1968 (1) TMI 14 - HC - Income Tax

Firm - petition for mandamus - petitioner is entitled to interest under the proviso to section 66(7)from the date of payment to the date of assessment - and the respondent would apply the proviso to section 66(7) accordingly and make suitable direction

Summary

Issues:
- Interpretation of section 66(7) of the Income-tax Act, 1922 regarding interest on refund
- Application of the proviso to section 66(7) in the case of a registered firm
- Liability to pay interest under the proviso in relation to tax liability reduction

Analysis:
The judgment addressed the petitioner's request for the respondent to grant interest on a refund amount due to a registered firm under section 66(7) of the Income-tax Act, 1922. The firm had initially been assessed to income tax, and after succeeding in a reference to the High Court under section 66(2), the Tribunal directed the Income-tax Officer to grant registration to the firm for a specific year. The Income-tax Officer then adjusted a sum against the tax due from the partners, resulting in a refund. The petitioner argued that the liability to pay interest under the proviso to section 66(7) was a result of the reference, while the revenue contended that the proviso did not apply as the firm's nil liability was an indirect result of the reference. The court analyzed the proviso and concluded that the liability for interest extended to the entire amount involved, emphasizing that the proviso aimed at aiding tax collection and should be applied in cases where the tax liability had been reduced due to a reference outcome.

The court further delved into the concept of causation and the chain of events, emphasizing that there should be no break in the chain for an event to be considered a result of a previous action. In this case, the court found that the firm's nil tax liability, resulting from the registration grant, was a direct consequence of the reference and the subsequent actions taken by the Income-tax Officer. The court highlighted the provisions of section 23(5) and the Finance Act, 1956, which supported the firm's entitlement to registration and the subsequent elimination of tax liability. The court emphasized that the refund made by the Income-tax Officer should have been based on the firm's nil tax liability and that interest under the proviso to section 66(7) should be granted on the relevant amount from the date of payment to the date of assessment.

In conclusion, the court ruled in favor of the petitioner, stating that they were entitled to interest under the proviso to section 66(7) on the specified amount. However, the court did not direct the respondent to pay a specific sum but indicated that the respondent should apply the proviso accordingly. The judgment highlighted the procedural aspects and legal principles governing the application of the proviso to section 66(7) in cases involving tax liability adjustments and refunds for registered firms, emphasizing the importance of following statutory provisions and ensuring fairness to the assessee.