9911796707
TMI Blog2003 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department that the refund must be limited to the income-tax paid pursuant to the order of assessment, other than income-tax paid by way of advance tax and self-assessment tax. The facts of the case, in so far as they are relevant for the disposal of these appeals, are not in dispute. The respondents herein are the assessees and the assessment year in question is 1976-77. The assessments were framed by the Income-tax Officer on August 23, 1980, under section 143(3) read with section 144B of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), against which the assessees went in appeal to the Commissioner (Appeals). The Appellate Commissioner by his order dated February 3, 1981, partly allowed the appeal on other points but rejected the contention urged on behalf of the assessees that the assessments made by the Income-tax Officer, Indore, were without jurisdiction. The assessees went up in appeal before the Income-tax Appellate Tribunal. Their appeals were allowed by the Tribunal by its order dated January 14, 1984, which held that the assessment orders passed by the Income-tax Officer (SIC)-1, Indore, on August 23, 1980, were ab initio void on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the reference in the affirmative and in favour of the assessees. The Revenue has, therefore, challenged the correctness of the decision of the High Court. Two main submissions have been advanced before us on behalf of the Revenue. Firstly, it was contended that when an order of assessment is set aside or annulled and no further assessment can be made, the assessee would be entitled only to the amount of tax paid consequent to final assessment, and not the tax paid by him by way of advance tax or self-assessment tax. This is on the premise that the tax paid by the assessee under these two heads is paid by the assessee admitting his liability in law to pay the tax. Secondly, it was contended, the amendment of section 240 with effect from April 1, 1989, by addition of proviso (b) is declaratory of the law, and will apply to the assessments in question. The assessees are, therefore, not justified in contending that only with effect from the date on which the law was amended, the Department is entitled to retain the tax paid by way of self-assessment or advance tax. On the other hand, the assessees supported the judgment of the High Court and contended that even the tax paid by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Gopal Ramnarayan v. Third ITO [1980] 126 ITR 369 in which a single judge of the Karnataka High Court took the contrary view. The High Court also agreed with the principle laid down by the Punjab and Haryana High Court in Deep Chand Jain v. ITO [1984] 145 ITR 676. The High Court was further of the view that the amendment to section 240 by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, which introduced the proviso, has brought about a change in the legal position, but the proviso is applicable only with effect from April 1, 1989 and would not apply to the assessments in question. We may at the threshold observe that in the reported decisions the assessees have laid considerable emphasis on article 265 of the Constitution of India which provides that no tax shall be levied or collected except by authority of law. The arguments advanced before the High Courts proceed on the premise that the tax paid by way of advance tax or self-assessment tax acquires the character of income-tax only after an order of assessment is made in accordance with the provisions of the Income-tax Act. As a corollary, if no order of assessment is made in accordance with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the aforesaid sections is without prejudice to any other mode of recovery. Under section 205 where tax is deductible at the source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from his income. Under section 207 tax is payable in advance in accordance with the provisions of sections 208 to 219 except in the cases of incomes specified therein. Such advance tax is payable during the financial year in accordance with the provisions of section 208. Sections 209 and 210 provide for computation of advance tax and for payment of advance tax by the assessee. Section 211 prescribes the instalments of advance tax and the due dates. The aforesaid provisions, therefore, clearly spell out the scheme of the Act which provides for deduction of tax at source and advance payment of tax. On such deduction or deposit of tax credit is given to the assessee for the amount so deducted or paid as advance tax. Section 139 of the Act mandates every person to furnish a return of the total income during the previous year if the income is chargeable to tax. Section 140A provides for self-assessment and lays down that any tax payable on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution of India since such a recovery would become a levy and collection of tax without the authority of law. On this reasoning, it was argued that the entire amount so collected must be refunded. The Full Bench of the Gujarat High Court after a detailed consideration of the provisions of the Act held that in view of the elaborate provisions made in the Act for deduction of tax at source and advance payment of tax, it could not be said that the tax has been levied and collected without the authority of law and in violation of article 265 of the Constitution of India whether it is deducted or paid in accordance with the provisions of the Act. These provisions eloquently indicate that the liability to pay tax is not dependent on the regular assessment being made by the Assessing Officer, and where returns are filed under section 139 on the basis of which tax is payable, the assessee is made liable to pay such tax together with interest payable for any delay in furnishing the return or any default or delay in payment of advance tax. After referring to section 234B pertaining to interest for default in payment of advance tax and more particularly to Explanation 1, it ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire tax amount, admittedly payable under the Act would be required to be refunded. The scheme of the Act clearly indicates that the liability to pay income-tax chargeable under section 4(1) of the Act does not depend upon the assessment being made by the Income-tax Officer but depends on the enactment by any Central Act prescribing rate or rates for any assessment year. Thus, as soon as the rates are prescribed by the appropriate legislation, the liability to pay tax arises on the total income which is to be computed by the assessee in accordance with the provisions of the Act. By the process of self-assessment, the assessee is required to pay tax on the basis of his return and such tax is treated as assessed tax. Therefore, until it is disturbed by any further regular assessment, it remains as tax levied and collected in accordance with law. Having considered all aspects of the matter the Full Bench concluded: "We are, therefore, of the view that, on failure of a regular assessment being made within the time prescribed or in the event of annulment of the assessment order pursuant to which any further demand is required to be made under section 156, no consequence of refund o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund of the tax paid. The learned judge distinguished the decisions in R. Gopal Ramnarayan's case [1980] 126 ITR 369 of the Karnataka High Court and Deep Chand Jain's case [1984] 145 ITR 676 of the Punjab and Haryana High Court on the ground that the principles laid down therein were not applicable to the facts of the case. A learned judge of the Kerala High Court in E. Philip Joseph v. ITO [1998] 234 ITR 846 followed the Full Bench of the Gujarat High Court. In that case there was no dispute as to the refund of tax which was levied on the income added by the Income-tax Officer at the time of regular assessment. The dispute was only with regard to the refund of tax on the income returned as per the self-assessment. It also appears from the report that the assessment framed by the Assessing Officer was set aside in appeal by the Commissioner of Income-tax who set aside the additions made by the Income-tax Officer and thereafter no fresh assessment was made pursuant to the appellate order. The assessee made a representation before the Commissioner whereafter the Income-tax Officer passed an order on the basis of the directions issued by the Commissioner of Income-tax. As against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment with effect from April 1, 1989. This court held, inter alia, that the said proviso was merely clarificatory of the law. Counsel for the respondent sought to rely upon certain observations made in the judgment but we cannot give any benefit of those observations to the Revenue because this court has itself made it clear that what has been held in that judgment is confined to a case where an appellate or other authority under the Act sets aside or cancels the assessment and directs a fresh assessment to be made, i.e., a situation contemplated by clause (a) of the proviso to section 240. It has been clearly stated that this court did not propose to express any view as to what would be the position where the situation is different. In R. Gopal Ramnarayan's case [1980] 126 ITR 369, a learned judge of the Karnataka High Court dealt with a case where the order of assessment framed by the Income-tax Officer was annulled by the Income-tax Appellate Tribunal, whereafter the assessee made a demand for refund of the tax paid. The demand was rejected by the Income-tax Officer compelling him to file a writ petition under article 226 of the Constitution of India for direction to the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of article 265 of the Constitution. A learned judge of the Punjab and Haryana High Court in Deep Chand Jain's case [1984] 145 ITR 676 agreed with the view taken by the Karnataka High Court in R. Gopal Ramnarayan's case [1980] 126 ITR 369 and observed : "Computation of total income and tax thereon envisages the final determination by the assessing authority in terms of section 143 or 144 of the Act. The assessee, who, for instance, had paid tax on the basis of self-assessment under a wrong assumption that the entire income shown therein was liable to tax, is entitled to assert before the assessing authority when the case is taken up for assessment that either whole or part thereof was not liable to form part of the taxable income and that the tax paid on the basis of self-assessment was not liable to be paid, and the assessing authority, if it finds that either the whole income or part thereof was not liable to be included in the taxable income, is bound to give effect to the claim of the assessee and compute the total income of the assessee in accordance with law and not accept self-assessment regarding his total income." It was further observed that advance tax collected f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution which prohibits the levy or collection of any tax except by authority of law. The Revenue does not dispute the position that if an assessment is framed, which is later nullified in appeal or revision or other proceedings, any amount paid by way of income-tax pursuant to the order of assessment, over and above the advance tax and self-assessment tax is undoubtedly refundable under section 240 of the Act. The only dispute is with regard to the refund of the advance tax and self-assessment tax which is paid by the assessee on his own assessment of his liability and is based on the return of income filed by him. According to the Revenue, the tax so paid represents the admitted liability of the assessee, and failure or inability to frame another assessment after the earlier assessment is set aside or nullified in appropriate proceedings, does not entitle the assessee to claim refund because to this extent the assessee has admitted his liability to pay tax in accordance with law. The tax liability is computed on the basis of the relevant Finance Act laying down the rate or rates at which the tax is payable and provides for other matters relevant to the computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance of the return of income furnished by the assessee. In such a case the assessing authority is denuded of its authority to verify the correctness and completeness of the return, which authority it has while framing a regular assessment. It must accept the return as furnished and shall not in any event raise a demand for payment of further taxes. Accepting the income as disclosed in the return of income furnished by the assessee, it must refund to the assessee any tax paid in excess of the liability incurred by him on the basis of income disclosed. Even if the tax paid is found to be less than that payable, no further demand can be made for recovery of the balance amount since a fresh assessment is barred. In other words, 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 the return furnished and the rates applicable, the excess shall be refunded to the assessee, since its retention may offend article 265 of the Constitution. We cannot lose sight of the fact that the failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the making of such fresh assessment ; (b) the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by t assessee." It was submitted that after April 1, 1989, in case the assessment is annulled the assessee is entitled to refund only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee. But before the amendment came into effect the position in law was quite different and that is why the Legislature thought it proper to amend the section and insert the proviso. On the other hand, learned counsel for the Revenue submitted that the proviso is merely declaratory and does not change the legal position as it existed before the amendment. It was submitted that this court in CIT v. Chittoor Electric Supply Corporation [1995] 212 ITR 404, has held that proviso (a) to section 240 is declaratory and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the return, should remain. To overcome this difficulty and to make the position clear, the proviso to section 240, inserted by the Amending Act, 1987, provides that where the assessment is annulled, the refund shall become due only in respect of the amount, if any, paid in excess of the tax chargeable on the total income returned by the assessee." The respondents contend that the circular of the Board is binding upon the authorities of the Income-tax Department and, therefore, so far as the income-tax authorities are concerned, they must give to the amendment brought about in section 240 only prospective operation. We find that paragraph 13.2 of the circular does not advance the case of the respondents. The circular only states that some of the judicial pronouncements did not permit a retention of even the tax due on the basis of the returned income and directed the refund of tax deducted at source or advance tax. To overcome this difficulty and to make the position clear, the proviso to section 240 was inserted. A plain reading of the circular also indicates that the Board also took the view that the amendment was clarificatory and that it had become necessary to get ove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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