1995 (11) TMI 86 - HC - Income Tax

Summary

Issues: Liability to pay interest on a deposit made with the Tax Recovery Officer from July 6, 1987, or from a later date.

In this case, the petitioner, a partnership firm, had a dispute regarding the liability to pay interest on an amount deposited with the Tax Recovery Officer. The issue arose when the firm, in response to tax recovery proceedings against a deceased partner, deposited a sum of Rs. 11,67,000 on July 6, 1987, with the intention of appropriation towards income tax liabilities. However, the Tax Recovery Officer later appropriated this amount towards the deceased partner's tax arrears from February 17, 1989, instead of the date of deposit. The petitioner contended that interest should be calculated from the date of deposit, while the department argued that the amount was kept in deposit for future appropriation and hence interest should be calculated from the later date. The court analyzed the communications between the parties, the nature of the deposit, and the previous judgments related to the matter.

The court examined the sequence of events, including the communication from the Tax Recovery Officer directing the petitioner to deposit the amount and subsequent appropriation towards the deceased partner's tax arrears. The court noted that the petitioner had expressed its intention to remit only one-third of the net sale consideration after settling all liabilities related to the estate. The court also considered the petitioner's communication enclosing the demand draft for Rs. 11,67,000, specifying that the amount was to be kept in deposit for appropriation towards income tax liabilities. The court observed that the amount was ultimately appropriated towards the tax arrears of the deceased partner, leading to the dispute over the date from which interest should be calculated.

The court referred to previous judgments related to the settlement of accounts and refund of the balance amount to the petitioner-firm. It highlighted that the direction to refund the amount on adjustment was confirmed in the judgments, indicating that the amount was treated as subject to refund. The court also noted that the petitioner was considered an assessee in the matter, emphasizing the nature of the payment and the character of the amount deposited. Based on the facts and legal principles, the court concluded that there was no error in calculating interest from February 17, 1989, instead of July 6, 1987.

Ultimately, the court dismissed the petition, stating that based on the facts presented, there was no jurisdiction under Article 226 of the Constitution of India to intervene. The parties were left to bear their own costs, and the issue of interest calculation on the deposit was settled in favor of the department's position.