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Chandra Mohan v. Union Of India

Madhya Pradesh High Court

Apr 22, 1998

Judgment

Subsequent
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Structured Summary of the Opinion (Writ Petition under Article 226)

Factual and Procedural Background

The petitioner is an assessee under the Income Tax Act, 1961. For assessment year 1982-83 he filed a return on 31 July 1982 declaring taxable income of Rs. 1,17,468 and tax payable of Rs. 58,326.01. The statutory period for completing assessment under section 153(1)(a)(iii) was two years from the end of the assessment year; no assessment order was made within that period (up to 31 March 1985). The petitioner claimed refund of the tax paid on the premise that, in the absence of any assessment order within the time prescribed, the tax paid became due for refund. The assesssing authority rejected the refund claim by communication dated 21 March 1988. The petitioner filed the present writ petition under Article 226 of the Constitution praying for a mandamus directing refund of Rs. 58,326.01 with interest at 12% per annum under section 244 of the Act.

The Court heard counsel for the petitioner (Shri P.R. Bhave) and for the respondents (Shri V.K. Tankha) and reserved reasons and order.

Legal Issues Presented

Whether, where the assessing authority fails to pass any assessment order within the statutory period under section 153(1)(a)(iii) and the assessee has admitted tax liability in his return, the assessee is entitled to refund of the entire tax paid.
What legal consequence follows from the default of the revenue in not making an assessment within the time provided by section 153(1)(a)(iii) of the Income Tax Act — i.e., whether the statute itself prescribes a consequence and what remedy, if any, flows from such default.

Arguments of the Parties

Petitioner's Arguments

The petitioner argued that the respondents had no legal right to retain the tax paid when no assessment order was passed within the statutory time; therefore retention and non-refund were illegal.
Reliance was placed on the deadline in section 153 for making assessment and the submission that, after the deadline, authorities lack power to make an assessment and consequently any tax retained without an assessment order must be refunded.
The petitioner invoked section 240 (which addresses refunds resulting from orders in appeal or other proceedings) in support of his claim for refund (as informing the general regime for refund), although the petitioner did not base his claim on any order in appeal or other proceeding.
The petitioner relied on R. Gopal Ramanarayan and Deep Chand Jain as authorities in support of a refund claim where assessments were annulled or where revised returns showed no taxable income.

Respondents' Arguments

The respondents argued that retention of tax which is properly chargeable and collected in accordance with the Act is not automatically refundable merely because the regular assessment was not completed within the stipulated time.
They relied on the Full Bench decision in Saurashtra Cement & Chemical Industries Ltd. v. Income Tax Officer to contend that only tax wrongly paid or paid in excess of what is properly chargeable can be refunded; failure of regular assessment does not by itself create entitlement to refund of properly chargeable tax.
They further relied on Saraya Sugar Mills Ltd. v. Income Tax Officer to show that tax paid under section 140A is treated as "assessed tax" and is not merely an interim payment that fails if no regular assessment is made; this supports the position that tax paid pursuant to the return remains chargeable unless successfully contested or revised.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
R. Gopal Ramanarayan v. Third Income Tax Officer, Circle-II, Bangalore (1980) 126 I.T.R. 369	Refund required where, after appellate proceedings, there were effectively no valid assessments and the revenue retained moneys without authority; such a situation engages section 240 when refund becomes due as a result of an order in appeal or other proceeding.	The Court distinguished this decision: there the assessment had been varied/annulled by the Tribunal and the Tribunal's order had rendered there to be no assessment; an order within the meaning of section 240 existed. In the present case there was no order varying the filed return, so the case was held inapplicable.
Deep Chand Jain v. Income Tax Officer, C-Ward, Ambala (1984) 145 I.T.R. 676	Where a revised return showing a lower (non-taxable) income attains finality and no assessment has been made on the original return, the assessee can claim refund of advance tax paid.	The Court found the facts distinguishable: in Deep Chand Jain a revised return showing non-taxable income had attained finality; in the present case the petitioner admitted taxable income in his (only) return and did not claim that the income was non-taxable or that excess tax had been paid.
Saurashtra Cement and Chemical Industries Ltd. v. Income Tax Officer (Full Bench) (1992) 194 I.T.R. 659	There is no warrant to hold that tax properly chargeable and collected should be refunded merely because of failure in completing regular assessment; only tax wrongly paid or paid in excess of what is properly chargeable can be refunded.	The Court treated this Full Bench decision as applicable to the present facts and relied upon it to conclude that the petitioner's claim for refund, based solely on non-completion of assessment, was not sustainable.
Saraya Sugar Mills Ltd. v. Income Tax Officer (Division Bench, Allahabad) (1997) 226 I.T.R. 475	Tax paid under section 140A is to be treated as "assessed tax" (not merely ad hoc or interim) and is not annulled simply because a regular assessment was not completed; therefore such payments cannot be characterized as failing in the absence of regular assessment.	The Court relied on the principle that tax paid under mechanisms like section 140A is not an ephemeral payment and used this reasoning to support the conclusion that tax shown in the return and paid is binding unless the assessee revises the return or successfully challenges it.

Court's Reasoning and Analysis

The Court proceeded by identifying the core legal questions and then applying the Act and relevant precedents to the material facts.

The Court first examined section 240. Section 240 requires refund where a refund becomes due as a result of an order passed in appeal or other proceeding under the Act. The Court observed that the petitioner's claim was not founded on any order in appeal or other proceeding; the petitioner claimed a refund simply because no assessment order had been made within the statutory period. Therefore, the specific mechanism of section 240 did not directly apply to the petitioner's factual position.
The Court then analysed the authorities relied on by the petitioner and distinguished them on their facts:
- R. Gopal Ramanarayan was distinguished because that case involved annulment of assessment by the Tribunal leading to a situation where no assessment existed and an appellate order had produced the entitlement to refund under section 240.
- Deep Chand Jain was distinguished because there a revised return showing non-taxable income had attained finality; here the petitioner had not filed a revised return or shown that the return overstated tax liability.
The Court accepted the respondents' reliance on Saurashtra Cement (Full Bench) which held that properly chargeable tax collected under the Act does not automatically become refundable simply because the regular assessment was not completed. Only tax wrongly paid or paid in excess can be refunded. The Court found this principle applicable to the present facts.
The Court also took into account Saraya Sugar Mills which treated tax paid under section 140A as "assessed tax" — stressing that tax payments made under statutory provisions are not mere interim payments whose validity evaporates on non-completion of assessment. The Court used this reasoning to reinforce that tax paid pursuant to the return remains binding.
Applying these principles to the facts, the Court concluded that the taxable income declared in the petitioner's return constituted an admission of liability and remained binding on the petitioner. Because the petitioner did not claim in the return that the tax was excess or that the income was non-taxable, and did not file a revised return asserting non-liability, the petitioner was not entitled to a refund merely on the ground that the assessing officer failed to pass an assessment order within the statutory time.
On the second issue — the legal consequence of the assessing authority's failure to complete assessment within the time prescribed by section 153(1)(a)(iii) — the Court observed that the statute itself does not prescribe a consequence that the return shall be deemed an assessment or that the tax paid is automatically refundable. The Court noted the difficulty and hardship such a rule would create and stated that the matter was for the Government of India or the legislature to consider, not for the Court to remedy by judicial construction.

Holding and Implications

Holding: Writ petition rejected.

Direct consequences as set out by the Court:

The petitioner is not entitled to refund of the entire tax paid merely because no assessment order was made within the statutory period.
The taxable income shown in the petitioner's return is treated as the petitioner's admission of liability and is binding unless the assessee files a revised return or successfully challenges the liability in the appropriate proceedings.
Section 153(1)(a)(iii) itself does not prescribe a specific statutory consequence for the revenue's failure to complete assessment within the period; the Court declined to create a remedy and indicated that any remedial change is a matter for the legislature or executive to address.
Procedural disposition: the writ petition was rejected; in the peculiar circumstances, no order as to costs was made; any security amount deposited, if any, may be refunded.

The opinion does not purport to lay down any novel legal principle beyond application and distinction of existing authorities; rather it applied established precedents to the factual matrix and left policy-type remedies to the legislative function.

Writ petition rejected.

Show all summary ...

1. The petitioner is an assessee assessed to income tax under the provisions of the Income Tax Act, 1961 (for brevity, hereinafter referred to as ‘the Act’).

2. The petitioner, by means of this petition, has approached this Court seeking relief for issuance of a writ in the nature of mandamus commanding the respondents i.e Union of India, the Commissioner of Income Tax, Madhya Pradesh-II, Jabalpur and the Income Tax Officer, Headquarters Administration), Income Tax Office, Jabalpur for making refund of Rs. 58,326.01 p. together with interest at the rate of 12% per annum in accordance with the provisions of section 244 of the Act to the petitioner.

3. The case of the petitioner is that for the assessment year 1982-1983, he filed his return in time on 31st July, 1982 showing his taxable income as Rs. 1,17,468/- and tax payable was shown at Rs. 58,326.01 p. The assessment was to be completed within the statutory period of two years as provided under section 153(1)(a)(iii) of the Act and accordingly no assessment order was passed within the aforesaid period of two years i.e uptil 31st March, 1985. Therefore, the tax already paid by the petitioner, in the absence of any order of assessment, had to be refunded to the petitioner. The petitioner accordingly put-forth his claim for the refund of the tax paid by him on the basis that since no order of assessment was passed within the statutory period under the Act, the tax already paid has become due for refund. Thus the petitioner applied for refund of the entire tax paid by the petitioner but the application for refund was rejected and the rejection was communicated vide communication dated 21-3-1988. Accordingly present petition under Article 226 of the Constitution of India.

4. Heard the learned counsel for the petitioner, Shri P.R Bhave and the learned counsel for the respondents Shri V.K Tankha.

5. Learned counsel for the petitioner submitted that the respondents were not legally entitled for retention of the tax paid by the petitioner without there being any assessment order and as such action of non-refund of the tax on the part of the Income Tax Officer was illegal. Learned counsel for the petitioner in support of his contention invited the attention of the Court to the provisions of section 153 of the Act which provided a dead line for making an order of assessment under section 143 or section 144 of the Act and that dead line is for two years from the end of the assessment year in which the income was first assessable.

Learned counsel submitted that the assessing authority failed to make any order within the time provided and thereafter under the law authorities were sans any power to pass any assessment order. Since no assessment order has been passed, it would be treated as if the petitioner owes no liability for tax. He relied on the provisions of section 240 of the Act wherein he applied for refund of the entire tax paid by the petitioner. Section 240 of the Act is as extracted below:

“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 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.”

Section 240 of the Act speaks that as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee. Here the liability for refund of any amount which becomes due to the assessee must be in consequence of any order passed in appeal or other proceeding under the Act. Here in the present case, learned counsel for the petitioner has not disputed the fact that the petitioner made claim for refund before the Income Tax Officer, not as a result of any order passed in appeal or other proceeding. It is not the case of the petitioner that in the return filed by the petitioner, the petitioner claimed for refund of excess tax paid. The petitioner's claim is on different premises i.e since no order of assessment has been made within the period provided under the Act and thereafter concerned authorities were incapacitated to pass any order and, therefore, whole of the tax paid by the petitioner becomes refundable. So far as position u/s 240 of the Act is concerned, it is clear that in the case of the petitioner, provisions of section 240 would not be attracted as the petitioner's claim for refund was not as a result of any order passed in appeal or other proceeding.

6. The question for consideration is two-fold; (i) in such a situation whether the petitioner is entitled for refund of entire tax paid by him accepting his liability for payment of tax and (ii) as to what consequence flows from the provisions of section 153 of the Act for the default on the part of the revenue for not making assessment within the time limit provided by law.

7. For the first proposition, learned counsel for the petitioner placed reliance on the case of R. Gopal Ramanarayan v. Third Income Tax Officer, Circle-II, Bangalore, (1980) 126 I.T.R 369. It is a decision of Single Judge of the Karnataka High Court. This case has no foundation so far as the proposition in the present case is concerned. In the case so relied on, the position was different i.e for the assessment year 1973-1974, pursuant to an order passed under section 143(3) of the Act, the petitioner paid a sum of Rs. 94,179/- as advance tax and also a further sum of Rs. 4,883.89 was deducted as tax at source under the Act. The petitioner also paid for that assessment year a sum of Rs. 2,367 on self-assessment when he filed his return and the total tax paid by the assessee for the relevant assessment year was Rs. 1,01,429.89. Similarly, for the assessment year 1975-1976, the petitioner paid a total sum of Rs. 69,396.75 as advance tax, tax deducted at source and tax on self-assessment. The petitioner was aggrieved by certain legal infirmities in the assessment orders and filed appeals before the AAC, which were dismissed. On further appeal to the Tribunal, the petitioner contended that the ITO had not quantified the tax in the assessment orders as required by section 143(3). The Tribunal found that while the ITO had signed the assessment orders, he had quantified the tax due in a separate sheet annexed to the assessment order, and therefore, annulled the assessment orders. The revenue did not pursue the matter further. Thereafter, the petitioner made a demand for refund of the tax paid, which was rejected by the ITO. The petitioner filed a writ petition under Article 226 of the Constitution praying for an appropriate direction to the ITO to refund the tax paid by the petitioner for the relevant assessment years on the ground that there being no assessment order validly made in accordance with law, the tax retained by the ITO was without the authority of law and was liable to be refunded under section 240. On a reference, it was held that nothing was done by the revenue after the assessments were annulled by the Tribunal with the result there were no assessments at all for the relevant assessment years. The Tribunal's order having become final in terms of section 254(4) of the Act, the retention by the ITO of the moneys paid by the petitioner without any assessment and without the ITO being capable of making fresh assessments in accordance with law was impermissible.

Firstly, in this case there was an order which falls in the category of any order within the meaning of section 240 of the Act. Secondly, the ITO did not accept the return as filed by the petitioner but he imposed the different tax and that tax liability was set aside by the Tribunal on the plea that quantum was not mentioned in the order passed by the Income Tax Officer. Thus, this case has no application to the facts and circumstances of the present case, as in the present case there is no order of variation of the return filed by the petitioner. The petitioner filed income tax return admitting his liability to tax and on the return of income tax no order, whatsoever, was passed by the Income Tax Officer as required under the law.

8. The next case relied on by the learned counsel for the petitioner is of Deep Chand Jain v. Income Tax Officer, C-Ward, Ambala, (1984) 145 I.T.R 676. It is a case of the Punjab and Haryana High Court. In this case also the position was different as in this case there was a demand notice under section 156 of the Act in regard to the assessment year 1971-1972 and thereafter the assessee filed the income-tax return for the said year on October 1, 1971, showing an income of Rs. 39,569. He thereafter filed a second return wherein he showed his income of only Rs. 6,130 and no orders were passed either on the original return or on the revised return for the relevant year within the period provided by law and therefore, claim for refund of the advance tax was made. The petitioner deposited a sum of Rs. 9,400/- by way of advance tax in compliance with the order passed under section 210 of the Act. Here the position is different. There was a revised return before the Income Tax Authorities at the time when no order on original return was passed and in the revised return income was shown at Rs. 6,130/- which was not taxable and as such the entire advance tax paid was sought to be refunded. Here the position is different. The revised return attained finality and in the revised return income shown was at Rs. 6,130/- which was not taxable and as such the petitioner was entitled for refund of the advance tax paid by him and accordingly a direction was issued by the Court in the case relied on.

Here in the present case the position is not so. The petitioner has admitted his liability of tax and it is not the case of the petitioner that he paid the excess amount or the income was not taxable. The return of income filed by the petitioner is his admission in regard to his income.

9. Learned counsel for the respondents placed reliance on the Full Bench decision of the Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd. v. Income Tax Officer, (1992) 194 I.T.R 659. In this case the position was more or less similar to the present case and the Court held that 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 failure of the regular assessment. When the provisions do not authorise for refund which is properly collected, what could be refunded is the tax paid wrongly or paid in excess of what is properly chargeable. This case has got applicability in the facts and circumstances of the present case.

The next case relied on by the learned counsel for the respondents is the case of Saraya Sugar Mills Ltd. v. Income Tax Officer, (1997) 226 I.T.R 475. It is a case of Division Bench of the Allahabad High Court. In that case the position was that an assessment order was made on 25th September, 1980 determining income tax. This assessment order was subjected to appeal and the Income-tax Appellate Tribunal held that the assessment was barred by time and was accordingly annulled. After the annulment of the assessment, the petitioner asked the Assessing Officer to refund the whole amount of Rs. 12,43,780 paid by it but the Assessing Officer did not do so. Instead, he initiated proceedings under section 147 read with section 148 for making a reassessment. The petitioner then filed a writ petition for the reliefs, but since no interim order was passed during the pendency of the writ petition, the assessment was completed overruling the petitioner's objection that there was no cause for initialing action under section 147/148 of the Act. Against this order, the petitioner appealed and ultimately the Income-tax Appellate Tribunal by order dated April 12, 1989, quashed the reassessment holding that the assessee having filed a return of income, proceedings under section 147(a) could not be taken against the assessee. The refund was claimed as there was no order of assessment and no liability of income-tax on the petitioner and, therefore, he was entitled to refund of paid tax.

The tax payable on the basis of the returns filed by the assessee is treated as “assessed tax”. It is not at all made dependent on any regular assessment being made, though in the event of regular assessment, the amount paid under sub-section (1) of section 140A is deemed to have been paid towards the regular assessment. Therefore, by no stretch of imagination, can the tax paid and collected under section 140A be described as a mere ad hoc or interim payment which can be said to fail in the absence of a regular assessment as was sought to be contended on behalf of the petitioners.

10. In view of above, the petitioner is not entitled for the refund of paid tax on the basis that no assessment was done by the Income-tax Officer within the time provided by law as it is not a case of the petitioner in the return that he paid excess tax which he is entitled to refund. In such a situation, the taxable income shown in the return, so filed by the petitioner, shall be treated as admission of the petitioner and the same 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 second submission is that as to what consequence flows from section 153(1)(a)(iii) of the Act. In this connection it is submitted by the learned counsel for the petitioner as well as by the learned counsel for the respondents that this section itself does not provide for any consequence for default on the part of the authorities in not completing assessment within time frame under the Act.

This provision has not provided that the return filed by the petitioner shall be deemed to have been an order of assessment of income tax accepting the return of the petitioner, in many matters under the law and otherwise an assessee is asked for an assessment order and in the case like present one if assessee prays for issuing assessment order, then the Assessing Officer would tell him that no assessment order exists as the person is not assessed by any order and as such order cannot be issued. It would create a difficulty as well as hardship to the tax payers for non action on the part of Income Tax Officer. It is the matter which may invite the attention of the Government of India and the Legislative Body or functionary which may consider this aspect of the matter. It is not in the domain of this Court.

11. In view of the above, the writ petition is sans substance and is rejected. In the peculiar circumstances of the case, I make no order as to costs. Security amount deposited, if any, may be refunded.