeals were dismissed.

We have heard Sri R.K. Upadhyaya, learned standing counsel appearing for the Revenue and Sri Yashwant Verma, learned Counsel appearing for the respondent-assessee.

Learned standing counsel appearing for the Revenue submitted that on a plain reading of Sub-section (2) of Section 244 of the Act, it is absolutely clear that interest starts running after the expiry of three months from the end of the month in which the order u/s 241 of the Act is passed by the Commissioner of Income Tax and as in the present case the Commissioner of Income Tax had passed three orders one on September 30, 1977, the second on May 15, 1978, and the third on July 31, 1978, withholding the refund of Rs. 11,44,656, the period of three months in respect of each of the orders has to be excluded while calculating the interest payable by the Revenue. According to him, the interest having been wrongly allowed no debate is required and the view of the Tribunal that it was debatable is not correct.

Sri Yashwant Verma, learned Counsel appearing for the respondent assessee, however, submitted that the three orders passed by the Commissioner of Income Tax were in effect for withholding the refund of Rs. 11,44,656 which had become due and payable to the assessee pursuant to the Tribunal''s order dated June 30, 1976, which was a composite order. The subsequent order would only be treated as in continuation of the earlier order and not a fresh order. The Tribunal has rightly construed the three orders as in continuation of the earlier order and the question whether each order passed for withholding the same refund would be treated as a separate order or in continuation of the earlier order is debatable and, therefore, the Tribunal was justified in cancelling the order passed u/s 154 of the Act withdrawing the interest for a period of nine months. In support of the aforesaid submissions, he has relied upon a decision of the Calcutta High Court in the case of Commissioner of Income Tax Vs. Bowater Corporation Limited, wherein the Calcutta High Court held that it was a matter of debate whether the special benefit granted u/s 244(1A) of the Act was intended to be curtailed by the existing Sections 241 and 244(2) of the Act and two views were conceivable therefore, rectification proceedings were not valid.

We have given our anxious consideration to the various pleas raised by learned Counsel for the parties and find that it is not in dispute that to give effect to the Tribunal''s order dated June 30, 1976, which was passed relating to the assessment years 1962-63, 1970-71 and 1971-72 refund of Rs. 11,44,656 became due to the assessee. This refund of Rs. 11,44,656 was withheld u/s 241(2) of the Act by three orders dated September 30, 1977, May 15, 1978, and July 31, 1978. Under Sub-section (2) of Section 244 of the Act interest for a period of three months from the end of the month in which the order withholding the refund is passed is not payable. That may be construed in respect of the order dated September 30, 1977, but in respect of other two orders it is highly debatable as to whether the two orders passed subsequently withholding the same amount of refund would be treated as the orders in continuation of the earlier order or fresh orders in which two views are possible, therefore, the issue is debatable. The Tribunal has rightly held that such mistake cannot be corrected u/s 154 of the Act. We are in respectful agreement with the principle laid down by the Calcutta High Court in the case of Commissioner of Income Tax Vs. Bowater Corporation Limited,

Respectfully following the aforesaid decision we answer the question referred to us in the affirmative i.e. in favour of the assessee and against the Revenue. There will be no order as to costs.