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Raj Kisiiore Prasad v. Income-Tax Officer.

Allahabad High Court

May 2, 1990

Judgment

Subsequent
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Factual and Procedural Background

The petitioner filed a writ petition claiming various refunds and interest; during argument he pressed only a claim for interest of Rs. 28,225 (at 12% p.a.) on a delayed refund of Rs. 73,928 which the petitioner said fell due on March 29, 1979 but was actually paid on October 12, 1982.

Procedural history (as recited in the opinion):

The petitioner was assessed to income-tax for assessment year 1974-75 by an Income-tax Officer on October 5, 1974 (original assessment created a demand of Rs. 18,433).
A rectification under section 154 was carried out on February 12, 1975 in respect of excess rebate allowed.
The Commissioner of Income-tax, suo motu, passed an order under section 263(1) on September 30, 1976, setting aside the assessment and directing a fresh assessment on the ground that interest under section 217(1A) had been omitted to be charged. A fresh assessment dated February 15, 1977 created an additional demand of Rs. 90,391, making the total demand Rs. 1,08,824, which was realised.
The petitioner appealed to the Income-tax Appellate Tribunal (ITAT), which on October 13, 1978 set aside the Commissioner's order dated September 30, 1976 and remanded proceedings to the Commissioner.
Thereafter the petitioner made a representation dated March 19, 1979; the Commissioner on March 29, 1979 passed an order stating: “The proceedings initiated under section 263 of the Income-tax Act ... have been dropped.”
As a result of the Commissioner's order of March 29, 1979 and the earlier ITAT order, the second assessment of February 15, 1977 stood set aside and the original assessment of October 5, 1974 (tax Rs. 18,433) remained in force. The excess realised (Rs. 90,391) less an adjustment/deduction of Rs. 16,463 retained by the respondent left Rs. 73,928 payable as refund to the petitioner arising from the Commissioner's order of March 29, 1979.
This Court (in an earlier writ between the same parties, Raj Kishore Prasad v. ITO, [1983] 144 ITR 904) had held the petitioner entitled to refund. The respondent admitted in his counter-affidavit that Rs. 83,928 became due and that a refund was made on October 12, 1982.

Legal Issues Presented

Whether the petitioner is entitled to interest under sections 240 and 244 of the Income-tax Act, 1961 on the refund which arose by reason of the Commissioner dropping proceedings under section 263 on March 29, 1979, with interest running until the date of actual payment on October 12, 1982.
Whether a writ petition under Article 226 is maintainable for a claim of interest on such a refund, or whether the petitioner had an alternative remedy (civil suit) barring the writ petition.
Whether the phrase “other proceedings under this Act” in section 240 (and consequently the interest provision in section 244) is wide enough to include proceedings under section 263 of the Income-tax Act, 1961.

Arguments of the Parties

Petitioner's Arguments

The petitioner pressed only the claim for interest of Rs. 28,225 (12% p.a.) on the refund amount (stated as Rs. 73,928) from March 29, 1979 until the refund was made on October 12, 1982.
The petitioner contended that a writ under Article 226 is maintainable for a claim of interest on the amount of refund payable in connection with proceedings under the Income-tax Act, relying on precedents in which High Courts entertained writs for interest claims.
The petitioner asserted entitlement to interest under section 244 read with section 240 of the Income-tax Act, 1961, because the refund arose “as a result of any order passed in appeal or other proceedings under this Act” (here the “other proceedings” being the section 263 proceedings dropped by the Commissioner).

Respondent's Arguments

The respondent challenged the maintainability of the writ petition on the ground of availability of an alternative remedy — that a civil suit could be filed — and thus the writ was not maintainable.
The respondent contested the petitioner's claim under sections 244 and 240, arguing that interest under those provisions is payable only when a refund arises from a second appeal or reference and not from proceedings under section 263.
The respondent argued (or his counsel suggested) that to understand the meaning of “other proceedings” the court should rely on provisions of the repealed Indian Income-tax Act, 1922 (the opinion records the court's rejection of that contention).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Pandyan Insurance Co. Ltd. v. CIT, [1969] 73 ITR 12 (Mad)	Support for the proposition that a High Court entertained a writ petition by an assessee claiming interest on a refund arising under the Income-tax Act.	The Court cited this case as part of authority showing that writs under Article 226 have been entertained where interest on refund was claimed.
Hira Lal Jagarnath Prasad v. CIT, [1969] 74 ITR 732 (All)	Support for the proposition that writ petitions claiming interest on refunds have been entertained by High Courts.	Used as supporting authority for maintainability of a writ petition seeking interest on a refund from the Income-tax Department.
O. Rm. M. Sp. Sv. P. Panchanatham Chettiar v. CIT, [1975] 99 ITR 579 (SC)	Support for principle that writ petitions seeking interest on refunds arising from proceedings under the Income-tax Act have been entertained; noted that entitlement to interest in particular cases may still be denied for other reasons.	Cited as further support that Article 226 petitions for interest have been entertained (although entitlement on merits may still fail for reasons other than maintainability).
Raj Kishore Prasad v. ITO, [1983] 144 ITR 904 (Writ Petition No.1885 of 1980 — same parties)	The Court (in that judgment) held the petitioner was entitled to refund of the amount paid in excess of the amount originally assessed for AY 1974-75.	The opinion relies on that prior judgment as establishing the petitioner's entitlement to refund; the respondent admitted that as a result a sum (stated as Rs. 83,928 in the counter-affidavit) became due and that refund was made on October 12, 1982.

Court's Reasoning and Analysis

The court's analysis proceeded in several linked steps, grounded in the factual sequence and statutory interpretation:

Maintainability: The court rejected the respondent's objection that the writ petition was not maintainable because an alternative remedy (civil suit) existed. The court observed that the respondent delayed raising the maintainability objection — the respondent had an earlier opportunity to seek instructions and was given time but did not timely press this point — and the objection was first raised much later in pleadings. The court also noted the statutory bar under section 293 against civil suits to set aside or modify proceedings or orders made under the Income-tax Act, and cited authorities that High Courts have entertained writs seeking interest on refunds; these factors supported maintainability of the Article 226 petition.
Factual determination of refund: The court recited the assessment history (original assessment Oct 5, 1974; rectification Feb 12, 1975; Commissioner's section 263 order Sept 30, 1976; reassessment Feb 15, 1977; ITAT order Oct 13, 1978 setting aside the Commissioner's order; Commissioner's March 29, 1979 order dropping section 263 proceedings). As a consequence, the second assessment (Feb 15, 1977) stood set aside and the original assessment remained in force. The income-tax amounts realized in excess of the original assessment were therefore refundable. The opinion identifies the excess and adjustments resulting in a refundable amount described as Rs. 73,928 (the respondent deducted Rs. 16,463 leaving Rs. 73,928 payable).
The opinion text contains an internal numerical discrepancy: the majority of the opinion describes the refund as Rs. 73,928, while paragraph 12 refers to interest being payable on Rs. 73,728. The summary above follows the figures as presented in the opinion without reconciling them.
Statutory interpretation of sections 240 and 244: The court examined section 240 (which requires refund where a refund “becomes due to the assessee” as a result of “any order passed in appeal or other proceeding under this Act”) and section 244 (which prescribes payment of interest where such refunds are not paid within three months from the end of the month in which the order is passed). The court rejected the respondent's argument that these provisions apply only to appeals or references, holding instead that the phrase “other proceedings under this Act” in section 240 is broad enough to include proceedings under section 263. Consequently, section 244's interest provision applies to refunds arising from orders under section 263 as well.
Rejection of reliance on repealed Act: The court rejected the respondent's submission that interpretation should be guided by corresponding provisions of the repealed Indian Income-tax Act, 1922, noting that the present assessment and relevant provisions arise under the Income-tax Act, 1961, and that sections 240 and 244 of the 1961 Act apply.
Interest entitlement and rate: The court noted the relevant statutory scheme required payment of interest at the then-applicable rate of 12% per annum on the refundable amount from the date immediately following the expiry of the three-month period prescribed by section 244 until the date of payment. Applying these provisions to the facts — refund arising on March 29, 1979 and payment made on October 12, 1982 — the court concluded the petitioner was entitled to interest at 12% p.a. on the refundable sum for the period specified by section 244.
Relief: On this reasoning the court allowed the writ petition, issued a mandamus against the respondent directing payment of the interest, and awarded costs to the petitioner.

Holding and Implications

Holding: The writ petition is allowed and a mandamus is issued directing the respondent to pay the petitioner the interest due under section 244 read with section 240 of the Income-tax Act, 1961; the petitioner is also awarded costs.

Direct consequences for the parties:

The petitioner is entitled to interest at the rate of 12% per annum on the refund amount that became due as a result of the Commissioner's order dated March 29, 1979, for the period specified under section 244 up to the date of actual payment (the refund was paid on October 12, 1982 according to the record).
The respondent must pay the costs of the writ petition to the petitioner.

Broader implications: The opinion interprets “other proceedings under this Act” in section 240 to include proceedings under section 263 and applies the interest provisions of section 244 to refunds arising from such proceedings. The opinion does not expressly state that it is creating any new binding precedent beyond its application in this case; accordingly, the direct effect is on the parties in this litigation.

Show all summary ...

Virendra Kumar, J.:— The petitioner has filed this writ petition claiming different amounts by way of refund and interest besides costs. In the course of his arguments, learned counsel for the petitioner pressed only the claim of Rs. 28,225 by way of interest on delayed refund of Rs. 73,928 which had fallen due to the petitioner on March 29, 1979, while the actual payment of this amount was made on October 12, 1982. This interest is claimed at 12 per cent. per annum besides the costs of the writ petition.

2. The petitioner was assessed to income-tax for the assessment year 1974-75 on October 5, 1974, by the Income-tax Officer, ‘A’ Ward, Circle II, Lucknow. Thereafter, a notice was issued under section 154 of the Income-tax Act, 1961 (for short “the Act”), to the assessee regarding the excess rebate allowed to him. It appears that the assessee had no objection to the proposed rectification; hence the mistake was rectified by the Income-tax Officer under section 154 of the Act on February 12, 1975. Thereafter, the Commissioner of Income-tax took up the matter suo motu and passed an order under section 263(1) of the Act on the ground that the Income-tax Officer had wrongly omitted to charge interest from the petitioner under section 217(1A). The Commissioner of Income-tax passed the order under section 263(1) of the Act on September 30, 1976, setting aside the aforesaid assessment order which was passed by the Income-tax Officer and further directed the Income-tax Officer to make a fresh assessment. Thereupon a fresh assessment order dated February 15, 1977, was passed by the Income-tax Officer making an additional demand of Rs. 90,391. This amount was fixed as a result of the revision of the second assessment order under section 154 of the Act. Under the original assessment order dated October 5, 1974, a demand for Rs. 18,433 was created against the petitioner. On adding the demand made under the second assessment order, the total amount of demand of tax against the petitioner came to Rs. 1,08,824. The same was realised by the Income-tax Officer. Against the order of the Income-tax Commissioner dated September 30, 1976, under section 263 of the Act (referred to above), the petitioner went up in appeal before the Income-tax Appellate Tribunal which, under its order dated October 13, 1978, set aside the Income-tax Commissioner's order dated September 30, 1976. Under the Appellate Tribunal's order, the proceedings were remanded to the Income-tax Commissioner. Thereafter, the petitioner made a representation dated March 19, 1979, before the Commissioner, whereupon the Commissioner passed the following order on March 29, 1979:

“Please refer to your counsel's letter dated March 19, 1979. The proceedings initiated under section 263 of the Income-tax Act for the assessment year 1974-75 have been dropped.”

3. The second assessment order dated February 15, 1977, which was passed in pursuance of the Commissioner's order dated September 30, 1976, stood automatically set aside when the Appellate Tribunal passed the order dated October 13, 1978, setting aside the Commissioner's order dated September 30, 1976. As the Income-tax Commissioner finally dropped the proceedings under section 263 of the Act on March 29, 1979, what remained in force was the original assessment order dated October 5, 1974. Under that assessment order, the petitioner was assessed to a tax of Rs. 18,433. The amount realised in excess of this amount became refundable to the petitioner on the passing of the Commissioner's order dated March 29, 1979. The excess amount was Rs. 90,391 out of which a sum of Rs. 16,463 was deducted by the respondent for the reason that this amount was payable by the petitioner to the respondent in connection with the demand of the Income-tax Department for the earlier years. Thus, there remained a sum of Rs. 73,928 payable by the respondent to the petitioner as a result of the order of the Income-tax Commissioner dated March 29, 1979. In fact, this court has held in Writ Petition No. 1885 of 1980 between the present parties in its judgment dated April 12, 1982 (Raj Kishore Prasad v. ITO, [1983] 144 ITR 904), that the petitioner was entitled to refund of the amount paid by him to the respondent in excess of the amount originally assessed against the petitioner for the assessment year 1974-75. The respondent, in his counter-affidavit, has admitted that as a result of the decision in the writ petition a sum of Rs. 83,928 became due to the petitioner by way of refund and the same was refunded on October 12, 1982. Still the petitioner's claim for interest on Rs. 73,928 from the date of the Income-tax Commissioner's order of March 29, 1979, till October 12, 1982, is contested by the respondent on the following grounds.

4. In the first place, learned counsel for the respondent challenged the maintainability of the writ petition for the claim of interest on the ground of alternative remedy of filing a suit before the civil court. This contention has no force. This writ petition was filed on April 19, 1983, on which date, learned counsel for the respondent was given time to obtain instructions by the 3rd week of May, 1983, on which date the writ petition could have been decided finally. Thereafter, on August 24, 1983, the writ petition was admitted by the court. It appears that, at that time, its maintainability was not challenged from the side of the respondent who was given time earlier under the court's order dated April 19, 1983. The respondent filed his counter-affidavit subsequently in 1984 taking up the plea of non-maintainability of this writ petition on the ground of availability of an alternative remedy. Further, in the writ petition, the petitioner had originally claimed refund of Rs. 16,463 also which was the amount realised and retained by the respondent in connection with the proceedings and orders passed by the income-tax authorities under the Act. In addition to that relief, the claim of interest on Rs. 16,463 has been made by the petitioners in the writ petition. According to the petitioner, the claim for interest also arose on account of the proceedings taken and order made under the Act. Section 293 of the Act bars filing of a civil suit to set aside or modify any proceeding taken or order made under the Act. The following cases give support to the petitioner's contention that a writ petition under article 226 of the Constitution is maintainable when interest is claimed on the amount of refund payable to the assessee from the Income-tax Department in connection with the proceedings under the Income-tax Act:

1. Pandyan Insurance Co. Ltd. v. CIT, [1969] 73 ITR 12 (Mad)

2. Hira Lal Jagarnath Prasad v. CIT, [1969] 74 ITR 732 (All).

3. O. Rm. M. Sp. Sv. P. Panchanatham Chettiar v. CIT, [1975] 99 ITR 579 (SC).

5. In these cases, the High Court entertained the writ petitions for a claim of interest by the assessee. It is a different matter that the claim of the assessee for interest was not allowed for other reasons.

6. The petitioner's claim for interest based on section 244 read with section 240 is challenged on the ground that, under the said provisions of law, interest is payable only when the refund arises, due to second appeal or reference under the Act and not as a result of the provisions under section 263 of the Act. Section 240 of the Act, which provides for refund, runs as under:

“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 Income-tax 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.”

7. Section 244 of the Act provides for payment of interest on refund due to the assessee in pursuance of the order referred to in section 240 which is not paid to him within a period of three months from the end of the month in which such order is passed. At the relevant time, the rate of interest provided under the section was 12% per annum on the amount of refund from the date immediately following the expiry of the aforesaid period of three months up to the date of payment of the refund. Section 240 refers to the order passed in appeal or other proceedings under the Act and section 244 which provides for payment of interest on refund, does not restrict its applicability to the proceedings in the nature of appeal and reference only.

8. On the other hand, section 244 allowing interest refers to all orders within the meaning of section 240. The words “other proceedings under the Act”, used in section 240, are wide enough to include the proceedings or orders passed under section 263 of the Act giving rise to the claim of an assessee for refund. The contention of learned counsel for the respondent restricting the meaning and scope of the phrase “other proceedings” only to references made under the Act is unwarranted and cannot be accepted. In the instant case, the claim of the petitioner-assessee arose for refund of the sum of Rs. 73,928 as a result of the decision of the Commissioner of Income-tax on March 29, 1979, when the proceedings under section 263 were dropped giving rise to the setting aside of the second assessment order dated February 15, 1977, and revival of the original assessment order dated October 5, 1974. The contention of learned counsel for the respondent that, to understand the meaning of the words “other proceedings”, s. (sic) of the repealed Act, i.e, Indian Income-tax Act, 1922, should be relied upon does not seem to be correct. The assessment in question was not made under the repealed Act, but was made under the Act of 1961 of which section 240 read with section 244 fully applies to this case. The petitioner is, therefore, entitled to get interest on Rs. 73,728 to which amount he was entitled as refund at the rate of 12 per cent. per annum for the period envisaged under section 244 of the Act keeping in view the fact that the petitioner's claim for the refund arose in pursuance of the order dated March 29, 1979, under section 263 of the Act and the refund of Rs. 73,728 was made to the petitioner on October 12, 1982.

9. The writ petition is allowed and mandamus is issued accordingly against the respondent. The petitioner will get his costs from the respondent.