9911796707
TMI Blog2015 (10) TMI 1770X X X X Extracts X X X X X X X X Extracts X X X X ..... interest @ 15%." 2. Very briefly put, the case of respondent No. 1 / writ petitioner was as follows: On 18.07.2014, the Income Tax Appellate Tribunal, Delhi Bench, in three appeals, passed a judgment and allowed the appeals filed by the writ petitioner and dismissed the appeals filed by the Income Tax Department (hereinafter referred to as the "Department") holding that the provision of Section 194A(1) of the Income Tax Act (hereinafter referred to as the "Act") is not applicable to the SRF deposit made. On 30.07.2014, on the basis of the said judgment, writ petitioner applied for refund of Rs. 44,36,57,686/- with interest, which the Department had coercively recovered from the writ petitioner. It is necessary to notice that recovery was effected by proceedings dated 29.03.2014, by which the Department attached the account of the writ petitioner with RBI in a sum of Rs. 44 and odd crores, which amount related to 2013-2014. Writ petitioner further sent communication dated 08.09.2014 (Annexure No. 4) seeking refund. It is, thereafter, that the impugned letter dated 04.12.2014 (Annexure No. 5) was issued, which reads as follows: "F.No. DCIT(TDS)DDN/SBI/AY2013-14/2014-15/26 Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue, as to whether order dated 03.03.2015 has been passed by the Commissioner of Income Tax (Appeals), therefore, in the peculiar facts and circumstances of the case, I direct that on the applications of the petitioner seeking refund, an appropriate decision shall be taken within two weeks positively and if it is found that vide order dated 03.03.2015 amount of Rs. 97,85,37,937/- has been deleted against the assessee, amount of Rs. 44,36,57,686/- shall be refunded to the petitioner Bank along with interest as provided under Section 240 read with Section 244 of the Income Tax Act. It is, however, clarified that unless and until order passed by the Income Tax Appellate Tribunal has been stayed or set aside by the higher Forum, refund shall not be denied to the petitioner. Petition stands disposed of accordingly." 5. It is feeling aggrieved by the same that the appeal has been filed. 6. We heard Mr. Hari Mohan Bhatia, learned counsel appearing for the appellants and Mr. Bishwajit Bhattacharya, learned Senior Counsel appearing on behalf of respondent No. 1 / writ petitioner. 7. Mr. Hari Mohan Bhatia would submit that it is true that the assessment for Rs. 97,85,38,937/- for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 975 SC 2299, to be a basic feature of the Constitution. He would complain of arbitrariness on the part of the Department in refusing to grant refund of the amount, which was illegally attached. He would point out that, actually, there is only a single deposit made by ONGC with the Bank and, in regard to the said deposit, Section 194A of the Act is not applicable. He points out that, for Assessment Year 2013-2014, an amount of Rs. 44 and odd crores came to be recovered by the Department by attaching the account of the Bank. While so, the Income Tax Appellate Tribunal, vide judgment dated 18.07.2014 (Annexure No. 2 to the writ petition), allowed the appeals filed by the writ petitioner for the Assessment Years 2010-2011, 2011-2012 & 2012-2013. Thereafter, for Assessment Year 2014-2015, even though the matter stood concluded by the judgment of the Tribunal, the Assessing Officer, by order dated 15.09.2014, assessed the writ petitioner again in respect of the very same deposit made by ONGC on the basis of the non deduction under Section 194A of the Act, an issue which stood concluded by the order of the Income Tax Appellate Tribunal. It was this order, which was set aside in appeal by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to appreciate the contentions of the parties, we deem it necessary to refer to the scheme of the Act in regard to refunds. Refunds figure under Chapter XIX of the Act. Section 237 provides, inter alia, that, if a person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of the excess. We need not be detained with Section 238. Section 239 provides for the form of the claim for refund and limitation. Section 240 being relevant, we extract the same as under: "240. Refund on appeal, etc. - Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf: Provided that where, by the order aforesaid,- (a) an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching in their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto an agreement with a Company for providing various services. The petitioner was to reimburse the cost incurred by the Company for providing the services plus 5 per cent, which was referred to as "cross charges". There was no basis laid down for allocation of costs and the parties agreed to engage a firm of Chartered Accountants to determine the basis. For the Assessment Year 1998-1999, the cross charges were worked out. However, the Assessing Officer took the view that the increase in cross charges was not fully and exclusively for the purpose of the business of the petitioner and justifiable only to the extent of 7 per cent of the net sales. The order was confirmed by the appellate authority. Similar approach was taken in Assessment Year 1999-2000 also by the Assessing Officer and the appellate authority. The petitioner therein successfully appealed before the Tribunal and the Tribunal deleted the disallowance for Assessment Years 1998-1999 and 1999-2000. The said order of the Tribunal attained finality, apparently, as the appeal filed by the Revenue before the High Court was dismissed on 20.07.2005, wherein the court took the view that there was no substantial question of law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stification. The said amount was directed to be refunded along with interest and the same was paid. Thereafter, the question related to the refund of Rs. 10.69 crores. The issue which finally fell for decision was, whether the petitioner was entitled to refund for the Assessment Year 2001-2002 of the amount already computed by the Revenue by its orders dated 28.12.2005 and 01.05.2006. The Revenue sought to adjust it against the subsequent Assessment Years 2002-2003 and 2003-2004. The court referred to Section 241, as it stood prior to 01.06.2001. The said provision was as follows: "241. Power to withhold refund in certain cases.- Where refund of any amount becomes due to the assessed as a result of an order under this Act or under the provisions of Sub-section (1) of Section 143, after a return has been made under Section 139 or in response to a notice under Sub-section (1) of Section 142 and the Assessing Officer is of the opinion, having regard to the fact that- (i) a notice has been issued, or is likely to be issued, under Sub-section (2) of Section 143 in respect of the said return; or (ii) the order is the subject matter of an appeal or further proceedings; or (iii) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of the Legislature that pendency of proceedings will not by itself be a ground for withholding the refund." ....... 26. In our view, the power under Section 245 of the Act, is a discretionary power given to each of the tax officers in the higher echelons to "set off the amount to be refunded or any part of that amount against the same, if any, remaining payable under this Act by the person to whom the refund is due." That this power is discretionary and not mandatory is indicated by the word "may". Secondly, the set off is in lieu of payment of refund. Thirdly, before invoking the power, the officer is expected to give an intimation in writing to the assessed to whom the refund is due informing him of the action proposed to be taken under this section. 27. We reiterate that the restrictions on the power under Section 241, as explained judicially, would apply with equal, if not greater, force to Section 245. A mechanical invocation of the power under Section 245 irrespective of the fact situation, can lead to misuse of the power by the Revenue in order to delay the refund till such time a fresh demand for the subsequent assessment years is finalized. If reasonable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt context. The relevant provision considered in the said case was Section 49E, which read as under: "Section 49E : Where under any of the provisions of this Act, a refund is found to be due to any person, the Income-tax officer,... may, in lieu of payment of the refund, set off the amount to be refunded, or any part of that amount against the tax, interest or penalty, if any, remaining payable by the person to whom the refund is due." 31. It may be straightaway noticed that Section 49E of the Indian Income-tax, 1922 is not in pari materia with the power under Section 245. The latter power can be exercised only after prior intimation has been sent to the assessed of the action proposed to be taken by the Revenue. Therefore, the mere liability to pay tax, which was never in issue in the above case, is not sufficient to attract the provision of Section 245." It is, however, also important to notice the following observations in paragraphs 34 & 35: "34. Turning to the facts of the present case, we find that no notice under Section 245 was issued to the assessed proposing to set off the demand against the outstanding tax amount due from it. There is no explanation why such notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said judgment, it was, inter alia, held that the pendency of appeal proceedings by itself cannot be a ground to not refunding the amount due and payable and it is not sufficient to pass an order of adjustment for demand on issues, which have been decided against the Revenue. Therein, the court was dealing with the question, whether Section 220(6) of the Act was applicable when appeal is preferred before the Tribunal. It was held that the Tribunal had power to stay recovery. It was, further, noted that Section 245 permits recovery of the demand of one year, which is pending, by adjusting the refund due for another year. It was a case, where the petitioner was entitled to refund of Rs. 122.57 crores and Rs. 107.41 crores for the Assessment Years 2003-2004 and 2005-2006 respectively. However, the Department adjusted the refund against the demand for the year 2006-2007. An application for stay before the Tribunal was dismissed. The writ petition filed was allowed on the principle that recovery was made in respect of additions on issues, which were covered against them by the earlier orders of the Tribunal or the Commissioner (Appeals). 18. In Suri Sons vs. Commissioner of Income Tax & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax (Appeals) deleted the total additions on the merits by holding that the assessee was carrying out the scientific research at his premises and that the reasons for reopening the assessment were not sufficient. The Assessing Officer in his letter only recommended the filing of the appeal against the order of the Commissioner of Income-tax (Appeals) and at the same time sought permission to withhold the refund as refunding the amount at this stage would adversely affect the interest of the Revenue. A huge amount had been withheld only on the ground that the appeal against the order of the Commissioner of Income-tax (Appeals) was pending before the Tribunal. No material was forthcoming on the record in this case which could justify the withholding of the refund. The petitioner who was an assessee was not shown to be in default in the payment of income-tax dues or even in the matter of filing of returns. Hence, the order of the Assessing Officer recommending the withholding of refund and the order of the Commissioner of Income-tax granting the approval for withholding of the refund could not be justified under the provisions of section 241." The court noted that a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the filing of the petition under Section 136, it has to obtain a stay from the Supreme Court and cannot rely on Section 241. There was nothing to show the pendency of the Special Leave Petition itself and thwarting the right of the petitioner to refund by merely filing a Special Leave Petition in the Registry after limitation had expired, was noted as grossly illegal. In regard to Section 245, the Bench took the following view: "There is nothing on the record or even in the letter to suggest that before passing the order, the provisions of section 245 were complied with. For the purpose of any set of an intimation has to be given in writing to the assessed of the action proposed to be taken under this section. Earlier to this order it has never been the case of the Revenue to claim any set of. This order purporting to be under section 245 of the Act is neither fair, nor just, nor reasonable and has to be ignored. This order also shows scant respect by the authorities for the pendency of these proceedings in this court and this does not commend itself to us, to say the least. We have not been told by the Revenue any reason as to why assessments for years subsequent to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer or other tax or appellate authorities to set off, after intimation to the claimant, the amount to be refunded or any part thereof, against any sum remaining payable under the Act by the person to whom the refund is due. In the Indian Income-tax Act, 1922 (for short "the 1922 Act"), similar provision regarding set-off existed in section 49E. Requirement regarding intimation to the assessee did not, however, find place in section 49E of the 1922 Act. Section 245 reproduces section 49E of the 1922 Act with the addition of the requirement that the Assessing Officer shall give intimation to the assessee before making the adjustment under this section. Thus, an additional requirement regarding intimation was engrafted in section 245 which corresponds to section 49E of the 1922 Act. The following conditions must exist or be fulfilled in order to set off a refund under section 245 of the Act: (i) A refund is found due to a person under any provision of the Income-tax Act; (ii) The amount of refund is set off against another sum which is payable by that person under Income-tax Act; and (iii) The refundable amount is set off after intimation, in writing, of such proposed action t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power, being different, which may not be relevant for our purpose; in the new incarnation, the law provides that the set off may be as against the sum, if any, remaining payable under the Act. Earlier in Section 49E, the amounts were specified expressly as the tax, interest or penalty, if any, remaining payable under the Act by the person to whom such a refund is due. The third difference is, undoubtedly, the requirement in Section 245 of giving intimation in writing to the person of the action proposed to be taken under this Section. The words used therein are "after giving an intimation in writing". Such a requirement was not there in Section 49E. 25. We have already adverted to Section 241 of the Act. The same stands deleted w.e.f. 01.06.2001. In the decision of the Delhi High Court rendered in Glaxo Smith Kline Asia P. Ltd. vs. Commissioner of Income Tax & others (supra), the Bench, after adverting to the same, has taken the view that the restriction on the power under Section 241 would apply with equal, if not greater, force to Section 245. It is, further, held that, if reasonable time limits are not set for processing of or disposal of the application for refund by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is found due. It enables the setting off of any amount remaining payable under the Act by a person to whom the refund is due as against the refund, no doubt, after prior intimation in writing. We have already set out the provisions of Section 241, as it stood prior to its deletion. We are of the view that Sections 241 and 245 operate in different fields. The objects of the provisions are different. As far as Section 241 is concerned, it empowered the withholding of the refund in the circumstances mentioned therein. Undoubtedly, the power was to be exercised by the Assessing Officer; but only with a previous order of the Chief Commissioner or Commissioner. It related to situations, which included cases, where the order was the subject matter of an appeal or further proceeding. That is to say, the order under which refund became due was subjected to an appeal or further proceeding. No doubt, withholding of the refund could be for a long period of time. 27. But, we should notice, however, that withholding of refund was, nonetheless, essentially ancillary or incidental in the sense that it was to be interlocutory in nature. It was substantially an interim arrangement. It was to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contingencies provided therein, subject to the further superadded condition that the authority must take the view that, if the refund is not withheld, it will adversely affect the interest of Revenue. We do not see any scope for reading into Section 245 the conditions, which would have been germane under Section 241. 29. We must, further, examine what is the meaning of the words "in lieu of" found in Section 49E of the earlier enactment and also in Section 245 of the Act. Does Section 245 provide for a two-way traffic? In other words, does it enable the assessee to demand a set off of the refund due against any amount payable by him? This question is no longer res integra and it is profitable that we advert to some of the case law in this regard. We may, however, begin by noting the following commentary in the work The Law and Practice of Income Tax by Kanga, Palkhivala and Vyas, wherein we notice the following commentary: "The provisions of this section are not merely for the benefit of the department but for the convenience of both department and the taxpayer. It would be the duty of the AO to allow a set-off under this section if the assessee claims it and proves that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al order, it cannot be said that there is a subsisting obligation to make a payment. The expression "in lieu of" was construed in Stubbs v. Director of Public Prosecutions, (1890) 24 QBD 577. It was held there that where a liability has to be discharged by A in lieu of B, there must be' a binding obligation on B to do it before A can be charged with it. In our opinion, there must be a subsisting obligation to make the payment of refund before a person is entitled to claim a set off under S. 49E. In this case, in view of the orders of the Commissioner and the Central Board of Revenue mentioned above there was no subsisting obligation to pay, and, therefore, the claim of the appellant must fail." The position at law under Section 245 of the Act cannot be different, as, when the Legislature repeats the same words, which have been interpreted by the court, the Legislature must be deemed to have accepted the interpretation placed by the court. 31. N.C. Mukherjee & Co. vs. Union of India & another, reported in (1968) 68 ITR 500 (SC) was a case, where the court directed to set off the amounts due from the assessee as against the refund due, which had not been determined for a long p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the matter is seriously contested by the assessee. The assessee pursues the matter before the higher forum and, undoubtedly, he may obtain an order of stay, in which case, of course, there cannot be any scope for invoking the power to adjust the refund. We must keep in our minds that the effect of an adjustment under Section 245 is the extinguishment of the duty to refund the amount and the loss of the right of the assessee to refund. Therefore, when the assessment order, itself, is stayed, it could not then be said truly that the amount remains payable within the meaning of Section 245. Effect of the words "after giving prior intimation in writing of the proposal to adjust the refund":- 35. Mr. H.M. Bhatia, learned counsel for the appellants would submit that, in the letter (Annexure No. 5), actually, there was compliance of Section 245. Mr. H.M. Bhatia would, in fact, submit that the statement in the letter (Annexure No. 5) was in compliance with Section 245 and a response from the assessee was awaited; but, instead, the assessee rushed to the court. What is stated in Annexure No. 5 is that the refund is being adjusted. No doubt, in the cases, which we have adverted to at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of the demand, Supreme Court decision covering the demand which is still a subject matter of a pending appeal etc which would warrant not adjusting the refund against the pending demand. Thus when a party does raise such issues in response to a prior intimation, the officer of the revenue exercising powers under Section 245 of the Act must apply his mind to it and must record reason why the objection is not sustainable and also communicate it to the party. This before or at the time of adjusting the refund. This alone would ensure that that the power of adjustment under Section 245 of the Act is not exercised arbitrarily. Such a procedure would cause no prejudice to the revenue as the occasion to grant the refund would not arise till the objection to the intimation is disposed of. Of course the objections should be disposed of expeditiously as undue delay in granting of refund would cause prejudice to the party entitled to the refund." In fact, Mr. H.M. Bhatia, learned counsel for the appellants, would take the stand that the adjustment had not taken place by virtue of the notice (Annexure No. 5); but, in fact, the Revenue was awaiting a response and he asked us to take notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted by the appellate authority, it is not so granted on the basis that the appeal, itself, will be heard on a very near date. When there is no interim order obtained, then, certainly, in terms of the assessment order passed, the amount, as per law, when it falls due, will become payable and, therefore, legally, there cannot be any illegality as such in the amount being adjusted. But, even there, the authority would stay its hands on various relevant considerations. It may include the consideration that an identical issue, as raised in the appeal, has already been answered by the higher forum provided under the Act. The order, under which the amount has become payable and remains payable, may be shown to be palpably unsustainable as, for instance, where the assessment was done in naked violation of the principles of natural justice. Benefits do flow from compliance with the principles of natural justice, as they tend to advance the cause of justice. They would make the proceedings of the authority fair. Therefore, we would think that, in keeping with the object of the provision and the change in the law brought about by the Parliament, the intention was clearly not to reduce it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-2015, as the assessment itself was cancelled by the appellate authority, nothing further remained in the way of the grant of refund. No doubt, the learned counsel for the Revenue did make a statement that, if it is found that the assessment for 2014-2015 had been cancelled, the amount would be paid. In that sense, under normal circumstances, in the light of the fact that it is admitted that the assessment for 2014-2015 was, indeed, cancelled by proceeding dated 03.03.2015, as contended by the learned Senior Counsel for the writ petitioner and in view of the statement made by the learned counsel for the Revenue / appellants, we would have had no occasion to entertain the appeal. 41. But, in this case, we are faced with facts, which are not in dispute, which took place, in fact, prior to the pronouncement of the judgment. The judgment was pronounced in August, 2015; whereas, the assessment order for the year 2015-2016 was passed on 12.05.2015. In the light of the said assessment order, though we did toy with the idea of relegating the appellants to the remedy of a review, as the learned Single Judge did not have occasion to consider the effect of this development; we felt that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration before the appellate Assistant Commissioner. There is no order of stay obtained by the writ petitioner. But, at the same time, there is a clear case that the issue at hand is one squarely covered, as things stand, at the hands of the appellate Tribunal in favour of the assessee and there is absolutely no difference in facts. As already noted, the effect of set off of refund under Section 245 against the sum remaining payable would be the extinguishment of the right to refund. It is also clear that an order under Section 245 would operate as a method of recovery of the tax or other amount due and remaining payable under the Act. The request of the appellants is that the officer concerned will decide the application for demand of refund bearing in mind Section 245 and also taking into consideration the amount assessed for the year 2015-2016 by order dated 12.05.2015. 44. In the circumstances of the case, we are inclined to accept the request, namely, that a decision will be taken by the authority regarding the refund in accordance with law, which would include the right to consider whether, under Section 245 of the Act, a case is made out for adjustment of the refund ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
