2017 (8) TMI 1300 - HC - Income Tax

Superannuation fund - Withdrawing the approval of the petitioner under Rule 91 of the Income Tax Rules, 1962 - return of excess deposit into the fund by the employers - Held that - The authorities have to find out the quantum of payment required to be made by the respondent no.3, the quantum paid by the respondent no. 3 and the position after taking into account the settlement arrived. If such contentions are found factually correct, then, the question of applicability of Rule 91(2) of the Income Tax Rules, 1962 for the purpose of withdrawing the approval would not arise. On the other hand, if the claim of excess payment is not substantiated to be correct, then the Income Tax authority would be entitled to invoke Rule 91(2) of the Income Tax Rules, 1962 for the purpose of withdrawing the approval granted to the first petitioner. Again as rightly pointed out on behalf of the respondent nos. 8 and 9, such an issue has not been dealt with by the impugned order. As contended on behalf of the petitioners that, such issue has not been raised, as the parties are ad idem on the fact that, there is an excess payment made by the respondent no. 3 warranting the first petitioner to refund the same. With respect, the issue was raised by the respondent no. 3 in the reply dated June 8, 2007. The issue is one of mixed question of fact and law. The showcause notice and the reply thereto raises such an issue. The parties at issue are the Income Tax department and the respondent no. 3 as well as the first petitioner. It cannot be said, in the facts of the present case that, the Income Tax department had accepted that, there is an excess payment made by the respondent no. 3 to the first petitioner for the relevant years. The Income Tax department has also not accepted the quantum of the alleged excess payment. A consensus between the petitioner and the respondent no. 3 cannot bind the Income Tax department. In such circumstances, it would be appropriate to set aside the impugned order and remand the matter to the Income Tax authority for the purpose of deciding the show-cause notice and the reply thereto in accordance with law. Needless to say that, the Income Tax authority is at liberty to hear such parties and consults such documents as it deems appropriate. The authority will pass a reasoned order which it will communicate to the parties it has heard forthwith thereafter. It is expected that, the authority will complete the entire exercise within six weeks from the date of communication of this order to it.

Issues Involved:
1. Legality of the Order dated January 9, 2017, withdrawing approval under Rule 91 of the Income Tax Rules, 1962.
2. Justification for refunding excess payment by the petitioner to the employer.
3. Applicability of Rules 87, 88, and 91 of the Income Tax Rules, 1962, and Part B of the Fourth Schedule of the Income Tax Act, 1961.
4. Impact of the mediation settlement approved by the Karnataka High Court.

Issue-wise Detailed Analysis:

1. Legality of the Order dated January 9, 2017:
The petitioner challenged the Order dated January 9, 2017, issued by the Principal Commissioner of Income Tax, which withdrew the approval of the petitioner under Rule 91 of the Income Tax Rules, 1962. The petitioner argued that the impugned order did not consider the aspect of excess payment and that the petitioner acted in accordance with the law by refunding the excess amount to the employer. The court noted that the impugned order was based on Rule 91(2) of the Income Tax Rules, 1962, without considering other relevant rules and sections of the Income Tax Act, 1961.

2. Justification for Refunding Excess Payment:
The petitioner contended that the employer had made an excess contribution of ?1,211.99 Lakhs, which was detected and subsequently refunded. The petitioner argued that retention of excess payment would breach the trust deed and relevant law provisions. The respondent supported this by citing Rules 87 and 88 of the Income Tax Rules, 1962, and Section 72 of the Contract Act, 1872, which mandates the repayment of money paid by mistake. The court acknowledged that excess payments made by mistake must be refunded under Section 72 of the Contract Act, 1872.

3. Applicability of Relevant Rules and Sections:
The court examined the interplay of Rule 91(2) of the Income Tax Rules, 1962, and Part B of the Fourth Schedule of the Income Tax Act, 1961. Rule 5 of Part B allows for the repayment of excess contributions to the employer, deeming such repayments as the employer's income for the relevant year. The court emphasized that Rule 91(2) prohibits the transfer of legitimate contributions from the fund to the employer but does not apply to excess payments made by mistake. The court also referenced relevant case law, noting that evident mistakes cannot compel a party to continue repeating such mistakes.

4. Impact of Mediation Settlement:
The court considered the mediation settlement approved by the Karnataka High Court, which addressed the sum of ?1,211.99 Lakhs. The settlement was communicated to the Income Tax authority, and the parties requested assistance in its implementation. The court noted that the Income Tax authority must determine whether the claim of excess payment is correct in light of the settlement. The court highlighted that the issue of excess payment was raised in the reply to the show-cause notice, and the Income Tax authority must adjudicate this issue.

Conclusion:
The court set aside the impugned order and remanded the matter to the Income Tax authority for a fresh decision on the show-cause notice and the reply, considering the relevant rules and the settlement. The authority was directed to complete the exercise within six weeks and communicate the reasoned order to the parties. The writ petition was disposed of with no order as to costs, and the application for early disposal was also disposed of accordingly.

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