IMPORTANT POINT
Where return filed along with refund application was not finally disposed of, but a note was made in return which was not communicated to the assessee, reassessment proceedings initiated by A.O. was held to be invalid.

Headnote:Income Tax Act, 1961-Section 147-Reassessment-Validity of-Return filed by trust u/s 139(1) with refund application u/s 237-Assessing Officer (A.O.) made note in return that question of giving credit for tax deducted at source could be considered in hands of beneficiaries-This note/order not communicated to assessee-Subsequent notice u/s 148 for filing return for same assessment year-Return filed and A.O. accepting return completed assessment-Assessee s plea reassessment notice and reassessment invalid as earlier return not disposed of-Held: note of A.O. in original return was mere opinion of A.O.-First return not closed-Order rejecting refund claim appealable and as such should have been communicated-Final order not passed in earlier return-Reassessment proceedings invalid.
       It is settled law that unless the return of income already filed is disposed of notice for reassessments under Section 148 cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated. (Para 10)
       Return of income filed in the form prescribed along with an application for refund under Section 237 of the Act is a valid return. There is no stopping the Income Tax Officer to complete the assessment on the basis of return so filed. It may be that the Income Tax Officer may limit the scope of examination of the return to satisfy himself regarding the correctness of the amount claimed as refund. For that purpose, he will examine if the tax paid by the assessee exceeds the amount of tax for which he is chargeable. If it is found that the income was "nil", he will direct refund be granted to the assessee for any amount of tax paid. That will certainly be assessment. Filing of return in the form prescribed under Section 39 of the Act along with the application for refund is not an empty formality. It assumes importance if such return had not been filed earlier. (Para 17)
       Mere glance at the note of the A.O. would show that it could not be said that the Income Tax Officer gave finality to the refund since no refund is granted either in the hands of the trust or in the hands of the beneficiaries. It is an inconclusive note where the Income Tax Officer left the matter at the stage of consideration even with regard ro refund in the hands of the beneficiaries. This note was also not communicated to the trustees. When we examine the note dated November 10, 1965 on the file of 1963-64 nothing flows from that as well. In any case if it is an order, it would be appealable under Section 249 of the Act. Since period of limitation starts from the date of intimation of such an order, it is imperative that such an order be communicated to the assessee. Had the Income-tax Officer passed any final order, it would have been communicated to the assessee within a reasonable period, in any case, what we find is that the note dated November 10, 1965 is merely an internal endorsement on the file without there being an indication if the refund application has been finally rejected. By merely recording that in his opinion, no credit for tax deducted at source is to be allowed the Income Tax Officer cannot be said to have closed the proceedings finally. Decisions referred to by the revenue are of no help in the present case. We are, thus, of the opinion that during the pendency of the refund filed under Section 139 of the Act along with refund application under Section 237 of the Act action could not have been taken under Section 147/148 of the Act. (Para 18)

JUDGMENT

D.P. Wadhwa, J.-The question that calls for consideration is : Whether, on the facts and in the circumstances of the case, the assessment made by the Income-tax Officer for the Assessment Year 1962-63 under Section 143(3) read with Section 147 of the Income Tax Act, 1961 is valid in law?

2. The case concerns the H.E.H. the Nizam s second Supplemental Family Trust. The trustees of the trust filed income tax return for the Assessment Year 1962-63 on behalf of the beneficiaries on April 2, 1964. Along with the return they filed an application under Section 237 of the Income Tax Act, 1961 (for short the Act ) for refund of tax of Rs. 20,050.52 deducted at source on interest on Government securities and dividends. Section 237 of the Act provides for refund and it is as under :-

"237. If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeabale under this Act for that year, he shall be entitled to a refund of the excess."

Under Rule 41 of the Income Tax Rules, 1962 (for short the Rules ) a claim for refund is to be made in Form No. 30. This Rule is as under :-

"41. (1) A claim for refund under Chapter XIX shall be made in Form No. 30.

(2) The claim under sub-rule (1) shall be accompanied by a return in the form prescribed under Section 139 unless the claimant has already made such a return to the Assessing Officer.

(3) Where any part of the total income of a person making a claim for refund of tax consists of dividends or any other income from which tax has been deducted under the provisions of Sections 192 to 194, Section 194A and Section 195, the claim shall be accompanied by the certificates prescribed under Section 203.

(4) The claim under sub-rule (1) may be presented by the claimant in person or through a duly authorised agent or may be sent by post."

The claim for refund is to be accompanied by return of income in the form prescribed under Section 139 of the Act unless the claimant has already made such a return to the Income-tax Officer.

3. Since there was no response from the Income-tax Officer the trustees reminded him on June 17, 1964 for disposal of the refund application. The Income-tax Officer gave a reply on July 22, 1964 stating that the refund could not be granted to the trustees unless the references on the same question for the preceding assessment years filed by the trustees were disposed of by the High Court. A reminder was again sent by the trustees on September 23, 1966 to the Income-tax Officer for grant of refund but again no reply was given by the Income-tax Officer. Thereafter a notice under Section 148 of the Act was received by the trustees from the Income-tax Officer requiring them to file return for the Assessment Year 1962-63. Return was filed on July 3, 1970 declaring an income of Rs. 6,26,200/- as long terms capital gain. It would appear that on the same day the return was accepted on the income returned by the trustees. The trustees thereafter raised an objection by writing to the Income-tax Officer on July 3, 1970, after they had received the assessment order, that the return filed by them on April 2, 1964 along with refund application was still pending and, therefore, the proceedings initiated under Section 147 of the Act were invalid. They also claimed that the assessment made pursuant to the notice under Section 148 was equally invalid. To this the Income-tax Officer sent his reply on July 16, 1970 stating that the return filed on April, 2, 1964 was disposed of on November 10, 1965 by a note recorded by the Income-tax Officer in his file. This note was recorded on November 10, 1965 in the file pertaining to Assessment Year 1963-64 and was to the following effect:-

"In view of the Supreme Court judgment in the case of H.E.H. Nizam, the question of giving credit for tax deducted at source can be considered in the hands of th

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2000 Supreme(SC) 381

IMPORTANT POINTWhere return filed along with refund application was not finally disposed of, but a note was made in return which was not communicated to the assessee, reassessment proceedings initiated by A.O. was held to be invalid.

Cases Referred (2)

IMPORTANT POINT
Where return filed along with refund application was not finally disposed of, but a note was made in return which was not communicated to the assessee, reassessment proceedings initiated by A.O. was held to be invalid.