1973 (5) TMI 11 - HC - Income Tax

Assessment order for the year 1959-60 was set aside by the Tribunal on 17th of May, 1962. The Income-tax Officer took six years to pass a fresh order ultimately holding that the tax had wrongly been collected from the petitioners. We find no rational reason why the petitioners should be deprived of the interest for the period of six years during which the Income-tax Officer kept the proceedings pending. If he wanted to withhold the refund, he should have passed an order under section 241 and in that event the petitioners would not have been deprived of the interest. If we accepted the stand taken by the department, an assessee can be deprived of the refund for an indefinite period at the will of the Income-tax Officer, because there is no period or limitation prescribed for passing a fresh assessment order on remand. We find no reason in law or in equity to accept such a preposterous proposition - We, accordingly, allow this petition

Summary

Issues:
1. Assessment of dividend income received by a widow on shares held by her for a Hindu undivided family.
2. Recognition of partition in a Hindu undivided family for separate assessment years.
3. Entitlement to interest on delayed refunds under the Income-tax Act, 1961.

Analysis:
1. The judgment addressed the assessment of dividend income received by a widow, held to be benami for a Hindu undivided family. Initially, the Income-tax Officer included the income in the family's assessment without proving the benami status. The Tribunal remanded the case, emphasizing the department's onus to establish benami ownership. Eventually, the fresh assessment excluded the dividend income, leading to a refund to the family. The family sought interest under section 244 of the Income-tax Act, 1961, for the delayed refund, which was initially denied by the Income-tax Officer. The court ruled in favor of the family, emphasizing that the tax paid becomes refundable upon setting aside of the assessment order, and interest is payable if the refund is delayed unreasonably.

2. The judgment also dealt with the recognition of partition in a Hindu undivided family for separate assessment years. Despite the family's application under section 25A, the Income-tax Officer initially treated the income of separating members as belonging to the family. However, on appeal, the Tribunal upheld the partition with retrospective effect. Subsequent assessments were revised, leading to refunds for the family. The family applied for interest on delayed refunds, which was rejected by the Income-tax Officer. The court highlighted that interest on refunds is payable if the refund is delayed beyond a reasonable period, as per the provisions of the Income-tax Act, 1961.

3. Lastly, the judgment addressed the entitlement to interest on delayed refunds under the Income-tax Act, 1961. The court interpreted the relevant sections, emphasizing that interest becomes due if the refund is not granted within six months of the order. The court rejected the department's contention that interest is only payable after the Income-tax Officer passes a fresh assessment order on remand. It clarified that the tax paid becomes refundable upon setting aside of the assessment order, and interest is payable if the refund is unreasonably delayed. The court quashed the previous orders denying interest and directed the Income-tax Officer to calculate and grant the appropriate interest to the petitioner.

In conclusion, the judgment clarified the principles governing the assessment of income, recognition of partition in Hindu undivided families, and entitlement to interest on delayed refunds under the Income-tax Act, 1961. It emphasized the importance of following legal procedures and timelines in tax assessments and refunds to protect the rights of taxpayers.