Madhya Pradesh High Court
Commissioner Of Income Tax vs Shelly Products. on 9 March, 1996
Equivalent citations: (1997)139CTR(MP)255
Author: A. K. Mathur
Bench: A. K. Mathur
JUDGMENT
A. K. MATHUR, C.J. :
All the aforesaid cases involve common question of law and facts; therefore, they are disposed of by this common judgment.
2. The aforesaid two references (MCC No. 368 and 369 both of 1993) at the instance of the Revenue filed under s. 256(1) of the IT Act, have been referred by the Tribunal to this Court on the question of law for answer, which reads as under :
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in directing the AO to refund the tax with interest paid by the assessee on the income returned ?"
3. Both the aforesaid writ petitions (MP No. 2750/84 & MP No. 3773/87) have also been filed by the Assessee(s) petitioner(s) claiming that the amount of tax paid by them may be refunded. By order dt. 13th Aug., 1984 (Annex. E. filed in MP No. 2750/84), the assessee/petitioner was informed that the refund may be given for taxes paid on regular assessment which has been annulled now excluding taxes paid in advance and on self-assessment. Similarly, the order dt. 21st Aug., 1987 (Annex. J) has been challenged in Misc. Petn. No. 3773/87, whereby the assessee/petitioners have been informed that the refund is withheld till the reference application filed in the case of the firm M/s. Shelly Products is decided by the Hon. High Court. Hence, all these cases are taken up for disposal together.
4. For convenient disposal of all the aforesaid cases, the facts given in M. C. C. No. 368/93 - CIT vs. Shelly Products, are taken into consideration.
5. The year of assessment involved is 1976-77. The assessments in the cases of both the assessees for these assessment years were annulled by the order of the Tribunal. The assessee, therefore, claimed refund of advance tax and self-assessment tax paid by them. The ITO by letter dt. 13th Aug., 1984, informed the assessee that the refund may be given for taxes paid on regular assessment which has been annulled now excluding taxes paid in advance and on self-assessment. On appeal, the CIT(A) directed the amounts of advance tax and self-assessment tax to be refunded with interest. The Revenue then approached the Tribunal by way of appeal and the Tribunal by order dt. 27th May, 1992, sustained the order of the CIT(A) and dismissed the appeals of the Revenue. Hence, the Revenue moved an application before the Tribunal for making a reference to this Court and the aforesaid question of law has been referred by the Tribunal for answer of this Court.
6. We have heard the learned counsel for both the parties and perused the record. It is an admitted position that the assessment made by the AO was annulled in appeal by Tribunal; therefore, there was no subsisting order of any authority for payment of tax. In this light, we have to examine the necessary provisions of the IT Act. Sec. 4 of the Act which deals with the charge of income-tax, lays down that where any central Act enacts that Income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of this Act in respect of the total income of the previous year of every person; so it is a mandate of the law that the tax shall be charged from the assessee at such rate prescribed by the Central Act, from time to time including levy of additional income tax. Under s. 139 of the IT Act, return of income has to be filed by every person who is liable to pay the tax. According to s. 140A of the Act, self-assessment can be made by the assessee. Earlier there used to be a provision for provisional assessment but that was done away with by amendment in 1964 and the self-assessment was introduced. Under s. 140A, the assessee has to file the return on the basis of assessment made by himself of the amount of tax payable. Thereafter, the assessment has to be made by the assessing authority under s. 143 of the Act and after the assessment is made any tax or interest is found due, such liability is referable to s. 156 of the Act. Therefore, under the scheme of these provisions of the Act, the amount of tax is recoverable under s. 156 by way of demand only when the liability of tax has been assessed by the competent authority. If the assessment has been made and any amount has been found to be due from the assessee, then alone the law confers a power on the assessing authority to recover the same. The tax can only be recovered under the law as per the method provided therein. Under the scheme of the Act, it is only after the assessment has been made in accordance with the provisions laid down in the IT Act, then and then alone, the liability to recover tax arises. In the present case, the assessment was made and ultimately, the Tribunal found that the order of assessment was without jurisdiction and it was found to be a nullity and the same was quashed. Once the order of assessment was quashed, then there was no alternative left to the assessing authority except to return the amount of tax or any self-assessment tax paid by the assessee, because the first and foremost condition for recovery of the amount is that there should be an assessment and an amount of tax due against the assessee under the provisions of the Act. If the assessment under which the tax is due to the State from the assessee is quashed and it is declared to be null and void, there is no authority to recover any tax under the Act, and the assessee, prior to insertion of proviso (b) to s. 240 of the Act, automatically became entitled to refund of the tax deposited by him, with interest. But the authority took a view that the amount the assessee has deposited under the self-assessment is to be retained and the rest of the tax deposited on account of regular assessment, alone is to be refunded. This approach of the authority is absolutely erroneous. As already mentioned above, the recovery of tax can only arise if there is regular assessment in accordance with law. If there is no assessment, then recovery of tax or retention of any amount of tax paid by the assessee is unauthorised. Once the assessment is annulled then there is no option to the authority except to refund the same under s. 237 r/w s. 140A of the IT Act. Simply because the assessee feeling obliged under the law, files the return to pay the tax as a citizen and makes his self-assessment under s. 140A, it does not mean that it is not a subject to adjudication and in fact, the self-assessment made by the assessee cannot be accepted as a determination of tax liability of that assessee. It is only after the adjudication by the competent authority, then and then alone, it will be assessed to the liability of tax. If it is more, than the amount is to be realised as the Revenue due to the State and under s. 156, a notice can be issued for recovery of that amount and if the amount of self-assessment tax appears to be more, than the assessing authority has no option but to order refund as no one can retain any amount unlawfully.
7. Shri V. K. Tankha, learned counsel for the Revenue has submitted that as a matter of fact, it is the liability of the citizen to pay the tax on the basis of self-assessment then to that extent, the assessee is not entitled to refund of the tax paid by him after annulment of the regular assessment. In fact, the self-assessment made by the assessee is not final. It is only a self-assessment which is subject to adjudication by the taxing authority. The self-assessment will become a regular assessment only when the same is adjudicated. After hearing the assessee and on the basis of the material placed before the authority the liability of the payment of tax or refund, as the case may be, shall arise only after a regular assessment has been made. Neither the assessee can be subjected to any nor can he claim any refund, before the assessment is framed. Therefore, the factum of adjudication is an essential and integral part in the scheme of the Act, and when the assessment is nullified, there remains no lawful authority in the Revenue to retain that amount. Therefore, we are not impressed by the argument of the learned counsel for the Revenue.
8. Learned counsel has invited our attention to the Full Bench decision of Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. vs. ITO (1992) 194 ITR 659 (Guj) (FB). This was a case in which the question was that the assessment was not made within the time prescribed; therefore, the assessee claimed the refund and in that context, their Lordships observed :
"There is 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."
With great respect we do not subscribe to this view because no tax can be recovered unless there is a regular assessment made by the assessing authority under the scheme of the Act. As against this, this Court in Gulabchand Motilal vs. CIT (1994) 205 ITR 62 (MP) has taken a contrary view. This was a case in which the assessment was found to be invalid and in that context, their Lordships observed :
"Once the High Court has held that tax realised by the Department was not based on a valid assessment, it amounts to a declaration that it was realised without authority of law. If that is so, the State is bound to refund the amount, whether there is any specific direction or not. It is implied and flows as a consequence from the decision of the Court that the State would refund all amounts realised from the assessee on the basis of assessment which have been held to be time-barred and invalid."
Therefore, their Lordships have taken the view that no recovery of tax would be valid except in accordance with law and if it is found that the assessment order is not competent or invalid, then the amount, which has been recovered under the impugned assessment, has to be refunded. Similar view has been taken by Karnataka High Court in Gopal Ramnarayan vs. Third ITO (1980) 126 ITR 369 (Kar), and their Lordships observed :
"It is a well settled principle of interpretation of taxation laws that if more than one view is possible on the construction of taxing statutes the one which leans in favour of the assessee should be accepted by the Courts. It is equally well settled that no tax can be levied except with the authority of law as enjoined by Art. 265 of the Constitution.
Payment of advance tax is a mere convenience of collection which is liable to be adjusted against the actual tax due when the final assessment order is made. Sec. 240 of the IT Act, 1961, provides for refund of any amount that becomes due to the assessee as a result of any proceeding under the Act. This is a mandate on the Revenue to make the refund even without a demand and if a demand is properly made, it cannot be refused. It is possible in many instances and for a good number of reasons that the whole of the advance tax paid may become refundable if the assessee is ultimately found not liable to pay tax after the assessment proceedings are completed. Such a possibility cannot be ruled out. Therefore, the mere fact of compulsion of payment under s. 210 does not mean that by the operation of that the tax has been levied, assessed and collected. Assessment is the final process which completes the levy of tax under s. 4.
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 having been deducted at source has been paid, the same cannot be retained contrary to the requirements of Art. 265 of the Constitution."
Similarly, Punjab & Haryana High Court in Deep Chand Jain vs. ITO (1984) 145 ITR 676 (P&H), has also taken the same view and held :
"The advance tax collected from the petitioner had to be related to a final assessment order and since no final assessment order could be passed, the same having become barred by limitation, the collection of the advance tax itself became illegal and so also its retention."
This Court in Smt. Shantibai vs. CIT (1984) 148 ITR 49 (MP), has also taken a similar view and held :
"The order of the ITO refusing to refund the amount of tax deposited by the assessee, which became refundable on assessment of the income as nil by the ITO, after the Tribunals order cancelling the regular assessment is, in substance, an order made under s. 237. The ITO by virtue of s. 240, was required to make that refund and the assessee was not required to prefer any claim for refund in the manner prescribed in s. 239. The appeal preferred by the assessee to the AAC, was, therefore, an appeal which fell within the ambit of cl. (n) of s. 246 of the Act."
9. Incidentally, it may also be relevant to mention here that the legislature has, realising this shortcoming, further amended s. 240 and added proviso, which read as under :
"Sec. 240 : Refund on appeal, etc., xxxx xxxx xxxx 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 the assessee."
In fact, this proviso which was introduced by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, now takes care that in the event such assessment is annulled, the refund shall be only of the amount of tax paid in excess of the tax chargeable on the total income returned by the assessee. But we are concerned with the unamended provision. Therefore, in these circumstances, we are of the opinion that the view taken by the Tribunal is correct and hence, we answer the aforesaid question in favour of the assessee and against the Revenue. Both the writ petitions (MP No. 2750/84 and MP No. 3773/87) filed by the petitioners are also allowed and it is directed that the amount in question which has been retained by the Department, should be refunded to the petitioners with interest in accordance with law. The amount of security, if any, shall be refunded to the petitioners.