1983 (5) TMI 18 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices for rectification issued under Section 35 of the Indian Income Tax Act, 1922.
2. Applicability of Section 297(2)(i) of the Income Tax Act, 1961, to the assessment completed under the old Act but refunds due after the new Act came into force.
3. Entitlement to interest on refunds under Section 244 of the new Act.

Detailed Analysis:

1. Validity of Notices for Rectification Issued Under Section 35 of the Indian Income Tax Act, 1922:
The petitioner, a public limited company, challenged the notices for rectification issued by the Income Tax Officer (ITO) under Section 35 of the Indian Income Tax Act, 1922. The notices were issued on the grounds that there was a mistake apparent on the face of the record of the refund orders. The ITO contended that since the assessments were completed under the old Act, the provisions of Section 297(2)(i) of the new Act were not applicable, and consequently, interest could not be allowed under Section 244 of the new Act. The court found that the rectification proceedings initiated by the ITO were not maintainable, and the notices issued under Section 35 of the old Act were quashed.

2. Applicability of Section 297(2)(i) of the Income Tax Act, 1961, to the Assessment Completed Under the Old Act but Refunds Due After the New Act Came into Force:
The court examined the applicability of Section 297(2)(i) of the new Act, which states that provisions of the new Act relating to interest on refunds apply where a refund falls due after the commencement of the new Act, even if the assessment was completed before its commencement. The court referred to several precedents, including decisions by the Madras High Court and the Supreme Court, which supported the view that Section 297(2)(i) applies to refunds due after the new Act came into force, even if the assessments were completed under the old Act. The court concluded that the provisions of the new Act relating to interest on refunds were applicable in the present case.

3. Entitlement to Interest on Refunds Under Section 244 of the New Act:
The petitioner-company argued that since the refunds fell due after the commencement of the new Act, interest was rightly paid under Section 244 of the new Act. The court agreed with this contention, noting that the relevant orders for refunds were passed after the new Act came into force, and thus, the provisions of Section 244 regarding payment of interest were applicable. The court emphasized that the proceedings by way of appeal, revision, or reference, though continued under the old Act, should be deemed to have been passed under the new Act for the purposes of Section 240, and thus, the provisions of Section 244 regarding interest on refunds would be attracted.

Conclusion:
The court allowed all four writ petitions, quashing the notices issued by the ITO under Section 35 of the old Act for rectification. It declared that the rectification proceedings were not maintainable and upheld the payment of interest on refunds under Section 244 of the new Act. The parties were left to bear their own costs.