Kurumber Betta Estate vs Income Tax Officer and Others

V.V. Kamat, J.—The short question that is required to he considered is as to whether there is liability to pay interest on the amount in question with effect from July 6, 1987, as contended by the petitioner in this petition or from a later date on the basis of which the petitioner has been granted interest at the rate of 15 per cent. per annum.

The question arises as follows : The petitioner is a partnership firm and is represented by its managing agent. The firm was carrying on business on acquisition of an estate known as Kurumber Betta Estate situated at Cherumully village in Gudallur Taluk, Nilgiri District. One of the partners, Shri Chenniah, expired in 1971. He happened to be indebted to the Income Tax Department and the property of the partnership became the subject-matter of an order of attachment by the Tax Recovery Officer, Bangalore, to the extent of share of Shri Chenniah in the partnership property and profits thereof in regard to tax arrears of Chenniah amounting Rs. 7,41,678.10.

It is in this above process of tax recovery of Shri Chenniah, that the present petitioner intimated to the Tax Recovery Officer that one-third of the sale proceeds would be remitted to the Income Tax Department without prejudice to the petitioner''s contention that they are liable to deposit only one-third of the net sale consideration after paying all liabilities incurred hitherto for maintenance and running of the estate and not one-third of the total sale consideration.

In furtherance of the above letter, the Tax Recovery Officer, Mysore, addressed a communication dated March 24, 1983, asking the petitioner to remit a sum of Rs. 11,67,000 to be kept in deposit for appropriation towards the Income Tax liabilities of the late Chenniah after final settlement of his liabilities towards the firm.

This was done by the present petitioner by a communication dated July 6, 1987 (exhibit P-5). The manner in which and the purpose for which the said compliance was accorded by the petitioner by tender of a demand draft dated July 6, 1987, for Rs. 11,67,000 could be appreciated by reference to the following relevant contents of the said communication :

"As per your communication No. TRO/(Mys)/S6 Chenniah of 1986-87 dated 24th March, 1987, and subsequent correspondence on the subject we are enclosing DD No. 1818, dated July 6, 1987, for Rs. 11,67,000 drawn on Canara Bank, Mysore, in your favour to be kept in deposit for appropriation towards Income Tax after settlement of the matter of liabilities of Sri. S. Chenniah towards the firm of Kurumber Betta Estate. In other words, only after settlement of the legal position relating to the share of the late Shri S. Chenniah in the proceeds of the estate-whether it is one-third of the total sale price, or only one-third of the balance after deducting the liabilities of the estate--the DD in whole or in part can be appropriated."

It would be seen thereafter that by a communication dated March 12, 1990, the petitioner is informed that the above amount of Rs. 11,67,000 was appropriated on February 17, 1989, towards the arrears of income tax/wealth-tax dues of the late Shri S. Chenniah, and not from July 6, 1987--the day on which-the amount was deposited.

It appears that this step became a subject-matter of challenge in Original Petition No. 9337 of 1990 ( Kurumber Betta Estate Vs. Fourth Income Tax Officer and Others, ) as one of the aspects. Reference to exhibit P-7 to this petition (judgment in Original Petition No. 9337 of 1990) would show that the settlement of accounts in regard to the liability in question was ordered by this court with a consequential direction that the balance amount would be refunded to the petitioner-firm, by a stipulated period of time.

It appears that practically for the purposes of this petition even the judgment in Writ Appeal No. 23 of 1992 Fourth Income Tax Officer and Others Vs. Kurumber Betta Estate, ) carried by the Department against the judgment in the original petition (see Kurumber Betta Estate Vs. Fourth Income Tax Officer and Others, ) did not change the situation in any manner.

It is thereafter that the question was taken up for consideration by the Income Tax Officer by exhibit P-9 dated November 8, 1993. Reference to paragraph 5 of the said order of settlement of accounts would show that out of the amount of Rs. 11,67,000, only an amount of Rs. 1,65,689 had to be taken into consideration in the context of the deposit with reference to the liability, of the late Shri Chenniah, leaving a balance of Rs. 10,01,311 in regard to the above deposit.

In the matter of refund on and from February 17, 1989, interest is calculated at 15 per cent. per annum u/s 244(1A) of the Income Tax Act, 1961. It is in this context, the petitioner has approached this court that when the amount was deposited on July 6, 1987, calculation of interest in the matter of refund from February 17, 1989, is an error of law, in view of the fact that in any nature or capacity the amount lying in deposit with the Department and it is deposited in pursuance of a call in regard thereto as referred to above by the communication dated March 14, 1987.

In the counter it is urged that the very nature explained and recorded as regards the deposit of the amount of Rs. 11,67,000 has to be found from exhibit P-5 which would show that the amount was kept in deposit for its appropriation at a future date and it continued to bear the same character till February 17, 1989.

It was also submitted that in fact the amount could not be the subject-matter of a refund. It must be stated that although learned counsel urged that this could not be an amount being the subject-matter of a refund, there is no whisper in regard thereto in the counter with regard to this aspect. Be that as it may, the documents on record clearly show that the petitioner was treated as an assessee. Apart therefrom the earlier judgment of this court (exhibit P-7) is more than clear in the context that the respondents were directed to refund the amount on adjustment, an aspect which did not get any disturbance even in the judgment in the writ appeal carried against the said judgment. In fact the direction in the original petition to the Revenue authorities to settle the account in the light of the observations stood confirmed by the decision in writ appeal. This being the position the question is not now open on the principle of finality to a given situation.

Looking to the nature of payment as discussed above, it is seen that the amount was kept in deposit for appropriation and in that sense could not be said to have been the amount liable to be considered for interest, because the amount continued to be in deposit till February 17, 1989, as seen above. The reasoning that till February 17, 1989, although the amount was deposited earlier, the Revenue had no control and as such the amount could not be said to be the amount of the Revenue earlier. It was an amount deposited by the petitioner lying in his personal account.

Taking into consideration, the above facts, in my judgment there is no error in the matter of award of interest from February 17, 1989, and not from July 6, 1987.

On facts therefore, it is not possible to exercise jurisdiction under Article 226 of the Constitution of India. The petition stands dismissed leaving the parties to suffer their costs.