Inder Paul Khanna (HUF) vs Income Tax Officer

This is a petition under articles 226 and 227 of the Constitution, seeking the refund of the amount of income tax paid by the assessee for the assessment year 1976-77. The petitioner Inder Paul Khanna, in the status of HUF, was an assessee under the income tax Act, 1961 (''the Act''), and was engaged in the business of manufacturing textile goods in the name and style of Paul Woollen & Silk Mills at Amritsar. Return of income was filed by the petitioner for the assessment year 1976-77 on 6-12-1976 declaring an income of Rs. 59,471. Previous year relevant to the assessment year 1976- 77 started from 1-4-1975 and ended on 31-3-1976. The ITO framed an ex parte best judgment assessment u/s 144 of the Act, vide order dated 14-9-1978. An addition of Rs. 20,000 was made in the trading account and an additional demand for Rs. 12,029 was created. A sum of Rs. 15,218 was recovered from the petitioner after the passing of the assessment order.

The petitioner went in appeal against the assessment order passed u/s 144 and the AAC, vide order dated 21-5-1979, set aside the assessment and remanded the case to the ITO with a direction to make assessment afresh after making enquiries and giving fresh opportunity to the petitioner. Fresh assessment was, however, not made thereafter. The petitioner moved an application on 6-2-1986 before the ITO claiming refund of the amount of Rs. 42,022 deposited by him by way of advance tax, tax deducted at source, self-assessment tax and tax paid on demand.

The petitioner did not get the refund though he filed several applications and had also a meeting with the IAC. The petitioner was informed by the ITO, vide letter dated 13-3-1986, that the petitioner''s records for the assessment year 1976-77 were not available and, therefore, the petitioner should produce the receipt evidencing the filing of the return. The petitioner filed on 17-3-1986 copies of the assessment order dated 14-9-1978 and appellate order dated 21-5-1979. The ITO vide letter dated 24-3-1986 further asked the petitioner to produce the original assessment and the appellate orders and also certain other documents. The petitioner appeared before the ITO on 10-4-1986 and submitted the copies of the profit and loss account and the balance sheet relating to the assessment year in question as required by the ITO. He filed an affidavit also on 11-7-1986, giving therein the details of the deposits totalling Rs. 42,022. The petitioner was informed by the ITO, vide letter dated 25-8-1986, to approach the Board because the assessment had become time-barred and the matter could be taken up after necessary instructions from the Board.

The petitioner has, through the present writ petition, sought a mandamus to the respondents to refund the deposit of tax aggregating to Rs. 42,022.

The petitioner had made the payment for the assessment year 1976-77 as under:

(i)

Deposits by way of advance tax u/s 210 :

Rs.

Rs

On 18-9-1975

4,260

On 15-12-1975

4,260

On 10-3-1976

2,433

On 12-3-1976

2,433

13,386

13,386

(ii)

Tax deducted at source (TDS)

1,389

(iii)

Paid u/s 140A (By cheque dated 6-12-1976)

12,029

Rs.

(iv)

Paid on additional demand after assessment made u/s 144, in cash on 28-2-1979

15,218

Total

42,022

The petitioner''s claim for refund has been resisted by the respondents with three-fold pleas. First, the application for refund, being time-barred and filed beyond the period of limitation, is liable to be rejected. Second, the petitioner was advised to approach the Board for necessary direction about his claim for refund but, the did not adhere to the advice given by the ITO in this behalf. That was an alternative remedy which the assessee should have availed. If not so availed, then the petitioner should have filed a civil suit claiming the refund of the amount. Third, the amounts of advance tax, TDS and the self-assessment tax are not to be refunded inasmuch as these payments were made voluntarily on the basis of the return filed by the petitioner.

Shri Sanjay Bansal, advocate, has argued on behalf of the respondents that, after the assessment made u/s 144 was set aside by the appellate authority, fresh assessment could be completed within a period of two years from the end of the financial year in which the appellate order was passed. Sub-section (2A) of section 153 of the Act laid down, for the relevant assessment year 1976-77, the period of limitation at two years. The appellate order was passed on 21-5-1979 and the relevant financial year ended on 31-3-1980. Therefore, the period of limitation ended at the expiry of two years on 31-3-1982. Since no fresh assessment was made on or before 31-3-1982, the petitioner''s right, if any, to claim refund arose on 1-4-1982 but the petitioner did not move any application till 6-2-1986 claiming refund of the amount deposited by him.

The plea raised by Shri Bansal on behalf of the respondents regarding the refund application being time-barred is found to have no force in view of the peculiar circumstances of the case. It has been noticed that the claim for refund arose on account of the appellate order dated 21-5-1979. The period of limitation for the purposes of section 239 of the Act is applicable to cases where the claim for refund arose after the completion of the assessment. In a case where an appeal gives rise to a refund, section 240 of the Act would come into play. Section 240, as it was applicable for the assessment year 1976-77, read as under :

Refund on appeal, etc. -Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the income tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.

It would appear from the perusal of the aforesaid provision that, where refund of any amount becomes due to the assessee on account of an appellate order, the assessee is not required to make any claim for refund and the Assessing Officer has to refund the amount to the assessee. If the assessment is reduced in appeal or in any other proceeding under the Act and, as a result thereof, any amount becomes refundable to the assessee, the Assessing Officer is bound to refund the amount to the assessee without any application from the assessee. It is, thus, obvious that the assessee need not even make a demand or file an application. This is a mandate on the revenue to make the refund even without a demand. Section 240 is, in fact, a proviso to section 239 and carves out an exception from the general rule laid down in section 239 requiring the making of a claim for refund in the prescribed manner and within the prescribed period. It is incumbent on the Assessing Officer to refund the amount without any claim having been made by the assessee. Thus, section 240 carves out an obligation on the Assessing Officer to refund to the assessee the amount which became due to him as a result of an order passed in appeal. In this light, the first plea raised by the learned counsel for the respondents about the period of limitation is found to have no force and is rejected.

The second plea, put forward on behalf of the respondents, that the petitioner should have moved the Board seeking necessary directions, as advised by the ITO, or should have filed a civil suit making a claim for the recovery of money from the Government, also has no force. The petitioner, when entitled to claim refund u/s 240, was not required under any provision of the Act to approach the Board. The refund had to be allowed by the ITO and the Board was not required to adjudicate upon the matter nor was authorized to do so under the Act. Shri Sanjay Bansal has argued that clause (b) of sub-section (2) of section 119 of the Act empowered the Board, by general or special order, to authorise any ITO to admit an application or claim for any exemption, deduction, refund or any other relief under the Act after the expiry of the period specified by or under the Act. It was, therefore, incumbent upon the petitioner to adhere to the advice given to him by the ITO to approach the Board for necessary direction. It is also argued that, if the petitioner did not choose to approach the Board in this behalf, he should have filed a civil suit claiming refund within a period of three years.

The provisions of section 119 relate to the power of the Board to issue orders, instructions and directions to the income tax authorities as the Board may deem fit for the proper administration of the Act. Therefore, the provisions of section 119 are not in the nature of any direction to an assessee but are meant to empower the Board to issue instructions from time to time. It would, therefore, not be appropriate to draw a conclusion that a claim for refund could be made before the Board u/s 119.

The petitioner has not chosen to file a civil suit claiming the refund of the deposited tax but has filed the present petition. The plea raised by Shri Sanjay Bansal is that the alternative remedy lay in the filing of the civil suit and, for that reason, the present writ petition should not be allowed to succeed.

Reliance has been placed by Shri Bansal on a decision of the Karnataka High Court in S. Sundaram Vs. Income Tax Officer and Another, wherein it was held that under article 226 which conferred a power on the High Court and did not confer a right on a litigant, the High Court should not permit the petitioner to make an unjust enrichment. This authority, however, does not lay down a rule that the petitioner is debarred from seeking relief under article 226.

Two decisions of the Supreme Court, one in State of Madhya Pradesh Vs. Bhailal Bhai and Others, and the other in Suganmal Vs. State of Madhya Pradesh and Others, have also been relied upon in support of the proposition that the petitioner should have filed a civil suit by way of an alternative remedy. In the first case (Bhailal Bhai), it has been held that a special remedy provided in article 226 is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defence legitimately open in such actions. In the second case (Suganmal) also, it has been laid down that the High Court has power to pass any appropriate order in the exercise of the powers conferred on it under article 226, but a petition solely praying for the issue of a writ of mandamus directing the State to refund the money alleged to have been illegally collected by the State as tax is not ordinarily maintainable for the simple reason that a claim for such a refund can always be made in a suit against the authority which had illegally collected the money as a tax and, in such a suit, it is open to the State to raise all possible defences to the claim.

In Jindal Strips Ltd. v. State of Haryana [1996] 100 STC 457, this matter came to be examined in detail and it was held that ordinarily when the statute provides an alternative remedy and particularly when there is complete machinery for adjudicating the rights of the parties, the High Court should refrain from entertaining and adjudicating upon the rights of the parties. It was, however, further observed that there are certain exceptions and a citizen, who can successfully cover his case in any of the exceptions, cannot be compelled to go before the authorities concerned. The exceptions, as specified, are :

(i) where the provisions of the statute are challenged as being ultra vires,

(ii) where the highest authority under the relevant Act has taken a particular view on a question of law and the subordinate authorities are bound to follow that view,

(iii) where the order, complained of, is wholly illegal and without jurisdiction,

(iv) where the order is actuated on extraneous considerations of mala fides,

(v) where the alternative remedy is not equally efficacious, or

(vi) where the matter is not decided in limine and it is taken up for hearing after several years for decision on merits and, meanwhile, the period of limitation prescribed under the statute for filing an appeal has expired.

From the facts emerging from the rival pleadings, it is apparent that the petitioner became entitled to claim refund after the assessment order was set aside in appeal and the period of limitation for fresh assessment expired. Since section 240 did not require the assessee to file an application for refund and cast an obligation on the Assessing Officer to refund the amount, the assessee was not required necessarily to file a civil suit. His case falls under exception mentioned at serial No. (iii) in Jindal Strips Ltd.''s case (supra). In these circumstances, the second plea raised by Shri Sanjay Bansal regarding alternative remedy stands rejected.

The third plea relates to the amount deposited by the petitioner by way of advance tax, TDS and self-assessment tax. The total amount under the aforesaid three heads comes to Rs. 26,804. The balance of Rs. 15,218 was paid on additional demand created by the assessment order framed u/s 144. Shri Sanjay Bansal has vehemently argued that the amount of tax paid by the petitioner on the basis of the refund of income is not required to be refunded inasmuch as it was the tax liability chargeable u/s 4(1) of the Act and did not depend upon the assessment being made by the ITO. Reliance has been placed on a Full Bench decision of the Gujarat High Court in Saurashtra Cement and Chemical Industries Ltd. Vs. Income Tax Officer, . It has been held therein that, on the filing of returns u/s 139, the provisions of self-assessment contained in section 140A of the Act came into operation and it becomes obligatory on the part of the assessee to discharge his liability with the interest that may be payable for late furnishing of returns. The tax payable on the basis of the returns, filed by the assessee, is treated as ''assessed tax''. It is not at all made dependent on any regular assessment being made though, in the event of regular assessment, the amount paid under sub-section (1) of section 140A is deemed to have been paid towards the regular assessment. It was further observed that, where the return has been accepted by the ITO, who may not assess the total income, it cannot be said that the liability to pay the tax under the Act on the basis of the admitted total income, as reflected from the returns, would vanish. The Full Bench has upheld the plea of the revenue in that case that, on the failure of a regular assessment being made within the time prescribed or in the event of annulment of an assessment order, no consequence of refund of the entire tax collected on the total income shown in the returns, filed by the assessee, can ensue and such tax which is collected on the basis of the return remains a valid and legal recovery in accordance with the provisions of the Act.

Shri B.K. Jhingan, the learned counsel for the petitioner, has placed reliance on a decision of a learned Single Judge of this Court in Deep Chand Jain Vs. Income Tax Officer, C-Ward and Others, That was a case where the assessee had filed the income tax return showing an income of Rs. 39,469. The assessee, thereafter, filed the second return (a revised return) showing an income of only Rs. 6,130. The prescribed period for passing an assessment order expired and thereafter the assessee filed an application for the refund of the advance tax. The petitioner was, however, informed by the income tax authorities that no refund could be issued as the tax paid was on the basis of income returned originally. The learned Single Judge held, following the decision of the Karnataka High Court in R. Gopal Ramnaryan Vs. Third Income Tax Officer, Circle-II, Banglore, , that if there was no assessment order, the assessee was not liable to pay any tax. It was observed that in a case where the advance tax had been collected u/s 210 of the Act from an assessee and the assessment proceedings became time-barred, it became incumbent on the assessing authority to make an order for the refund of the given amount as envisaged u/s 240 on the assumption of the existence of an implied assessment order for the given year to the effect that the income of the assessee was not assessable to tax and no tax for that year fell due from the assessee. If there was no assessment order, the assessee was not liable to pay any amount by way of tax and the amount of tax already collected by way of advance tax is without authority of law and in violation of the provisions of article 265 of the Constitution.

The decision of the Karnataka High Court in S. Sundaram''s case (supra) has been discussed by the Full Bench of the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd''s case (supra) and it has been noticed that, against the said decision of the learned Single Judge, an appeal was filed before the Division Bench, which was decided on 8-1-1986. The Division Bench in that case found that the order annulling the assessment stood modified by the Tribunal and the ITO was directed to make a fresh assessment. In view of such subsequent development, the Division Bench held that the very basis of the foundation on which the writ petitions were founded and the order of the learned Single Judge was made, had totally disappeared. The order of the learned Single Judge was/therefore, set aside without examining the correctness or otherwise of the view expressed by the learned Single Judge.

The view taken by the learned Single Judge of this Court in Deep Chand Jain''s case (supra) needs reconsideration in the light of the Full Bench decision of the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. ''s case (supra) wherein the subject has been discussed in detail. The Full Bench, placing reliance on a catena of decisions of the Supreme Court and other High Courts, has dissented from the decision of the Single Bench of this Court. Since the decision of the learned Single Judge of the Karnataka High Court in R. Gopal Ramnaryan''s case (supra), stands set aside by the Division Bench, as noticed by the Full Bench of the Gujarat High Court at page 680 in Saurashtra Cement & Chemical Industries Ltd''s case (supra), there are found good reasons to reconsider the view taken by the learned Single Judge of this Court in Deep Chand Jain''s case (supra).

The question arising from the third plea of the learned counsel for the respondents precisely relates to the amount of advance tax, TDS and self-assessment tax, amounting to Rs. 26,804, deposited voluntarily by the petitioner. In view of the Full Bench decision of the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd !s case (supra), the amount of Rs. 26,804 is not required to be refunded to the petitioner and the petitioner can be said to be entitled to claim refund of Rs. 15,218 only.

Since, in my opinion, the question as to whether the amount of tax deposited by the petitioner, by way of advance tax, TDS and self- assessment tax on the basis of the return of income filed by him is not required to be refunded under the Act even if no assessment is made for the relevant year because of the expiry of the period of limitation, needs consideration by a larger Bench, the matter is to be placed before the Hon''ble Chief Justice for constituting a larger Bench to answer the said question. In the result, this case may be placed before the Hon''ble the Chief Justice for constituting a larger Bench to decide the question specified above.