2016 (9) TMI 1080 - HC - Income Tax

Assessment of income - total income was determined by adding surcharge on sales tax under the Kerala General Sales Tax Act and turn over tax levied under the Kerala Surcharge on Taxes Act, 1957 - Held that - According to us, irrespective of the controversy concerning Sections 240 and 245, the appellant is entitled to succeed. Admittedly, for the assessment years 2007-2008 to 2011-2012, the turn over of surcharge and turn over tax paid by the assessee were added to their total income and tax was levied on that basis. The correctness of that issue was decided by the Tribunal in the assessee s favour for one of the assessment years. That order was followed by the Commissioner of Income Tax (Appeals) before whom the appeals concerning the remaining years were pending at that time. The revenue carried those matters also before the Tribunal and the Tribunal followed its earlier order and upheld the order passed by the First Appellate Authority. All these orders were challenged by the revenue before this Court. This Court confirmed the order passed by the Tribunal and connected cases. As on date, there is no appeal against those judgments. This, therefore, means that the total income of the assessee could not have been determined by adding the surcharge and turn over tax paid by the assessee. If that be so, not only that the assessee was entitled to have the amounts found to be refundable in Exts.P2 and P10 series refunded to it, but also the addition of the surcharge and turn over tax to the total income in Ext.P1 assessment order for the year 2012- 2013 is also illegal. Therefore, despite the fact that an appeal filed against Ext.P1 is pending consideration of the Commissioner of Income Tax (Appeals), as of now, the department is not entitled to adjust the amount refundable to the assessee consequent to the orders passed by the Commissioner of Income Tax Appellate Tribunal and this Court. For these reasons, we are inclined to set aside the judgment under appeal and also Ext.P2 and direct the first respondent to refund the amount mentioned in Ext.P2 to the assessee forthwith.

Summary

Issues:
1. Interpretation of Sections 240 and 245 of the Income Tax Act regarding adjustment of refund amounts.
2. Validity of adjustments made by the department against the demand of tax due under Ext.P1 assessment order.
3. Compliance with legal provisions in adjusting refund amounts against tax liabilities.

Analysis:

1. Interpretation of Sections 240 and 245:
The appellant contended that adjustment under Section 245 can only be made after determining the refund amount due under Section 240. The department argued that it was entitled to adjust amounts due for refund even before varying the assessment order. The court observed that the appellant's total income for previous years had been wrongly determined by adding surcharge and turn over tax. The Tribunal and Commissioner had ruled in favor of the appellant, and this Court upheld those decisions. As there was no appeal against these judgments, the court held that the department could not adjust refund amounts without proper assessment under Section 240.

2. Validity of Adjustments:
The appellant challenged the adjustments made against the demand of tax due under Ext.P1 assessment order. The court found that the additions of surcharge and turn over tax to the total income in the Ext.P1 order were illegal due to the favorable decisions in previous years. Therefore, the department was not entitled to adjust refund amounts based on a non-existing liability. The court set aside the judgment under appeal and directed the department to refund the amount mentioned in Ext.P2 to the appellant.

3. Compliance with Legal Provisions:
The court emphasized that despite the pending appeal against Ext.P1, the department was not entitled to adjust refundable amounts based on incorrect assessments. The court held that the adjustments made by the department were not valid and ordered the refund of the adjusted amounts to the appellant. The appeal was allowed based on the incorrect adjustments made by the department, and the legal rights of the appellant to receive the refunded amounts were upheld.

In conclusion, the court's judgment focused on the correct interpretation of Sections 240 and 245 of the Income Tax Act, the validity of adjustments made by the department, and ensuring compliance with legal provisions in adjusting refund amounts against tax liabilities.