1982 (8) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Adjustment of Excess Profits Tax (EPT) refund among partners.
2. Interest on excess EPT payment from March 31, 1956, to June 9, 1960.

Issue-wise Detailed Analysis:

1. Adjustment of Excess Profits Tax (EPT) Refund Among Partners:
The petitioners, partners of Agarwal and Co., contested the adjustment of EPT refunds among the 13 partners, arguing it was not warranted by legal provisions. The firm paid Rs. 32,23,607 as EPT for three accounting periods, which was later reduced to Rs. 15,28,532, entitling the firm to a refund of Rs. 16,95,075. The petitioners argued that the refund should be made to the firm and not adjusted among individual partners.

The court examined the application of Section 21 of the EPT Act, 1940, which incorporates provisions of the Indian Income Tax Act, 1922, including Section 49E, allowing the set-off of refunds against tax liabilities. The court noted that the EPT Officer assessed the partnership firm, not the individual partners, and thus the refund should be made to the firm.

The court referenced Supreme Court decisions (Khaitan Apte and Co. v. D. Rama Rao and ITO v. Radha Kishan) supporting the view that refunds should be made to the assessed entity, not individual partners. Consequently, the court found the adjustments made in favor of individual partners improper and invalid.

However, the court restricted the relief to adjustments made for five partners (Kedarnath Hitanand, Matadin Hariram, Onkarmal Ghansham, Radhakishan Sagarmal, and Thakarlal Mukhram), totaling Rs. 9,98,234, since the other eight partners had already benefited from the adjustments.

2. Interest on Excess EPT Payment:
The petitioners claimed interest on the excess EPT payment from March 31, 1956, to June 9, 1960. The court examined Section 14A(7) of the EPT Act, 1940, which mandates interest on refunds from the date of provisional assessment. The court clarified that interest liability arises from the date of provisional assessment (June 9, 1960), not from the date of the original payment.

The court rejected the petitioners' argument for interest from the earlier date, emphasizing that the liability for interest under Section 14A(7) starts from the date of provisional assessment, not from any earlier date.

Conclusion:
The court ruled that the adjustments of EPT refunds among individual partners were improper and directed that the refund be made to the firm, Agarwal and Co., limited to the amounts improperly adjusted for five partners. The court rejected the claim for interest from any date prior to June 9, 1960. Each party was directed to bear its own costs.