IMPORTANT POINT
Tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of return furnished, the excess shall be refunded to the assessee.

Headnote:Income Tax Act, 1961-Sections 4, 144, 192, 199, 207, 208 to 219-Advance tax-Refund of-Assessment year 1976-1977-Assessments framed by Income Tax Officer under Section 143(3) rw/s 144B-Appeal-Appellate Commissioner partly allowed appeal-However, contention of assessee that assessments made by Income Tax Officer were without jurisdiction rejected -Appeals filed by assessees allowed-Tribunal held that assessment orders passed by ITO were ab initio void on ground that IAC Assessment had no jurisdiction to deal with pending reference-However, matter referred to the High Court for its opinion-Assessee filed applications before Assessing Officer for refund of tax paid pursuant to Tribunal s order-Whether refund claim maintainable-(No).
       Held : The liability to pay income tax chargeable under section 4(1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income tax thereon which involves a process of self-assessment. Since all this is done under authority of law, there is no scope for contending that Article 265 is violated. What then is the effect of the failure to make an order of assessment after the earlier assessment made is set aside or nullified in appropriate proceedings? If the assessing authority cannot make a fresh assessment in accordance with the provisions of the Act it amounts to deemed acceptance of the return of income furnished by the assessee. In such a case the assessing authority is denuded of its authority to verify the correctness and completeness of the return, which authority it has while framing a regular assessment. It must accept the return as furnished and shall not in any event raise a demand for payment of further taxes. Accepting the income as disclosed in the return of income furnished by the assessee, it must refund to the assessee any tax paid in excess of the liability incurred by him on the basis of income disclosed. Even if the tax paid is found to be less than that payable, no further demand can be made for recovery of the balance amount since a fresh assessment is barred. In other words, the tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of return furnished and the rates applicable, the excess shall be refunded to the assessee, since its retention may offend Article 265 of the Constitution. (Paras 34 & 35)
       The failure or inability of the revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief. In cases governed by section 240 of the Act, an obligation is cast upon the revenue to refund the amount to the assessee without his having to make any claim in that behalf. In appropriate cases therefore, it is open to the assessee to bring facts to the notice of the concerned authority on the basis of the return furnished, which may have a bearing on the quantum of the refund, such as those the assessee could have urged under section 237 of the Act. The concerned authority, for the limited purpose of calculating the amount to be refunded under section 240 of the Act, may take all such facts into consideration and calculate the amount to be refunded. So viewed, an assessee will not be placed in a more disadvantageous position than what he would have been, had an assessment been made in accordance with law. (Para 36)
       Proviso (b) to section 240 is also declaratory. It seeks to clarify the law so as to remove doubts leading to the courts giving conflicting decisions, and in several cases directing the revenue to refund the entire amount of income-tax paid by the assessee where the revenue was not in a position to frame a fresh assessment. Being clarificatory in nature it must be held to be retrospective, in the facts and circumstances of the case. It is well settled that the legislature may pass a declaratory Act to set aside what the legislative deems to have been a judicial error in the interpretation of statute. It only seeks to clear a meaning of a provision of the principal Act and make explicit that which was already implicit. (Para 38)

JUDGMENT

B.P. Singh, J.-These four appeals by special leave have been preferred by the revenue impugning the common judgment and order of the High Court of Madhya Pradesh at Jabalpur dated July 9, 1996 in M.C.C.Nos. 368-369 of 1993 and Misc. Petition Nos. 2750 of 1984 and 3773 of 1987.

2. The question that arises for consideration in these appeals is whether on the facts and in the circumstances of the case the respondents are entitled to the refund of income-tax paid by them by way of advance tax and self-assessment tax in the event of assessment framed being nullified by the Tribunal on the ground of jurisdiction and there being no possibility of framing a fresh assessment. The High Court by its common judgment and order has answered the question in the affirmative rejecting the submission of the department that the refund must be limited to income-tax paid pursuant to order of assessment, other than income tax paid by way of advance tax and self-assessment tax.

3. The facts of the case, in so far as they are relevant for the disposal of these appeals, are not in dispute. The respondents herein are the assessees and the assessment year in question is 1976-77. The assessments were framed by the Income Tax Officer on August 23, 1980 under section 143(3) read with section 144B of the Income-Tax Act (hereinafter referred to as the Act ) against which the assessees went in appeal to the Commissioner (Appeals). The appellate Commissioner by his order dated February 3, 1981 partly allowed the appeal on other points but rejected the contention urged on behalf of the assesses that the assessments made by the Income Tax Officer Indore were without jurisdiction. The assessees went up in appeal before the Income Tax Appellate Tribunal. Their appeals were allowed by the Tribunal by its order dated January 14, 1984 which held that the assessment orders passed by the I.T.O. (SIC)-1, Indore on August 23, 1980 were ab initio void on the ground that I.A.C. Assessment Indore had no jurisdiction to deal with the pending reference under section 144(N)(i) of the Act and to issue directions to the Income Tax Officer (SIC)-1, Indore under section 144B of the Act.

4. The revenue sought a reference to the High Court which was refused, but by order dated April 21, 1989 the High Court directed the Tribunal to refer the questions of law in both references for its decision. Accordingly the Tribunal framed the questions of law and referred the matter to the High Court for its opinion. The said reference is still pending before the High Court.

5. In the meantime the assessees filed applications before the Assessing Officer for refund of the tax paid pursuant to the Tribunal s order dated January 14, 1984. The Income Tax Officer by his letter dated August 13, 1984 informed the assessees that the refund may be given for taxes paid on regular assessments which have since been annulled excluding tax paid in advance and on self assessments. The second application for refund of tax was also not granted and the Income Tax Officer by his order dated August 21, 1987 informed the assessees that the refund has been withheld till the reference application filed in the case of M/s. Shelly Products Bhopal is decided by the High Court. Appeals were preferred to the Appellate Commissioner, which were allowed by orders dated February 3, 1981 and the Income Tax Officer was directed to refund to the assessees the advance tax and self assessment tax also. The Tribunal on appeal affirmed the order of the Appellate Commissioner, but at the instance of the revenue framed the following question of law for decision of the High Court :-

"Whether on the facts and in the circumstances of the case the ITAT was justified in directing the Assessing Officer to refund the tax with interest paid by the assessees on the income returned."

6. The two references were numbered as M.C.C.Nos. 368-369 of 1993 which were heard by the High Court alongwith Misc. Petition Nos. 2750 of 1984 and 3773 of 1987

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2003 Supreme(SC) 566

IMPORTANT POINTTax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of return furnished, the excess shall be refunded to the assessee.

Cases Referred (2)

IMPORTANT POINT
Tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of return furnished, the excess shall be refunded to the assessee.