Login
  • Bookmark
  • PDF
  • Share
  • CaseIQ

K.A Karim And Sons v. The Commr. Of Income Tax, Trivandrum And Another

Kerala High Court
Aug 9, 1990
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

O.P No. 5708 of 1990

JUDGES

K.P Radhakrishna Menon, J.

ACTS

Section 132B(1)(i). Clause (b) of sub-section 4 of Section 132B

clause (iii) of sub-section 1 of Section 1 of Section 132B

provisions contained in sub-section 4 of Section 132B.

clause (iii) of sub-section 5 of Section 132

Sections 132(5), 132B(1) and (4). Section 132(5)

Section 244(1A) of The Income-tax Act,

Section 132B(4) and Section 244(1A).7.

Rule 119A of the Income-tax Rules

sub-section 4 of Section 132B(1).

Section 132(5). This sub-section

sub-section 4 of Section 132(B).

sub-section 5 of Section 132

Section 244(1A).5.

See more information ... Less ...
Important Paras
Please sign up to view Important Paras.
Smart Summary (Beta)

Structured Summary of the Provided Opinion

Factual and Procedural Background

The petitioner (assessee) challenged three orders identified as Ext. P1, Ext. P3 and Ext. P4. Ext. P1 was the assessing authority's consequential order giving effect to an appellate authority's order. Ext. P3 was an order by the Commissioner modifying Ext. P1, and Ext. P4 was the consequential order passed by the assessing authority pursuant to Ext. P3.

Relevant facts as stated in the opinion: an amount of Rs. 5,52,000/- was seized by the Enforcement Directorate from the petitioner's residence. On requisition under Section 132(A)(1) of the Income-tax Act, the Enforcement Directorate purportedly handed over that amount to the Income-tax Department on 28.6.1990. The Income-tax Officer passed an order under Section 132(5) on 19.9.1980, retaining the amount to meet the petitioner's tax liabilities. That Section 132(5) order was set aside by the court and remanded for de novo consideration (see judgment in O.P. 3643/1980). A fresh order under Section 132(5) was thereafter passed on 28-7-1983 (Ext. P6).

The assessing authority treated the retained amount as the petitioner’s undisclosed income for the year 1980–1981 and made a regular assessment on 13.10.1983 raising a demand of Rs. 5,27,022/- (inclusive of interest under Section 215). Interest under Section 215 amounting to Rs. 94,666/- was later waived on 25.10.1984, reducing the demand to Rs. 4,32,356/-. The petitioner successfully appealed: the Commissioner of Income-tax (Appeals), Trivandrum, by order dated 17-3-1987 directed deletion of the addition of Rs. 5,52,000/-. On 31-3-1987 the assessing authority made Ext. P1 giving effect to the appellate order and directed refund of Rs. 5,03,280/-, which included interest of Rs. 1,35,093/- claimed under Section 244(1A).

The petitioner filed a revision against Ext. P1 before the Commissioner; the Commissioner modified Ext. P1 by Ext. P3, and Ext. P4 was passed as the consequential order. Throughout the proceedings the petitioner contended entitlement to interest both under Section 132B(4) and Section 244(1A) on the amount retained, and (in substance) that interest should run from the date of seizure (18-3-1980) until payment/refund.

Legal Issues Presented

  1. Whether, on the facts and circumstances of the case, the petitioner is entitled to interest in terms of Section 132B(4) of the Income-tax Act on the amount retained by the Income-tax Officer pursuant to an order under Section 132(5).
  2. Whether the petitioner is also entitled to interest under Section 244(1A) of the Income-tax Act in respect of the same amount, and if so, for what period (the petitioner contended interest from the date of seizure to the date of refund).

Arguments of the Parties

Petitioner's Arguments

  • The petitioner argued that, because the appellate authority deleted the addition of Rs. 5,52,000/-, the amount retained pursuant to the summary order under Section 132(5) was not liable to be taxed. Therefore the petitioner is entitled to interest under Section 132B(4) on the amount retained.
  • The petitioner contended entitlement to interest under Section 132B(4) in addition to interest under Section 244(1A). Specifically, the petitioner sought interest from the date of seizure (18-3-1980) until the date of refund/payment.

Respondent / Revenue's Arguments

  • The Revenue submitted that the assessee, if entitled to interest at all, was entitled only to interest under Section 244(1A), and only from the date of the assessing authority's order giving effect to the appellate authority's order.
  • The Revenue argued that the claim under Section 132B(4) could not be granted on the facts, particularly because the retention of the amount was not "without authority of law" (i.e., it was retained pursuant to statutory powers under Section 132(5)).

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court framed the central question as one of statutory interpretation of Sections 132(5), 132B(1) and 132B(4) of the Income-tax Act (and the related procedural rule Rule 119A of the Income-tax Rules). The analysis followed these steps:

  1. The court summarized the scope of Section 132(5): it empowers the Income-tax Officer, after hearing the person concerned, to make a summary estimate of undisclosed income within a specified period after seizure (the opinion records 90 days originally, later amended to 120 days), determine tax and other liabilities mentioned in clauses (ii), (ii-a) and (iii) of that sub-section, and retain assets considered sufficient to satisfy those liabilities; any remaining asset portion must be released.
  2. The court explained Section 132B(1): it prescribes how retained assets may be applied to existing liabilities and liabilities that arise on completion of regular assessment or reassessments for all relevant assessment years. Clause (iii) expressly permits application of money (or money resulting from conversion of assets) to discharge liabilities and deems the assessee to have discharged the liability to the extent of such application.
  3. The court analyzed Section 132B(4): the Central Government must pay simple interest (12% per annum at the time, subsequently 15% from 1-10-1984 by amendment) on the amount by which the aggregate money retained under Section 132 (as per the Section 132(5) order) exceeds the aggregate amount required to meet the liabilities referred to in Section 132B(1)(i). The opinion records that such interest runs from the date immediately following the expiry of six months from the date of the Section 132(5) order to the date of the regular assessment or reassessment (or the last such assessment), and Rule 119A prescribes the method of calculating this interest.
  4. The court stressed a condition in Section 132B(4)(a): interest under Section 132B(4) is claimable only if the asset seized was money, or other assets converted into money under clause (iii) of Section 132B(1).
  5. Applying these statutory propositions to the facts, the court observed that the appellate authority had found the retained amount not liable to tax (it deleted the addition of Rs. 5,52,000/-). Therefore, the retained sum was excessive relative to liabilities and the petitioner is entitled to interest under Section 132B(4). The relevant interest period and rate are governed by Section 132B(4) and Rule 119A, and the appropriate authority must quantify the interest after affording the petitioner a hearing.
  6. The court contrasted Section 244(1A) with Section 132B(4): Section 244(1A) provides interest on refunds where the assessee actually paid tax or penalty pursuant to an assessment or penalty order and that payment (or part) is later found in appeal or other proceedings to be in excess. Section 132B(4) by contrast deals with interest on money retained under a summary order under Section 132(5) that is later found not to be taxable — in that case tax need not have been paid because the money was retained to discharge liabilities and adjusted against them. The court concluded the two provisions address different situations and are not interchangeable.
  7. On that basis the court held that the Central Government is not liable under Section 244(1A) for interest on the amount retained under a Section 132(5) order and later ordered to be refunded; the correct provision for such interest is Section 132B(4).
  8. The court acknowledged a consequence of the fact that the assessing authority and the Commissioner had awarded interest under Section 244(1A): the petitioner submitted that such orders have become final and therefore cannot be modified by the court. The court accepted that submission to the extent that those orders are final, and it left open the question whether taxing authorities may (if law permits) modify or alter such orders. The court did not decide that collateral question and remitted the quantification of interest under Section 132B(4) to the Commissioner after giving the petitioner an opportunity to be heard.

Holding and Implications

Holding:

The Original Petition is allowed. The petitioner is entitled to interest under Section 132B(4) on the amount seized and retained pursuant to the order under Section 132(5), calculated from the date immediately following the expiry of six months from the date of the Section 132(5) order until the date of the regular assessment or reassessment (or the date of the last such assessment).

The court further held that, on the statutory distinctions explained, the petitioner has no right to interest under Section 244(1A) in respect of the amount retained under Section 132(5). However, the court acknowledged that earlier orders by the assessing authority and the Commissioner awarding interest under Section 244(1A) may be final and not amenable to modification by the court; whether taxing authorities can modify such final orders is a matter left open for consideration if so advised.

Implications / Consequences:

  • The matter is remitted to the Commissioner to quantify the petitioner's entitlement to interest under Section 132B(4) and to pass consequential orders in accordance with law after affording the petitioner an opportunity of being heard.
  • The court directed expeditious disposal by the Commissioner of the remitted question. The direct practical effect is that the Department must compute and, if appropriate, pay interest under Section 132B(4) on the refunded/retained amount, subject to quantification and hearing.
  • The court did not award costs to the Revenue; it stated "No costs."
  • No express new judicial precedent beyond the statutory interpretation in this decision is pronounced; the ruling applies the cited statutory provisions to the facts and remits quantification to the tax authorities.

This summary is prepared strictly from the information contained in the provided opinion and does not add, infer or extrapolate any facts or legal material beyond that text.

Show all summary ...

1. The assessee is before the court. Exts. P1, P3 and P4 are under challenge. Ext. P1 is the order of assessing authority giving effect to the order of the appellate authority. By Ext. P3 order, the Commissioner has modified Ext. P1 order and based on which Ext. P4 consequential order has been passed.

2. The short question arising for consideration is this: Whether on the facts and in the circumstances of the case, the petitioner is entitled to get interest in terms of Section 132B(4) as well asunder Section 244(1A) of The Income-tax Act, for short, The Act?

3. A resume of facts relevant to decide the issue can be stated thus:— An amount of Rs. 5,52,000/- was seized by the Enforcement Directorate, Trivandrum from the residence of the petitioner. On requisition under Section 132(A)(1) of The Act, the Enforcement Directorate handed over the above amount to the Income-tax Department on 28.6.1990 The Income-tax Officer, thereafter passed the order under Section 132(5) on 19.9.1980, and retained the above amount of Rs. 5,52,000/- to meet the Income-tax liabilities of the petitioner under the order. The said order of the Income-tax Officer under Section 132(5) was set aside by this court and the matter was remanded to the assessing authority for a denovo consideration (vide judgment in O.P 3643/1980). The assessing authority thereafter passed a fresh order under Section 132(5) on 28-7-1983 (See Ext. P6).

4. The assessing authority treated the above mentioned amount as the undisclosed income of the petitioner, of the previous year in which it was seized namely 1980–1981 and accordingly made the regular assessment on 13.10.1983 raising a demand for Rs. 5,27,022/- which is inclusive of interest under Section 215 of The Act. Later interest under Section 215 to the tune of Rs. 94,666/- was waived by order dated 25.10.1984 Consequently the demand as per the regular assessment was reduced to Rs. 4,32,356/-. The order of assessement was challenged in appeal before the Commissioner of Income-tax (Appeals), Trivandrum who by his order dated 17-3-1987 directed deletion of the addition of Rs. 5,52,000/- mentioned above from the assessable income. On 31-3-1987 the assessing authority passed Ext. P1 order giving effect to the appellate order. This order shows the total income at a loss of Rs. 1,60,016/-. Accordingly this consequential order (Ext. P1) directed refund of Rs. 5,03,280/- including interest of Rs. 1,35,093/- under Section 244(1A).

5. The petitioner filed a revision against Ext. P1 order before the Commissioner and the Commissioner by Ext. P3 order modified Ext. P1 order. Based on the said modified order the assessing authority passed Ext. P4 conse-quential order.

6. It can be seen from Exts. P1, P3 and P4 that the assessee has been consistently contending that he, in addition to Section 244(1A) interest, was also entitled to get interest on the amount of money retained by the Income-tax Officer after seizure, from the date of seizure namely 18-3-1980 till the date of payment. In other words the case of the assessee althrough was that he was entitled to get interest both under Section 132B(4) and Section 244(1A).

7. That the authorities concerned have awarded interest under Section ??? 244(1A) while denying interest under Section 132B(4), is beyond dispute.

8. The learned counsel for the petitioner argues that in view of the order of the appellate authority directing deletion of the additions made by the assessing authority while making the regular assessment for the year in question, the petitioner is entitled to get interest under Section 132B(4) on the amount of money retained by the assessing authority under the cover of the summary order under Section 132(5). This claim for interest is, in addition to the interest, he is entitled to get under Section 244(1A). In other words, it is submitted, the petitioner is entitled to get interest both under Section 132B(4) and 244(1A) on the amount in dispute from 18-3-1980 the date of seizure till the date of refund. The orders of the authorities concerned to extent to which they decline to award interest under Section 132B(4) is liable to be set aside, the counsel submits. The learned counsel for the Revenue on the other hand contends that the assessee if entitled to get interest only under Section 244(1A) and that too only from the date of the order of the assessing authority giving effect to the order of the appellate authority. The claim for interest under Section 132B(4), on the facts of the case, cannot be granted. It is all the more so because the retention of the amount cannot be said to be without the authority of law.

9. I shall first deal with the question as to whether the assessee is entitled to get interest under Section 132B(4) on the amount in dispute. The answer depends upon the interpretation of Sections 132(5), 132B(1) and (4). Section 132(5) empowers the Income-tax Officer, after affording an opportunity of being heard to the person concerned, to make an order within 90 days of the seizure, (this section has subsequently been amended and the amended provision enables the authority to pass the order within 120 days) estimating the undisclosed income in a summary manner to the best of his judgment, i.e on the basis of such materials as are available with him, and determine the tax liability as also the other liabilities made mention of in clauses (ii), (ii-a) and (iii) of the said sub-section and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii), (ii-a) and (iii). The remaining portion of the asset, if any, shall be released forthwith. Section 132B(1) prescribes the procedure in regard to the application of the assets retained on the basis of the summary order under Section 132(5). This sub-section provides that the amount of existing liability mentioned in clause (iii) of sub-section 5 of Section 132 and the amount of the liability that will be determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in clause (i) of Section 132(5) selates (including any penalty levied or interest payable in connection with ruch assessment or reassessment) and in respect of which he is in default or deemed to be in default, can be recovered from out of such assets. This clause suggests that the Income-tax Officer if so advised, can treat the asset seized as the income of the year in which it was seized or he can spread over such assets as income of any of the previous years previous to the year in which the said asset was seized; and in the former case the order contemplated is an order of regular assessment and in the latter an order of reassessment provided the assessment for the said year has not already been completed. Clause (iii) of Section 132B(1) says that if the assets consist solely of money, or partly of money and partly of other assets, the Income-tax Officer can apply such money in the discharge of the liabilities referred to in clause (1) and in that event the assessee must be deemed to have discharged such liability to the extent of the money so applied. The other sub-clauses and sub-sections are not relevant here and therefore they are not specifically dealt with in this judgment. Now we come to sub-section 4 of Section 132(B). It is under this section the petitioner has laid his claim for interest. This sub-section makes the Central Government liable to pay simple interest at the rate of 12% per annum (this rate was enhanced to 15% by subsequent amendment of the section, with effect from 1-10-1984) on the amount by which the aggregate of money retained under Section 132 as per the order under Section 132(5) exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section (Section 132B(1). In other words the Central Government is liable to pay simple interest at the prescribed rate on the amount retained and found to be in excess of the liability, the assessee would be called upon to meet on passing the orders under Section 132B(1)(i). Clause (b) of sub-section 4 of Section 132B says that such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under sub-section 5 of Section 132 to the date of regular assessment or reassessment referred to in clause (i) of sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments. Rule 119A of the Income-tax Rules prescribes the mode of calculating such interest. Sub-section 4(a) of Section 132B would further indicate that the claim for simple interest could be entertained only if the asset seized was money or other assets converted into money in the manner indicated in clause (iii) of sub-section 1 of Section 1 of Section 132B and not otherwise. The cumulative effect of these sections therefore is that the person from whom the money or other assets converted into money, retained, after seizure, is entitled to interest at 12% per annum on the said amount of money provided the same is in excesses of the amount of money that is required to meet the liabilities either existing or that would come into being on making the assessment or reassessments of the undisclosed income as the case may be, and as provided for under Section 131B(1)(i).

10. As already noted the amount of money retained by the Income-tax Officer on the basis of the order under sub-section 5 of Section 132 has been found not liable to be taxed by the appellate authority and therefore on the said amount which was retained by the Income-tax Officer, the petitioner is entitled to interest under sub-section 4 of Section 132B(1). The said interest, the Department therefore is liable to pay to the petitioner. The authority concerned therefore shall determine this interest taking into account the provisions contained in sub-section 4 of Section 132B. Before final order in this regard is passed, the authority concerned shall give the petitioner an opportunity of being heard.

11. It is seen from the orders of the assessing authority as also the commissioner that they have found that the petitioner is entitled to interest under Section 244(1A). It reads:—

“244. (1A). Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted:

Provided that where the amount so found to be in excess was paid in instalment, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted:

Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess”.

12. This sub-section provides that an assessee is entitled to interest on the amount directed to be refunded. It is clear from this section that the interest, the Central Government is liable to pay under this Section is the interest on the excess amount, the assessee paid as tax or penalty on the basis of the order of assessment or order levying penalty which, as the case may be, was later modified or altered by the authorities higher up in the hierarchy of tribunals. The situation warranting payment of this interest is different from the situation justifying payment of interest under Section 132B(4). A comparative study of these two sections would make it clear that in order to claim interest under Section 244(1A), the assessee should establish that he paid the tax pursuant to the demand raised on an assessment or paid the penalty in terms of an order levying penalty. But so far as the claim for interest under Section 132B(4) is concerned, the said interest, could be claimed only on the assessee establishing that the amount retained by the authority pursuant to the order under Section 132(5) was found not liable to be treated as the income and hence not liable to be taxed and therefore the department is bound to refund the same. In other words the interest, the Central Government is liable to pay under Section 132B(4) is on the amount retained by the authority on the basis of a summary order passed under Section 132(5) and the question of paying tax does not arise. The money retained is adjusted against the liability which will be fastened on the assessee on making an assessment or reassessment within the meaning of clause (i) of sub-section 1 of Section 132B. It therefore follows that the Central Government is not liable to pay interest under Section 244(1A) on the amount of money the department retained on the basis of the order under sub-section 5 of Section 132 and later ordered to be refunded.

13. In the light of what is stated above the assessee here has no right to get interest under Section 244(1A). The learned counsel for the assessee however submitted that the order directing payment of interest under Section 244(1A) has become final and therefore no direction modify the order can be issued. He is well founded in this submission. Whether the orders directing payment of interest under Section 244(1A) can be modified or altered otherwise is a matter, if so advised, the taxing authorities can consider provided law permits the same. That question therefore is left open. There will therefore be a declaration that the petitioner is entitled to interest on the amount seized under Section 132B(4) from the date immediately following the expiry of the period of six months from the date of the order under sub-section 5 of Section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or as the case may be, to the date of the last of such assessments or reassessments. It is for the department to quantify this claim and pass appropriate consequential orders. This claim of the assessee shall be considered and disposed of by the commissioner after giving the petitioner an opportunity of being heard, expeditiously. This question is remanded to the commissioner for disposal in accordance with law.

14. The Original Petition is allowed. No costs.

© 2026 Gauge Data Solutions Pvt. Ltd.

x

Alert

Please log in or sign up for a free trial to access this feature.
Sign Up Login
x