Sitaram Through Lrs. vs Commissioner of Income Tax and Another

B.P. Dharmadhikari, J.—The petitioner, an assessee, has filed this petition under Arts. 226 and 227 of the Constitution of India, seeking direction to respondent No. 1 CIT and respondent No. 2-Asstt. CIT, to pay interest to him under s. 132B(4) of the IT Act, with further prayer to pay interest under the Interest Act from 16th March, 1995 onwards at 18 per cent per annum. However, during arguments learned counsel for the petitioner has claimed interest under s. 132B(4) and s. 244A of the IT Act only. Facts are not much in dispute. Search under s. 132 of the IT Act, 1961, was conducted at business and residential premises of the deceased on 3rd Sept., 1992. On 4th Sept., 1992, during said operation, cash of Rs. 1,68,298 was found and out of it, an amount of Rs. 1,60,000 was seized by the respondents. On 24th Dec, 1992, order under s. 132(5) determining provisionally total tax liability at Rs. 3,34,492 was passed and seized cash was appropriated till orders under s. 143(3) of the IT Act on regular assessment were passed. On 16th March, 1995 order of regular assessment for asst. yr. 1993-94 came to be passed and total income was assessed at Rs. 2,69,200. Net tax demanded by IT Department was Rs. 34,572. The petitioner paid that tax in cash in May, 1995.

The petitioner claims that an amount of Rs. 1,60,000 seized from him was neither appropriated nor treated as advance tax. He had filed an appeal against determination of tax liability and that Appeal No. CIT(A)/69/1995-96 was allowed by the CIT(A) on 4th July, 1996. The tax liability of the petitioner was brought down to Rs. 1,654. On 19th Aug., 1996 the petitioner applied and sought refund of Rs. 1,60,000 along with interest. On 2nd Dec, 1996 an amount of Rs. 1,60,000 only was returned to him by cheque and no interest whatsoever was granted.

In this background, Shri Bhattad, learned counsel for the petitioner has invited our attention to provisions of ss. 132(5), 132B and s. 244A to contend that interest, as envisaged therein, ought to have been granted and its denial is contrary to settled law. The judgment of Hon''ble apex Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, , is also relied upon by him to urge that even in the absence of express statutory provision, the Hon''ble apex Court has found interest payable in this situation.

Shri Parchure, learned counsel for the respondents has contended that s. 132 by itself does not impose any obligation to pay interest upon the respondents. He further states that here the order of regular assessment under s. 143(3) of the IT Act, 1961, has been passed on 4th July, 1996 and because of express language of s. 244(3) of the Act, the petitioner was expected to apply for refund. The application for refund was moved on 19th Aug., 1996 and then within a period of four months i.e. on 2nd Dec, 1996, the amount has been refunded. In this situation, according to him, the prayer for interest as made is not countenanced by any of the provisions.

Shri Parchure, learned counsel, has also contended that s. 132(5)(iii) speaks of "existing liability" and according to him these words "existing liability" include the liability incurred on account of search under s. 132 which ultimately crystallized after regular assessment by appellate order on 4th July, 1996. As we were not convinced with this contention and learned counsel sought time to demonstrate that liability incurred on account of search also stands covered by the words "existing liability", we had adjourned the matter as per his request. On the next hearing, the learned counsel has attempted to persuade us and also sought support from the provisions of s. 132B(1)(i).

After hearing respective counsel and after careful perusal of various provisions, we find that s. 244 contemplates payment of interest on refund in cases where no claim for refund was needed. Its subs. (3) clearly stipulates that s. 244 does not apply to any assessment for the assessment year commencing on 1st April, 1989 or any subsequent assessment years. Here, it is not in dispute that relevant assessment year is 1993-94 and, therefore, s. 244 has no application.

The provisions of s. 132 dealing with search and seizure, in sub-s. (5) oblige the ITO, with previous approval of the Dy. CIT, to make an order within 120 days of such seizure and for that purpose, he has to extend an opportunity to the person concerned and hold an enquiry. The order has to be estimating the undisclosed income in summary manner to the best of his judgment, calculating the amount of tax on that income, determining the amount of interest and amount of penalty imposable. Lastly the order also has to specify the amount that may be required to satisfy any existing liability under IT Act, 1961, and any one or more of the Acts specified in cl. (i) of subs. (1) of s. 230A in respect of which such person is in default or is deemed to be in default. Sec. 230A has been omitted by Finance Act, 2001, w.e.f. 1st June, 2001. It imposed restrictions on registration of transfer of immovable properties in certain cases. Its subs. (1)(a) contained reference to IT Act itself and also to other enactments like the Excess Profits Act, 1940 (15 of 1940), the Business Profits Tax Act, 1947 (21 of 1947), the Indian IT Act, 1922 (11 of 1922), the WT Act, 1957 (27 of 1957), the Expenditure-tax Act, 1957 (29 of 1957), the GT Act, 1958 (18 of 1958), the Super Profits Tax Act, 1963 (14 of 1963), and the Companies (Profits) Surtax Act, 1964 (7 of 1964). The said reference, therefore, clearly shows that the liability to pay is fastened by provisions of those Acts and not by virtue of any provision of IT Act, 1961. Sec. 132(5) of IT Act allows ITO to retain in his custody such assets or amount or part thereof as in his opinion are sufficient to specify [sic-satisfy] the "aggregate of the amount" referred to in cls. (ii) or (iia) and (iii). The amount in excess is directed to be released forthwith to the person from whose custody it was seized. Thus, what can be retained in custody is aggregate of amounts quantified by ITO as tax on estimated income, as interest and penalty and also existing liability under IT Act and any one or more of the Acts specified in s. 230A(1)(a). It is, therefore, obvious that liability to pay tax on estimated income and penalty and interest in that respect is determined provisionally under cls. (ii) and (iia) of sub-s. (5) of s. 132. This determination is to be added to the figure of existing liability envisaged under sub-cl. (iii). If arguments of Shri Parchure, learned counsel and his interpretation of "existing liability" is to be accepted, it is apparent that this scheme of aggregating the amounts under all three heads would be rendered absurd. In that event, the amounts calculated under s. 132(5)(ii) and (iia) will stand added twice. This also can be ascertained from the fact that liability incurred under provisions of the other enactments is also intended to be covered by the words "existing liability". Thus, words "existing liability" under cl. (iii) envisage an independent liability which has got nothing to do with search and seizure operation under s. 132. Such liability is already saddled on assessee because of some other proceedings either under IT Act or other enactments. Scheme of s. 132B(4) where amount on which interest is payable is to be ascertained, also militates with arguments of Shri Parchure, learned counsel.

Sub-s. (6) of s. 132 stipulates that assets or amounts retained under sub-s. (50) can be dealt with as per provisions of s. 132B. Sec. 132B in turn vide its sub-s. (1) stipulates the manner in which that amount can be dealt with. Under its sub-cl. (1), the amount of existing liability referred in cl. (iii) of s. 132(5) and the amount of liability determined on completion of regular assessment can be recovered out of such retained amount. Under sub-s. (3) of s. 132B, the obligation is cast upon the respondents to forthwith make over or pay to the person from whom said amount was seized, the amount remaining in balance after the liabilities referred to in cl. (i) of its sub-s. (1) are specified [sic-satisfied]. It is, therefore, obvious that if there is surplus with the respondents, law enjoins the respondents to pay that surplus back to assessee from whom said amount is seized. The provisions of s. 244 are, therefore, not relevant insofar as this treatment to the assets or amount retained in search and seizure operation is concerned.

It needs to be noted that the petitioner has not attempted to even show that when express provisions regulating grant of interest exist in IT Act, interest can be awarded by ignoring that scheme.

Sub-s. (4)(a) of s. 132B directs Central Government to pay simple interest @ 15 per cent per annum and under cl. (b) that interest runs from the date immediately following the expiry of period of six months from the date of order under s. 132(5) till the date of regular assessment or then till the date of last of such assessments. Here, the order under s. 132(5) has been admittedly passed on 24th Dec, 1992 and the period of six months expired on 24th June, 1993. The order of regular assessment under s. 143(3) was passed on 16th March, 1995 but then it has been modified in appeal on 4th July, 1996. It is, therefore, apparent that the respondents have to pay interest from 24th June, 1993 till 4th July, 1996 as envisaged by s. 132B(4). The amount on which said interest is payable is also specified in cl. (a) of sub-s. (4). The interest is payable on amount by which the aggregate of money retained under s. 132(5) exceeds the aggregate of amount required to meet the liabilities referred to in cl. (i) of sub-s. (1) of s. 132B. Thus, when the retained amount, is found more than the amount required to discharge the existing liability and the total amount of tax plus interest plus penalty determined after regular assessment, interest at 15 per cent is made payable on that part or excess. Here, admittedly, the petitioner had no existing liability and his total tax liability under s. 143(3) worked out at Rs. 34,572 on 16th March, 1995 has been reduced to Rs. 1,654 on 4th July, 1996. The petitioner paid an amount of Rs. 34,572 towards the tax liability in cash in May, 1995. Thus, in present facts, it was not adjusted from the amount of Rs. 1,60,000 which was retained by the respondents. As per above provisions, interest is payable only on excess amount and that too fill the date of last assessment. Here, that date is 4th July, 1996. The excess amount retained by the respondents is Rs. 1,58,346. Thus, the respondents have to pay to the petitioner interest in terms of s. 13215(4) (a)/(b) from 24th June, 1993 till 4th July, 1996 on this amount of Rs. 1,58,346. The payment of amount of Rs. 34,572 as taxed directly in cash by the petitioner in May, 1995 is irrelevant for said purpose. The petitioner also has not claimed any refund of excess tax paid by him as his tax liability was later on reduced. He has also not made any demand for interest upon that excess tax amount paid by him and no such arguments were advanced.

See. 244A on which the petitioner has placed reliance is a general provision which deals with interest on refunds. It states that where the refund of any amount becomes due to assessee under IT Act, he is entitled to receive said amount with simple interest upon it calculated at I per cent for every month or part of months comprised in the period or periods from the date of payment of tax or penalties to the date on which refund is granted. Thus, the provisions of s. 244A(1)(b) are relevant for our purpose. Here, the tax has been paid in May, 1995. It is, therefore, obvious that he could have claimed interest on amount of Rs. 1,60,000 from the said date though his appeal against regular assessment filed before the CIT(A) was pending. The respondents are, therefore, liable to pay interest on above amount of Rs. 1,60,000 from 5th July, 1996 till 2nd Dec, 1996 as calculated under s. 244A(1)(b). We accordingly direct the respondents to pay interest to the petitioner as stipulated above. The amount so calculated shall be paid to the petitioner within a period of three months from today. If it is not so paid, the amount so found due and payable shall carry further interest in terms of s. 244A(1)(b) till it is actually paid to the petitioner. Writ petition is thus allowed. Rule is made absolute in above terms. However, in the facts and circumstances of the case, there shall be no order as to costs.