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Judgment
N.K. Sud, J.
The petitioner, a co-operative society, is aggrieved by the letter of the Chief Commissioner, Chandigarh, dated 20-6-1996, declining its prayer for issue of refund of Rs. 37,41,050 arising as a result of relief allowed in the appellate order passed by the Commissioner (Appeals), Rohtak, dated 15-3-1995. Before resolving the controversy, the relevant facts may first be taken note of.
The petitioner filed its return of income for the assessment year 1992-93 on 31-10-1992, declaring an income of Rs. 73,31,281, against which a sum of Rs. 35 lakhs had been deposited as advance tax and Rs. 2,41,050 had been deducted as tax at source. Thus, the total amount of prepaid tax was Rs. 37,41,050. The return was processed u/s 143(1)(a) of the Income Tax Act, 1961 (for short "the Act"), on 25-3-1994, and after allowing credit for the prepaid taxes, a demand of Rs. 1, 13,639 was created. However, since there was some mistake in the calculation, the intimation u/s 143(1)(a) of the Act was rectified on 20-9-1994, and instead of demand of Rs. 1,13,639 originally determined as payable by the petitioner, a sum of Rs. 9,68,771 was found to be refundable to it. This amount of refund was adjusted against the outstanding demand for the assessment year 1990-91.
The petitioner filed a revised return on 6-10-1994, claiming that its entire income was exempt u/s 80P(2)(a)(iii) of the Act. Thus, the taxable income as per the revised return was declared as nil.
Meanwhile, the assessing officer had undertaken the proceedings for framing a regular assessment u/s 143(3) of the Act. This assessment was framed on 9-12-1994. The assessing officer ignored the revised return on the ground that it had been filed beyond the period of limitation. He also rejected the claim for exemption u/s 80P(2)(a)(iii) of the Act on merits as well. He determined the total taxable income at Rs. 1,77,35,166. The tax on this income worked out to Rs. 91,54,451. After giving credit for Rs. 27,72,979 which was the amount of prepaid taxes as reduced by the refund already issued, an additional demand of Rs. 63,82,172 was created. Against the additional demand, the following amounts were paid/adjusted
Rs.
Paid on 2-2-1995
21,00,000
Paid on 28-2-1999
16,95,123
Adjusted out of refund due to the petitioner in another assessment year
4,04,877
Total
42,00,000
The petitioner filed an appeal against the assessment order u/s 143(3) of the Act before the Commissioner (Appeals), Rohtak, which was allowed vide order dated 15-3-1995, and the petitioners claim for deduction u/s 80P(2)(a)(iii) was upheld.
The assessing officer vide order dated 24-4-1995, gave effect to the appellate order and after allowing the relief given in appeal determined the taxable income at nil. However, he did not issue any refund. The petitioner, therefore, addressed a communication dated 5-1-1996, to the assessing officer pointing out that in view of the reduction of its income to nil as a result of the appellate order, no tax was payable by it and, therefore, the entire amount paid or adjusted towards tax for assessment year 1992-93 be refunded to it. The assessing officer vide order dated 23-2-1996, granted a refund of only Rs. 42 lakhs which was the amount paid/adjusted after the regular assessment framed u/s 143(3) of the Act. He, however, refused to refund the amount adjusted against the tax recovered u/s 143(1)(a) of the Act on the basis of the income returned by the petitioner.
The petitioner represented to the Chief Commissioner North-West Zone, Chandigarh, against the refusal of the assessing officer to issue full refund. This representation was also rejected by the Chief Commissioner vide letter dated 20-6-1996, in the following terms:
"2. I have considered the points made in your petition and have carefully examined the assessment records. It is seen that an additional demand of Rs. 63,82,172 was raised on 9-12-1994, consequent to the passing of assessment order u/s 143(3). Against this, the tax paid by you was Rs. 42 lakhs, and following the appellate order passed by the Commissioner (Appeals), Rohtak, this amount has been refunded along with the interest. I further notice that the prepaid taxes (viz., Rs. 35 lakhs as advance-tax and Rs. 2,41,050 as TDS) had been duly adjusted when the return filed by you was processed u/s 143(1)(a) and in fact a refund was also issued at that time. Provisions of section 240 also indicate that tax which is related to the income returned by the assessee cannot be refunded."
In the writ petition, reference was made to section 240 of the Act to show that it did not empower the respondents to retain the tax adjusted as per the processing made u/s 143(1)(a) of the Act when after the appellate order, the taxable income of the petitioner was reduced to nil and, therefore, no tax was payable by it. It was also averred that in accordance with section 143(4) of the Act, once a regular assessment under sub-section (3) of section 143 or section 144 was made, any tax or interest paid by the assessee under sub-section (1) is deemed to have been paid towards regular assessment. It was, therefore, claimed that as soon as the assessment u/s 143(3) of the Act was framed by the assessing officer, even the tax paid/adjusted in demand u/s 143(1)(a) of the Act assumed the nature of tax paid in the regular assessment and, consequently when, as a result of the appellate order, the taxable income was reduced to nil, the assessee became entitled to entire amount of tax paid/adjusted and not merely tax which had been paid/adjusted against the additional demand created u/s 143(3) of the Act.
Written statement on behalf of respondent No. 1 has been filed in which reliance has been placed on the language of sub-section (3) of section 143 of the Act, to highlight that while making a regular assessment under that sub-section, the assessing officer can only determine the sum payable by the assessee. He has no power to determine refund under this provision. Reliance was also placed on clause (b) of the proviso to section 240 of the Act to contend that the refund would become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee.
Mr. M.L. Garg, advocate, appearing on behalf of the petitioner, contended that the assessing officer as well as the Chief Commissioner had wrongly relied on clause (b) of the proviso to section 240 of the Act which was not attracted to the case in hand at all. The said provision comes into play in case an assessment is annulled. In the present case, there is no annulment of the assessment but reduction of taxable income to nil on account of relief granted by the Commissioner (Appeals). Regarding the other objection about the incompetency of the assessing officer to allow any refund while making assessment under sub-section (3) of section 143 of the Act, it was contended that the assessing officer in the case in hand had not determined any refund while framing assessment u/s 143(3) of the Act and, therefore, the objection itself was misplaced. It was also contended that even otherwise in view of the provisions of sub-section (4) of 143 of the Act, the tax paid by the assessee u/s 143(1)(a) of the Act assumed the nature of tax paid towards regular assessment and had to be refunded when the income determined in the regular assessment was reduced to nil as a result of an appellate order.
Mr. R.P. Sawhney, senior standing counsel for the revenue, on the other hand justified the action of the respondents in not allowing the refund of tax recovered u/s 143(1)(a) of the Act on the grounds raised in the written statement. He specifically referred to the language of section 143(3) of the Act to show that prior to its amendment by the Finance (No. 2) Act, 1998, with effect from 1-10-1998, this provision did not envisage grant of refund to an assessee on completion of regular assessment. This, according to him, was also clear from the fact that a specific amendment had to be made in this provision with effect from 1-10-1998, to provide for refund.
I have heard the rival contentions and have perused the relevant provisions of the Act. The refund on appeal is governed by section 240 of the Act, which is as under :
"240. 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 assessing officer shall, except as otherwise provided in this Act, refund the amount of the assessee without his having to make any claim in that behalf :
Provided that where, by the order aforesaid,
(a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment ;
(b) the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee."
A bare reading of the operative part of the impugned letter of the Chief Commissioner, dated 20-6-1996, already reproduced above, shows that he has relied on clause (b) of the proviso to section 240 of the Act to reject the claim of the petitioner. He was clearly wrong in doing so. It has been correctly pointed out by the learned counsel for the petitioner that this clause comes into play only when, an assessment is annulled. In the present case the assessment has not been annulled by the appellate authority who has merely accepted the claim of the petitioner for deduction u/s 80P(2)(a)(iii) of the Act as a result of which the taxable income stands reduced to nil. Thus, the ground on which the refund has been refused is not sustainable. The petitioner would, therefore, be entitled to refund in terms of the main provisions of section 240 of the Act.
I am also in agreement with the counsel for the petitioner that once an assessment under sub-section (3) of section 143 of the Act is framed, the amount adjusted/paid against the tax determined u/s 143(1)(a) of the Act has to be treated as tax paid towards such regular assessment. The provision of section 143(4) of the Act is unambiguous and leaves no room for doubt in this matter. The same is reproduced below for the sake of convenience :
"(4) Where a regular assessment under sub-section (3) of this section or section 144 is made,
(a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment;
(b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly."
The objection of the revenue that no refund can be determined in a regular assessment u/s 143(3) of the Act, as it existed at the relevant time is, in my view, only of academic interest in this case as no refund had in fact been determined by the assessing officer while framing the regular assessment. It is evident that he had created an additional demand of Rs. 63,82,172. Thus, I do not find it necessary to deal with this contention.
Before parting, it has to be clarified that the petitioner has been claiming refund of Rs. 37,41,050 on account of advance tax and tax deducted at source. This was being done presumably on the ground that this was the amount adjusted while processing the return u/s 143(1)(a) of the Act. However, as already noticed earlier, out of this amount a sum of Rs. 9,68,771 had already been refunded by rectifying the intimation u/s 143(1)(a) of the Act on 20-9-1994. Thus, the amount recovered/adjusted against the demand created u/s 143(1)(a) was only Rs. 27,72,979 (Rs. 37,41,050-Rs. 9,68,071). Thus, the refund to which the petitioner would be entitled to as a result of this order would be Rs. 27,72,979 along with interest, if any, payable under the provisions of the Act.
Consequently, I allow the writ petition in the above terms and direct the respondents to compute the refund due to the petitioner and pay it within three months from the date of receipt of a certified copy of this order. However, in the circumstances of the case there shall be no order as to costs.