2018 (9) TMI 80 - HC - Income Tax

Seeing refund together with interest under Section 244 - whether the petitioner is entitled to full refund of tax already paid, since the assessment was annulled later by the competent Authority and such annulment has become final and conclusive - Held that - Apex Court in the case of Commissioner of Income Tax vs Shelly Products & Another 2003 (5) TMI 4 - SUPREME COURT has categorically observed that the liability to pay income tax chargeable under Section 4(1) of the Act, does not depend upon the assessment being made and that the liability to pay the tax arises, as soon as the Finance Act prescribes the rate or rates for any assessment year. If the Assessing Authority cannot make a fresh assessment after the earlier assessment made was set aside or nullified, it amounts to deemed acceptance of the return of income furnished by the assessee. Going by the above law laid down by the Apex Court and applying the same to the present facts and circumstances, in pursuant to the nullifying of the assessment, a deemed acceptance of the return of income furnished by the assessee stands and holds good and consequently, any tax paid either along with the return or later under any circumstances would certainly fall under the purview of tax chargeable on the total income returned by the assessee as referred to in Proviso (b) of Section 240 of the said Act. Consequently, whatever the amount paid by the assessee in cases of the tax chargeable on the total income more than returned by the assessee alone could be refunded and not a full refund. This is what happened in the present case. Admittedly, the Revenue has refunded a sum of ₹ 6,46,454/-, being the excess tax paid by the assessee. Hence, the tax paid by the Assessee on the admitted return filed by him cannot be refunded and thus, the respondents are justified in rejecting such claim. - Decided against assessee

Summary

Issues Involved:
1. Validity of the return filed by the petitioner under Section 158 BD without payment of tax.
2. Entitlement to full refund of tax paid by the petitioner after the annulment of the assessment order.
3. Applicability of Section 240(b) of the Income Tax Act regarding refund of tax.
4. Interpretation of the term "total income" and "undisclosed income" in the context of tax refund.

Detailed Analysis:

1. Validity of the Return Filed by the Petitioner:

The petitioner contended that the return of income filed on 10.09.1996 pursuant to the notice under Section 158 BD of the Income Tax Act was invalid as it was not accompanied by the payment of tax. The Revenue argued that the return was defective but not invalid, as it could be cured by subsequent payment of tax. The Court agreed with the Revenue, stating that the return filed by the petitioner was valid despite the initial non-payment of tax, as the petitioner paid the tax later on demand. The Court emphasized that a defective return becomes valid upon rectification, and the petitioner’s subsequent compliance validated the return.

2. Entitlement to Full Refund of Tax Paid:

The petitioner sought a full refund of the tax paid, arguing that since the assessment was annulled, no tax was chargeable on the total income returned. The Revenue countered that only the excess tax paid over the admitted liability could be refunded, as per Section 240(b) of the Income Tax Act. The Court held that the petitioner was not entitled to a full refund of the tax paid on the admitted income, as the annulment of the assessment did not affect the validity of the return or the admitted tax liability. The Court concluded that the petitioner could only claim a refund of the excess tax paid over the admitted income, which had already been refunded by the Revenue.

3. Applicability of Section 240(b) of the Income Tax Act:

The Court examined Section 240(b) of the Income Tax Act, which stipulates that if an assessment is annulled, the refund is due only for the amount of tax paid in excess of the tax chargeable on the total income returned by the assessee. The Court interpreted this provision to mean that the petitioner could not retract the admission of income in the return or claim a refund of the tax paid on the admitted income. The Court emphasized that the annulment of the assessment only nullified the additional tax levied, not the tax on the income declared in the return.

4. Interpretation of "Total Income" and "Undisclosed Income":

The petitioner argued that the terms "total income" and "undisclosed income" are distinct and that the tax paid on undisclosed income should be refunded in full upon annulment of the assessment. The Court rejected this argument, stating that the admitted undisclosed income in the return is binding on the petitioner. The Court clarified that the annulment of the assessment does not invalidate the return or the admitted income, and thus, the tax paid on the admitted income cannot be refunded.

Conclusion:

The Court concluded that the petitioner was not entitled to a full refund of the tax paid, as the return filed was valid and the tax paid on the admitted income was not refundable under Section 240(b) of the Income Tax Act. The Court upheld the Revenue’s decision to refund only the excess tax paid over the admitted liability and dismissed the writ petition. The Court also referenced the Supreme Court decision in CIT vs Shelly Products, which supported the view that the tax paid on the admitted income is not refundable upon annulment of the assessment.