1. Claim for double taxation relief refund rejected as time-barred — Request to set off such refunds against tax demands under Section 49E, Income-tax Act, 1922. (Para 1 , 3 , 4 , 5 )
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1964 Supreme(SC) 334
SUPREME COURT OF INDIA
10th December 1964
P.B. GAJENDRAGADKAR, C.J.I., M. HIDAYATULLAH, J.C. SHAH, S.M. SIKRI, AND R.S. BACHAWAT, JJ.
Hindustan Construction Co., Ltd., Appellant
Versus
V. S. Gaitonde, and another, Respondents.
Civil Appeal No. 136 of 1964.
Advocates appeared
Mr. A. V. Viswanatha Sastri, Senior Advocate, (Mr. T. A. Ramachandra, Advocate and M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates, of M/s. J. B. Dadachanji and Co., with him), for Appellant; M/s. R. Ganapathy Iyer, R. H. Dhebar and R. N. Sachthey, Advocates, for Respondent.
Important Points
Section 49-E of the Indian Income-tax Act, 1922, requires a subsisting obligation to pay a refund before a set-off against other tax liabilities can be claimed. A refund claim barred by a final order does not constitute a subsisting obligation.
Subject
Tax Law - Income Tax
Act Referred
Headnote
(A) Indian Income-tax Act, 1922 - Section 49-E - Income-tax (Double Taxation Relief) (Indian States) Rules, 1939 - Rule 5 - Power to set off refunds against tax payable - Interpretation of "found to be due" and "in lieu of payment" - Whether a subsisting obligation to pay refund is a condition precedent for set-off under Section 49-E - If a claim for refund is barred by a final order, no subsisting obligation to pay exists, and thus set-off cannot be claimed. (Paras 7, 11)
(B) Indian Income-tax Act, 1922 - Section 59(5) - Rules made under the Act have effect as if enacted under the Act - Refunds due under such Rules are considered refunds due under the Act for the purpose of Section 49-E. (Para 10)
Facts of the case:
The appellant sought a refund of taxes paid in other jurisdictions. The claim was rejected by tax authorities on the ground that it was filed beyond the prescribed time limit. After the rejection was upheld by higher authorities, the appellant requested that the alleged refunds be set off against subsequent tax demands under Section 49-E of the Act. The petition was dismissed by the lower court on the ground that prior adjudication in favour of the appellant was necessary.
Findings of Court:
The court found that while prior adjudication is not necessarily required to determine if a refund is due, the expression "in lieu of payment" in Section 49-E implies that there must be a subsisting obligation on the part of the tax authorities to make the payment. Since the refund claim had been barred by final orders, no such obligation existed.
Issues: Whether Section 49-E allows for the set-off of a refund that has been rejected by a final order, and whether the phrase "in lieu of payment" requires a subsisting obligation to pay the refund.
Ratio Decidendi: For a set-off to be permissible under Section 49-E, there must be a subsisting obligation to pay the refund. If a claim for refund is barred by a final order, it cannot be said that a refund is "found to be due" in a manner that allows for set-off "in lieu of payment."
Result: Appeal dismissed.
(B) Indian Income-tax Act, 1922 - Section 59(5) - Rules made under the Act have effect as if enacted under the Act - Refunds due under such Rules are considered refunds due under the Act for the purpose of Section 49-E. (Para 10)
Facts of the case:
The appellant sought a refund of taxes paid in other jurisdictions. The claim was rejected by tax authorities on the ground that it was filed beyond the prescribed time limit. After the rejection was upheld by higher authorities, the appellant requested that the alleged refunds be set off against subsequent tax demands under Section 49-E of the Act. The petition was dismissed by the lower court on the ground that prior adjudication in favour of the appellant was necessary.
Findings of Court:
The court found that while prior adjudication is not necessarily required to determine if a refund is due, the expression "in lieu of payment" in Section 49-E implies that there must be a subsisting obligation on the part of the tax authorities to make the payment. Since the refund claim had been barred by final orders, no such obligation existed.
Issues: Whether Section 49-E allows for the set-off of a refund that has been rejected by a final order, and whether the phrase "in lieu of payment" requires a subsisting obligation to pay the refund.
Ratio Decidendi: For a set-off to be permissible under Section 49-E, there must be a subsisting obligation to pay the refund. If a claim for refund is barred by a final order, it cannot be said that a refund is "found to be due" in a manner that allows for set-off "in lieu of payment."
Result: Appeal dismissed.
Legal Category Hierarchy
Advocates:
A.V.VISHWANATHA SASTRI, B.Ganapathy Iyer, J.B.DADACHAN, O.C.MATHUR, R.H.Dhebar, R.N.SACH, Ravindra Narayan, T.A.Ramachandran
A.V.VISHWANATHA SASTRI, B.Ganapathy Iyer, J.B.DADACHAN, O.C.MATHUR, R.H.Dhebar, R.N.SACH, Ravindra Narayan, T.A.Ramachandran
Table of Contents
2. Whether Section 49E requires prior adjudication or a subsisting obligation to pay, and whether refunds under Rules are covered by the Act. (Para 9 )
3. Refunds under Rules are deemed refunds under the Act; the phrase 'in lieu of payment' in Section 49E implies a subsisting obligation to pay. (Para 10 , 11 )
4. Set-off under Section 49E is permissible only where a subsisting obligation to pay the refund exists, which is absent if the claim is finally barred. (Para 11 )
5. Appeal dismissed; High Court's dismissal of the petition upheld. (Para 12 )
6. Does Section 49E of the Income-tax Act, 1922 require a prior formal adjudication before a set-off can be claimed?
No, prior adjudication is not strictly necessary. The Income-tax Officer can determine whether a refund is due when an application for set-off is made under Section 49E. (Para 11 )
7. What is the legal significance of the phrase 'in lieu of payment' in Section 49E?
The expression connotes that a payment is outstanding and there is a subsisting obligation on the Income-tax Officer to pay the refund before a set-off can be granted. (Para 11 )
8. Can a refund claim barred by a final order be set off under Section 49E?
No. If a claim for refund is barred by a final order, there is no subsisting obligation to make a payment, making the set-off under Section 49E unavailable. (Para 11 )
9. Are refunds due under the Income-tax (Double Taxation Relief) Rules considered refunds under the Income-tax Act for the purpose of set-off?
Yes. Under Section 59(5), rules made under the Act have effect as if enacted under the Act, meaning refunds due under the Rules are refunds due under the Act. (Para 10 )
Judgment
SIKRI, J. : This is an appeal on a certificate grated by the High Court of Bombay against its judgment dated February 24, 1961, dismissing the petition filed by the appellant under Art. 226 of the Constitution of India. This appeal raises a short question us to the construction of S. 49-E of the Indian Income-tax Act, 1922, hereinafter referred to as the Act. Before we deal with this question, it is necessary to set out the relevant facts.
2. The appellant, at the material time, carried on business not only in Indian but also outside India, i.e., Ceylon, the former States of Kolhapur and Kapurthala and other places. It is not necessary to give the facts relating to the income in Ceylon and Kolhapur because if the facts relating to the income made in Kapurthala are stated, these will bring out the real controversy between the appellant and the Revenue. We may mention that it is common ground that the facts relating to Ceylon income and Kolhapur income are substantially similar.
3. On July 9, 1954, the appellant wrote a letter to the Income-tax Officer, Companies Circle, Bombay stating that for the assessment year 1949-50, it was entitled to refund on the income taxed in Kapurthala State. It attached an original certificate for tax showing payment of Rs. 37,828-11-0, and requested that a refund order be passed at an early date. On June 27, 1956, the Income-tax Officer rejected the claim on the ground that the claim filed by the appellant was not within the time limit of four years laid down in R. 5 of Income-tax (Double Taxation Relief) (Indian States) Rules, 1939 - hereinafter called the Indian States Rules. On December 18, 1956, the appellant filed a revision, under S. 33A of the Act, against the said order, before the Commissioner of Income-tax, Bombay. The appellant stated in the petition that
"unfortunately the Company s assessment for the year in question was completed by the Income-tax Officer on the last day of the financial year 1953-54, i.e., 31-3-1954 being the last date on which their claim for double income-tax relief should have been lodged. In absence of the assessment order being received by the Company it was not physically practicable for the assessee to lodge its claim for double income-tax relief and as such the time prescribed under 3.50 had already expired when the assessment order was received by the company."
The Commissioner made some enquiries. The appellant, in its letter dated June 30, 1958, replied that no provisional claim for double income-tax relief was made by the appellant within the time prescribed. The appellant reiterated its own plea that it was not "physically practicable" for the assessee to lodge its claim of double-tax relief within the time prescribed. The Commissioner, however, rejected the petition. He observed that
"The assessment in the Kapurthala State was made on 20-3-1950, i.e., much before the assessment was completed by the Bombay Income-tax Officer. Nothing prevented the petitioner, therefore, from filing a provisional claim before the period of limitation was over. At least, it should have made such a claim before the Income-tax Officer at the time of assessment. I regret I cannot condone the delay in filing the claim as there is no provision under S. 50 for such condonation."
The appellant then approached the Central Board of Revenue. The Central Board of Revenue, by its letter dated December 31, 1958, declined to interfere in the matter. The appellant did not take any steps to apply to the High Court under Art. 226 for quashing the above orders of the Commissioner of Income-tax or the Central Board of Revenue.
4. On August 28, 1959, the Income-tax Officer issued three notices of demand under S. 29 of the Act in respect of the Assessment years 1949-50, 1950-51 and 1951-52. The appellant then wrote a letter dated September 4, 1959, requesting the Income-tax Officer to set off the refunds to which the appellant was entitled pursuant to the provisions of Income-tax (Double Tax
