1996 (7) TMI 118 - HC - Income Tax

Summary

Issues Involved:
1. Refund of advance tax and self-assessment tax after annulment of assessment.
2. Legality of retaining self-assessment tax by the Revenue.
3. Applicability of section 240 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Refund of Advance Tax and Self-Assessment Tax After Annulment of Assessment:

The primary issue in this case was whether the Income-tax Appellate Tribunal was justified in directing the Assessing Officer to refund the tax with interest paid by the assessee on the income returned, following the annulment of the assessments for the year 1976-77 by the Tribunal. The Tribunal had annulled the assessments, and the assessee claimed a refund of both advance tax and self-assessment tax paid. The Revenue contended that only the tax paid on regular assessment should be refunded, excluding advance tax and self-assessment tax. However, the Tribunal and the Commissioner of Income-tax (Appeals) directed the refund of both advance tax and self-assessment tax with interest.

2. Legality of Retaining Self-Assessment Tax by the Revenue:

The court examined the legality of retaining self-assessment tax by the Revenue after the annulment of the assessment. It was argued by the Revenue that the self-assessment tax paid by the assessee should not be refunded even after the annulment of the regular assessment. The court held that the self-assessment made by the assessee is not final and is subject to adjudication by the taxing authority. The self-assessment becomes a regular assessment only after adjudication by the competent authority. Therefore, if the assessment is annulled, the Revenue has no authority to retain the self-assessment tax, and it must be refunded.

3. Applicability of Section 240 of the Income-tax Act, 1961:

The court discussed the provisions of section 240 of the Income-tax Act, which mandates the refund of any amount due to the assessee as a result of any proceeding under the Act. The court emphasized that no tax can be recovered unless there is a regular assessment made by the assessing authority under the scheme of the Act. If the assessment is annulled, the Revenue has no lawful authority to retain any amount paid by the assessee, including advance tax and self-assessment tax. The court also referred to various judgments, including those of the Gujarat High Court, Karnataka High Court, Punjab and Haryana High Court, and its own earlier decisions, which supported the view that the Revenue must refund the tax collected if the assessment is found to be invalid or annulled.

The court also noted the amendment to section 240 by the Direct Tax Laws (Amendment) Act, 1987, which introduced a proviso stating that if an assessment is annulled, the refund shall be only of the amount of tax paid in excess of the tax chargeable on the total income returned by the assessee. However, since the case at hand was governed by the unamended provisions, the court held that the Revenue must refund the entire amount retained, including self-assessment tax.

Conclusion:

The court concluded that the Tribunal was correct in directing the refund of both advance tax and self-assessment tax with interest, following the annulment of the assessments. It answered the question of law in favor of the assessee and against the Revenue. The writ petitions filed by the petitioners were allowed, and the court directed the Department to refund the retained amount with interest in accordance with law.