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TMI Blog2003 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... four appeals by special leave have been preferred by the Revenue impugning the common judgment and order of the High Court of Madhya Pradesh at Jabalpur, dated July 9, 1996, in M. C. C. Nos. 368369 of 1993 and Miscellaneous Petitions Nos. 2750 of 1984 and 3773 of 1987. The question that arises for consideration in these appeals is whether, on the facts and in the circumstances of the case, the respondents are entitled to the refund of income-tax paid by them by way of advance tax and self-assessment tax in the event of the assessment framed being nullified by the Tribunal on the ground of jurisdiction and there being no possibility of framing a fresh assessment. The High Court by its common judgment and order has answered the question in the affirmative rejecting the submission of 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, but at the instance of the Revenue framed the following question of law for the decision of the High Court: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in directing the Assessing Officer to refund the tax with interest paid by the assessee on the income returned ?" The two references were numbered as M. C. C. Nos. 368-369 of 1993 which were heard by the High Court along with Miscellaneous Petitions Nos. 2750 of 1984 and 3773 of 1987 challenging the orders passed by the Income-tax Officer refusing to refund the tax as prayed for by orders dated August 13, 1984 and August 21, 1987. All these four matters were disposed of by the High Court by a common judgment which is impugned in these appeals. The High Court has answered 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The mere fact that the assessee is obliged under the law to file a return and pay advance tax or self-assessment tax, makes no difference, and only after a proper assessment is framed, he may be assessed to the liability to tax. The High Court did not agree with the view expressed by a Full Bench of the Gujarat High Court in Saurashtra Cement and Chemical Industries Ltd. v. ITO [1992] 194 ITR 659 which held that there was no warrant for holding that the entire amount of income-tax which is properly chargeable under the Act and is collected by the Department in accordance with the provisions of the Act should be refunded on the failure to make a regular assessment. The High Court agreed with the view expressed by the Madhya Pradesh High Court in Gulabchand Motilal v. CIT [1994] 205 ITR 62 and 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 ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or by advance payment, as the case may be, in accordance with the provisions of Chapter-XVII. This is without prejudice to the charge of tax on such income under the provisions of sub-section (1) of section 4. Section 192 enjoins on any person responsible for paying any income chargeable under the head "Salaries" to deduct income-tax on the amount payable at the average rate of income-tax at the time of making payment. Section 199 provides that any deduction made in accordance with the provisions of sections 192 to 194 and other sections mentioned therein and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made and credit shall be given to him for the amount so deducted. Section 202 clarifies that the power to levy tax 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on behalf of the assessee that the liability to pay the tax did not crystallise nor was it quantified unless a regular assessment was made under the Act. Payment by way of advance tax, tax deducted at source and tax paid by way of self-assessment were ad hoc payments to be adjusted ultimately when the regular assessment was made under section 143. Even though a liability to tax arises under section 4 of the Act, no liability to pay the tax arises until the regular assessment is made. If regular assessment is not possible for any reason, the charge itself would fail since the tax payable cannot be quantified or determined and consequently no recovery can be made. Any retention of such amount collected towards the tax, which could not be ultimately determined, would violate the provisions of article 265 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 dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able according to him, there is clear admission of the liability that has arisen under the Act to pay the tax on the total income as is computed by the assessee and duly quantified in the return. The procedure of assessment by the Income-tax Officer is essentially to check the computation of total income done by the assessee. Therefore the acceptance of the proposition canvassed by the assessee would produce a startling result where though, according to the assessee he is liable to pay the tax as per the return filed by him and has in fact the tax in accordance with the provisions of section 140A of the Act and the Assessing Officer did not find it necessary to assess the total income since he may have accepted the return on expiry of the period during which the regular assessment is required to be made, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clause (a) of the aforesaid proviso has been held to be clarificatory by this court in CIT v. Chittoor Electric Supply Corporation [1995] 212 ITR 404. A learned judge of the Madhya Pradesh High Court in Chandra Mohan v. Union of India [2000] 241 ITR 484 followed the principle laid down by the Full Bench of the Gujarat High Court in Saurashtra Cement and Chemicals Industries Ltd.'s case [1992] 194 ITR 659 and held that the assessee having filed his return and paid the taxes, even if no order of assessment was passed within the time provided under the Act, the taxable income shown in the return filed by the petitioner shall be binding on him unless he files a revised return claiming some non-taxable income and on that basis refusing the liability of tax payment. The assessee was, therefore, not entitled to refund 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. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be claimed after the earlier assessment was set aside and proceedings for fresh assessment were taken pursuant to the direction of the appellate authority. In such a case it must be held that during the pendency of the proceedings for fresh assessment it could not be said that any amount of refund had become due to the assessee in respect of that assessment year because the proceeding was still pending and, therefore, it was idle to talk of any amount or any refund becoming due to the assessee in respect of that assessment year. The judgment of the Full Bench of the Gujarat High Court in Saurashtra Cement and Chemicals Industries Ltd.'s case [1992] 194 ITR 659 has been referred to in the judgment of this court but this court was primarily concerned with the proviso (a) to section 240 which was brought in by amendment 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration of that section, that tax had been levied, assessed and collected. Assessment is the final process which completes the levy of tax under section 4 of the Act." The learned judge went on to hold that the effect of annulment of the assessment order is that there is no assessment at all in the eye of law and in such a case the Revenue could not take the stance that even without an assessment order in existence, the assessee for the relevant assessment year, was liable to tax under section 4 of the Act. Until and unless the quantum of tax is determined in accordance with the procedure laid down by law, the Revenue has no right to collect the tax and if tax by way of advance tax or on self-assessment or tax deducted at source has been paid by the assessee, the same cannot be retained contrary to the requirements 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 te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessees do not contend that the tax of which refund is claimed was not chargeable or payable, but claim refund on the sole ground of the failure of the authorities to pass an order of assessment. Having considered the authorities on the subject, we find ourselves in agreement with the view of the Gujarat High Court in Saurashtra Cement and Chemicals Industries Ltd.'s case [1992] 194 ITR 659 [FB]. The question that falls for our consideration in these appeals is whether on the failure or inability of the authorities to frame a regular assessment after the earlier assessment is set aside or nullified, the tax deposited by an assessee by way of advance tax or self-assessment tax, or tax deducted at source is liable to be refunded to the assessee, since its retention by the Revenue would result in breach of article 265 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-assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x payable and its mode of recovery are authorised by law. The liability to pay income-tax chargeable under section 4(1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income-tax thereon which involves a process of self-assessment. Since all this is done under the authority of law, there is no scope for contending that article 265 is violated. What then is the effect of the failure to make an order of assessment after the earlier assessment made is set aside or nullified in appropriate proceedings ? If the assessing authority cannot make a fresh assessment in accordance with the provisions of the Act it amounts to deemed 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. Accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited purpose of calculating the amount to be refunded under section 240 of the Act, may take all such facts into consideration and calculate the amount to be refunded. So viewed, an assessee will not be placed in a more disadvantageous position than what he would have been, had an assessment been made in accordance with law. It was contended before us that the proviso to section 240 was inserted by an amendment which came into effect from April 1, 1989. Proviso (b) is applicable to the facts of the case under consideration. Section 240 reads as under : "240. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en relied upon the circular issued by the Central Board of Direct Taxes dated January 23, 1990. The relevant part of the circular contained in paragraph 13.2 thereof is as follows : "13.2. Further, where the assessment had been annulled in appeal, say for want of jurisdiction or for any other technical reason, and such annulment became final, the judicial pronouncement did not permit retention of even the tax due on the basis of the returned income. Several High Courts had held that in such a case even the tax paid by way of tax deducted at source or advance tax and the tax which was due on the basis of the returned income had to be refunded to the assessee. Equity demanded that even where an assessment was annulled for any reason, the liability of the assessee, at least to the extent of tax payable on the basis of the income declared 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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