Bhagwan Prasad Agrawal vs Commissioner of Income Tax and Another

Prakash Krishna, J.

Raising a short controversy, claiming interest on the amount of refund due to the petitioner u/s 244 of the Income Tax Act (hereinafter called as the Act), the present writ petition has been filed. A writ of certiorari has also been claimed for quashing the order dated 9-11-1989, passed by the CIT, Allahabad, by which the claim of the petitioner regarding interest on the refund amount has been denied.

Facts of the case he in a narrow compass. The officials of the IT department on 5-8-1975 conducted search and seizure operation at the premises of the petitioner and seized the gold ornaments valuing Rs. 23,195 as also Rs. 46,006 in cash. Pursuant thereto, the order u/s 132(5) was passed on 1-11-1985. In the summary proceedings the authority concerned was of the view that the tax liability comes more than the value of the assets seized, consequently, it ordered retention of the assets seized by the department, so that in the event of liability being created by the final order, the same may be paid of from the seized assets. However, in the regular assessment proceedings for the assessment years 1967-68 to 1976-77, the Income Tax Officer framed the assessment order against the petitioner and created the net liability to the tune of Rs. 14,946 only for the aforesaid assessment years. The gold ornaments thereafter were refunded to the petitioner. The cash worth Rs. 46,006 which was seized and was lying with the department was refunded to the petitioner by means of cheque dated 5-5-1980, after adjusting the demand created in pursuance of the aforesaid assessment orders. The petitioner laid the claim of interest for the excess amount which remained with the department and was seized in the aforesaid search after completion of the regular assessment orders and till date of the refund i.e., for the period 31-1-1977 to 5-5-1980. The petitioner laid claim of interest u/s 244 of the Act on the ground that the assessment order (was) passed on 31-12-1977 and the excess amount was refunded to him by means of cheque dated 5-5-1980. The CIT by the impugned order dated 9-11-1989 (filed as. Annex. 3 to the writ petition) rejected the claim of the grant of interest on the ground that since "special provision has been made in the Act for dealing (with) the seized cash u/s 132(1) and also for payment of refund and interest u/s 132B, general provisions u/s 244 are not applicable". The validity of this order has been questioned by means of present writ petition.

A counter-affidavit has been filed by Sri Girdhari Lal, Income Tax Officer, Deoria, who has not disputed the factual position of the case and has stated vide para 3 that the petitioner was paid full interest of which he was entitled u/s 132B(4) of the Act, i.e., the interest for the period after expiry of six months from the date of the order u/s 132(5) of the Act to the date of regular assessment order. The stand taken in the counter-affidavit is that in view of provisions of section 132B(4) of the Act, the applicability of section 244 of the Act which is a general provision, stands excluded.

Heard learned counsel for the parties and perused the record.

Sri Piyush Agrawal, learned counsel for the petitioner submitted that the petitioner is entitled to get interest for the aforesaid period on the aforesaid amount Rs. 31,060 and that section 132B(4) of the Act operates in different fields. Elaborating the argument it was submitted that section 244 contemplates a situation subsequent to the passing of the regular assessment order. Section 132B(4) is applicable to the situation which existed before passing of the regular assessment order. Reliance has been placed by him upon a judgment, Anilkumar D. Gajjar Vs. Commissioner of Income Tax, .

Sri Shambhu Chopra, learned standing counsel in his submission has reiterated the stand as taken by the CIT in its order, impugned in the present writ petition.

It may be noted here that the impugned order dated 9-11-1989 is in two parts. By para 2(i), the claim of the petitioner for grant of interest u/s 132B(4) from the expiry of six months of order u/s 132(5) i.e., from 1-5-1976 to the date of last assessment i,e., 31-12-1977 (for the period of twenty months) which works out to Rs. 6,212 has been accepted. The petitioner is aggrieved by para 2(ii) of the impugned order through which his claim of payment of interest from 1-4-1978 to 1-5-1980 and onward has been denied.

Section 132 of the Act empowers upon fulfilment of conditions laid therein to search and seize the documents, books of account, assets, etc. Section 132 on the face of it is intended to achieve two limited objectives : (i) to get hold of the evidence bearing a tax liability of a person which the said person is seeking to withhold from the assessing authority, and (ii) to get hold of assets representing income believed to be undisclosed income and applying so much of them as may be necessary in discharge of the existing and anticipated liability of such person, vide C. Venkata Reddy and Another Vs. Income Tax Officer (Central) I, Banglore and Others, . The assessing authority after affording a reasonable opportunity of hearing to the person concerned shall make such enquiry as may be prescribed within 120 days of the seizure, He will make an order with the previous approval of the authority concerned estimating the undisclosed income in a summary manner and calculate the amount of tax on the income so estimated and shall also determine the amount of interest, penalty payable under the Act, if any, and calculate the amount that will be required to satisfy existing liability under the Act, etc. The assets including the cash so seized and found in excess in view of the order passed u/s 132(5) of the Act shall be dealt with in accordance with provisions of section 132B of the Act, which deals with the application of the retained assets. It provides the manner of dealing of the assets retained under sub-section (5) of section 132. A bare perusal of section 132B(3) of the Act would show that any assets or proceeds which remained after the liability referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized. For the sake of convenience, section 132B is reproduced below :

"Section 132B. Application of retained assets : The assets retained under sub-section (5) of section 132 may be dealt with in the following manner, namely :

(i) The amount of the existing liability referred to in clause (iii) of the said sub-section and the amount of the liability 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 that sub-section relates (including any penalty levied or interest payable in connection with such assessment or reassessment), and in respect of which he is in default or is deemed to be in default may be recovered out of such assets.

(ii) If the assets consist solely of money, or partly of money and partly of other assets, the assessing officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied.

(iii) The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the assessing officer or, as the case may be, TRO under authorization from the Chief CIT or CIT under sub-section (6) of section 226 and the assessing officer or, as the case may be, TRO may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.

(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act.

(3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.

(4) (a) The Central Government shall pay simple interest at the rate of fifteen per cent per annum on the amount by which the aggregate of money retained u/s 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.

(b) 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 the 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. "

A conjoint reading of sub-section (3) and sub-section (4) of section 132B clearly shows that the assets retained u/s 132 shall be applied to meet the existing liability referred to in clause (iii) of section 132(5) of amount of liability determined on completion of regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in clause (i) of that sub-section relates. After adjusting the said liabilities the surplus, if any, shall be released ''forthwith'' to the person from whose custody the assets were seized. The legislative intent is crystal clear that after the discharge of the liabilities, referred to in clause (i) of sub-section (1) of section 132B, the assets, etc. shall be handed over to the person concerned, without any further delay. The use of word ''forthwith'' is quite emphatic of legislative edifice. To put it differently, retention of the assets after discharge of liability is not sanctioned by law and the mandate is otherwise.

Coming to the facts of the case, it is clear even from the first portion of the impugned order (which is not subject-matter of the writ petition as it is in favour of the petitioner), a sum of Rs. 6,212 was payable by the department to the petitioner for the period 1-5-1976 to the date of last assessment i.e., 31-12-1977. Sub-section (4)(b) of section 132B also provides that such interest shall run from the date immediately following 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 (ii) of sub-section (1). The dispute in the present writ petition is confined to the claim of the interest for the period after completion of the assessment order and till date of the payment of the refund of the excess amount (i.e., on the refund of Rs. 31,060) over and above the assessed tax on the petitioner. According to the petitioner, the interest on the said amount is payable by the department in pursuance of section 244 of the Act.

We find sufficient force in the argument of the learned counsel for the petitioner that section 132B(4) of the Act and section 244 operate in different fields, inasmuch as they relate to the payment of interest for different periods. There is no overlapping. To put it differently, section 132B(4) deals with the liability of the Central Government to pay interest upto the date prior to the framing of the assessment or reassessment order. Section 244 of the Act deals with the liability of the Central Government to pay interest for the subsequent stage which comes into existence after the completion of the assessment/reassessment order. At this stage, the learned standing counsel has placed reliance upon section 240 of the Act and submitted that in view of the words "except as otherwise provided in this Act" disentitles the petitioner to claim interest under Chapter XIX which deals with ''refunds''. Elaborating the argument it was submitted that the provisions relating to search and seizure as contained in Chapter XIII-C contain special provision dealing with the matter relating to search and seizure. The legislators have made necessary provisions for grant of interest on the amount of refund, wherever they have thought fit. Chapter XIX relating to ''refund'' contains provisions of refund relating to refund and as such the special provision shall exclude the general provision. The said argument is misconceived. Chapter XIII does not contain the provisions relating to assessment and refund of the excess amount found as consequence of the assessment order. The heading and sub-heading of Chapter XIII suggest the appointment and control of the IT authorities, their jurisdiction and powers. The whole gamut for assessment has been provided for in Chapter XIV inclusive of search and seizure case for which the assessment order has to be framed under the aforesaid chapter. In the case in hand the assessment order was framed u/s 143(3) of the Act as at that time there was no provision for making block assessment which came into force with effect from 1-7-1995 through which Chapter XIV-B special procedure for assessment of search cases was inserted by the Finance Act, 1995. The phrase "existed as otherwise provided in this Act" in section 240, therefore, contemplates a situation that there may be cases where the assessing authority shall not refund the amount to the assessee without his having to make any claim in that behalf. Moreover, the heading of section 240 suggests its applicability in the case of refund on the basis of appellate order or other proceedings under the Act, etc. The phrase "other proceedings" would also mean assessment order or revisional order, etc. It is not necessary to dwell upon section 240 any more as in the case in hand (i) the amount has been refunded to the petitioner, and (ii) the assessment order was passed u/s 143(3) i.e., under chapter relating to assessment. There is no dispute that the department has refunded the excess amount to the petitioner after completing the assessment proceedings but with delay, therefore, the present case is covered by section 237 read with section 240 of the Act. Section 243 of the Act creates statutory liability of the Central Government to pay interest on delayed refunds. It provides u/s 243(1)(b) of the Act that if the assessing authority does not grant refund within three months from the end of the month in which the claim for refund is made under this chapter, the Central Government shall pay the assessee the simple interest at the specified rate. The rate of interest was 12 per cent per annum prior to 1-10-1984, which has been substituted by words 15 per cent with effect from 1-10-1984. The procedure for calculating the interest is prescribed in rule 119A of the Income Tax Rules. A conjoint reading of sections 243 and 244 clearly shows the liability, of the Central Government to pay interest in the present case at the rate of 12 per cent per annum for the period after three months of the end of the month in which the total income is determined under the Act. The assessment order was framed on 31-1-1977, the liability of interest would start running after (three) months i.e., from April, 1978 till the date of payment. We, therefore, hold that the petitioner is entitled and the respondents are liable to pay interest u/s 244 of the Act on a sum of Rs. 31,060 for the period commencing from 1-4-1978 to the date of actual payment of excess/refund amount.

It is not in dispute that the petitioner has made requests for payment of interest by means of repeated applications/representations such as dated 10-6-1983 and 7-5-1985 (Annexs. I and 2 to the writ petition). The petitioner has been deprived of his legitimate claim of interest and was obliged to approach this court by means of present writ petition. In this view of the matter, the petitioner is also entitled to interest on the interest amount, which was illegally denied by the respondent @ 12 per cent per annum, as payable on the date of refund i.e., 5-5-1980, on which date cheque for Rs. 31,060 was given to the petitioner till the date of actual payment.

The writ petition is allowed accordingly and para 2(ii) of the order dated 19-11-1989 passed by the CIT, Allahabad (copy whereof has been filed as Annex. 3 to the writ petition), is hereby quashed. No order as to costs.