1999 (5) TMI 20 - HC - Income Tax

Summary

Issues Involved:

1. Adjustment of tax refund against outstanding tax demand.
2. Compliance with Section 245 of the Income-tax Act regarding prior intimation.
3. Applicability of Section 245 of the Income-tax Act to the Interest-tax Act.

Summary:

1. Adjustment of Tax Refund Against Outstanding Tax Demand:
The petitioner, State Bank of Patiala, challenged the adjustment of its tax refund against outstanding tax demands for earlier assessment years. The Assessing Officer adjusted the refund for the assessment year 1996-97 against demands for 1994-95 and 1995-96. The petitioner argued that this adjustment was unjust and violated specific provisions of law.

2. Compliance with Section 245 of the Income-tax Act Regarding Prior Intimation:
The petitioner contended that no prior intimation was given before the adjustment, as required by Section 245 of the Income-tax Act. The court noted that Section 245 mandates an intimation in writing before any set-off action. The intimation dated March 26, 1997, was sent after or simultaneously with the adjustment, violating the requirement for prior intimation. The court cited precedents from the Bombay High Court, Madhya Pradesh High Court, and Delhi High Court supporting the need for prior intimation.

3. Applicability of Section 245 of the Income-tax Act to the Interest-tax Act:
In C.W.P. No. 10273 of 1997, the petitioner argued that the refund arose under the Interest-tax Act and not the Income-tax Act, thus Section 245 was inapplicable. The court agreed, stating that Section 245 could only apply to refunds and demands under the same Act. The court also noted that Section 21 of the Interest-tax Act incorporates certain provisions of the Income-tax Act, including Section 245, but this does not allow for cross-adjustment between different Acts.

Judgment:
The court held that the Assessing Officer's actions were unsustainable in law due to non-compliance with Section 245's requirement for prior intimation and the improper application of Section 245 to the Interest-tax Act. The communications dated March 26, 1997, and May 5/6, 1997, were quashed. The respondents were directed to pay the refundable amounts along with interest to the petitioner, with costs assessed at Rs. 10,000 in each petition.