LIQUIDATORS OF PURSA LTD. vs COMMISSIONER OF Income Tax, BIHAR and ORISSA.

In this case the petitioners are joint liquidators of Pursa Ltd., an incorporated company which went into voluntary liquidation on the 20th June, 1945. By an order of assessment dated the 21st June, 1947, the Income Tax Officer, Patna, included in the total income of the petitioners a sum of Rs. 13,05,144 on account of profits on the sale of machinery u/s 10(2)(vii) of the Income Tax Act. He also added a further sum of Rs. 15,882 as profits on the sale of stores. The assessment was affirmed on appeal by the Appellate Assistant Commissioner and also by the Income Tax Appellate Tribunal. At the instance of the petitioners the Tribunal stated a case the High Court on the following two question :

"1. On the facts and in the circumstances of this case is the surplus of Rs. 13,05,144 arising out of the sale of plant and machinery of the sugar factory chargeable u/s 10(2)(vii ?

Was the profit of Rs. 15,882 on the sale of stores of the factory taxable under the Income Tax Act in the circumstances of this cas ?"

The first question was answered against the assessee and the second question was answered against the Department by the majority of the judges who heard the reference in the High Court. An appeal was taken by special leave to the Supreme Court on behalf of the petitioners and on the 9th February, 1954, a Bench of Supreme Court answered the first question also in favour of the assessee. Subsequently, the petitioners applied to the Commissioner of Income Tax for refund of the amount of the tax overpaid together with such interest as the Commissioner may grant in the circumstances of the case. The Commissioner ordered that the excess amount of tax should be refunded, but declined to pay any interest. The order of the Commissioner of Income Tax is to the following effec :

"No. Adm (Rev) S.C.A. 1 of 1952-53 (25509).

Dated Patna, the 8th October, 1955.

To

Messrs. Lovelock and Lewes,

Chartered Accountants,

Liquidators of Pursa Limited,

4, Lyons Range, Calcutta 1.

Subjec : Grant of interest u/s 66(7) Pursa Limited.

Please refer to your letter No. VL/PN, dated the 28th September, 1955.

The matter was highly controversial, so much so that the decision of the High Court was in favour of the Department. Consequently it was decided that no interest should be paid to the company.

(Sd.) Raj Singh

Commissioner."

Against this order the petitioners have obtained a rule from the High Court calling upon the respondent to show cause why a writ under article 226 of the Constitution should not be granted for quashing the order of the Commissioner of Income Tax and for directing him to deal with the claim of the petitioners in accordance with law.

The main ground taken in support of the application is that u/s 66(7) of the Income Tax Act the Commissioner was bound, as a matter of law, not only to order refund of the amount of tax paid in excess but also pay a reasonable amount of interest on the amount of tax paid in excess. The question at issue turns upon the construction of section 66(7) of the Income Tax Act which is in the following term :

"66. (7) Notwithstanding that a reference has been made under this section to the High Court, Income Tax shall be payable in accordance with the assessment made in the cas :

Provided that, if the amount of an assessment is reduced as a result of such reference, the amount overpaid shall be refunded with such interest as the Commissioner may allow unless the High Court, on intimation given by the Commissioner within thirty days of the receipt of the result of such reference that he intends to ask for leave to appeal to the Supreme Court makes an order authorising the Commissioner to postpone Court of such refund until the disposal of the appeal to th Supreme Court."

On behalf of the assessee the contention was put forward that the true interpretation to the section is that the Commissioner is under a duty to pay the amount of tax overpaid together with some amount of interest. It was conceded that a discretion was vested in the Commissioner to fix the rate of interest, but it was contended that the Commissioner cannot say that no interest at all would be paid. In our opinion, the argument addressed by the learned counsel for the petitioners is correct. As a matter of construction we think that section 66(7) contemplates that in a case where there is an excess payment of tax the assessee is entitled to refund of the amount of tax overpaid together with some amount of interest. It is not open to the Commissioner to say that no interest at all would be paid. It is of course a matter of discretion with the Commissioner of Income Tax to determine what should be the rate of interest should be exercised reasonably in the background and circumstances of each particular case. To put it in other words, the discretion vested in the Commissioner of Income Tax must be exercised reasonably and in accordance with law.

For these reasons we hold that the order of the Commissioner of Income Tax dated the 8th October, 1955, refusing to pay interest to the petitioners is illegal and ultra and must be quashed by a writ in the nature of certiorari. We further direct that the Commissioner of Income Tax should reconsider the question of interest and decide the matter in accordance with law.

We accordingly allow this application, but there will be no order as to costs of the hearing of this application.

Petition allowed.