2004 (5) TMI 9 - HC - Income Tax

Whether in view of the provisions of section 194C read with article 265 of the Constitution, the respondents are bound in law to make the refund of amount which has been paid by the petitioner by way of advance payment of tax, inter alia, under section 210 for which no regular assessment was made and the same was allowed to become time-barred by the Income-tax Officer the tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of return furnished and the rates applicable, the excess shall be refunded to the assessee, since its retention may offend article 265 of the Constitution - writ petition has to be dismissed

Issues:
1. Refund of excess tax paid under section 210 of the Income-tax Act, 1961 for assessment year 1981-82.
2. Interpretation of provisions of section 194C of the Act and article 265 of the Constitution regarding tax refund.
3. Impact of failure to pass a regular assessment order within the stipulated period on the refund claim.
4. Comparison of previous court judgments with the decision in CIT v. Shelly Products [2003] 261 ITR 367; [2003] 5 SCC 461.

Analysis:
1. The petitioner filed a petition under article 226 seeking a refund of Rs. 8,252 paid as advance tax for the assessment year 1981-82. The excess amount was paid due to a deduction at source under section 194C of the Act. Despite initially receiving the refund, the Income-tax Officer later demanded Rs. 2,638 based on a rectification notice. The total tax deposited by the petitioner amounted to Rs. 9,398. The issue revolved around the legality of the refund claim in the absence of a regular assessment order within the prescribed time limit.

2. The petitioner relied on a previous court judgment, Deep Chand Jain v. ITO [1984] 145 ITR 676 (P&H), which suggested that the payment of tax without a regular assessment might not be authorized by law. However, the Supreme Court's decision in CIT v. Shelly Products [2003] overruled this view. The Supreme Court held that the failure to frame an assessment within the stipulated period does not disadvantage the assessee. Paying advance or self-assessment tax in excess of the liability constitutes an admission of tax liability, as per the provisions of the Income-tax Act. The Act mandates the filing of returns and payment of taxes based on self-assessment, regardless of assessment completion.

3. The failure to pass a fresh assessment after the expiration of the time limit results in the deemed acceptance of the income return filed by the assessee. In such cases, the assessing authority cannot demand further taxes or verify the accuracy of the return beyond what was initially disclosed. Any excess tax paid by the assessee must be refunded, as retaining it would violate article 265 of the Constitution. The Supreme Court's ruling in Shelly Products' case clarified that the tax paid should be accepted as is, and any excess amount refunded to the assessee.

4. Consequently, the High Court dismissed the petition based on the legal principles established by the Supreme Court in Shelly Products' case. The judgment emphasized that the failure to conduct a fresh assessment does not alter the assessee's tax liability or refund entitlement, as the payment of taxes is authorized by law irrespective of assessment completion. The decision highlighted the importance of self-assessment and tax payment in accordance with the provisions of the Income-tax Act, ensuring compliance with legal obligations regarding tax liabilities and refunds.

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