S.S. Ahluwalia vs Income Tax Officer and Others

W.A. Shishak, J.—This petition was filed in 1991. Rule was issued on October 11, 1991. The petitioner then sought the following reliefs :

(a) quashing the assessments as framed by respondent No. 4 for the assessment years 1985-86, 1986-87 and 1987-88 ;

(b) prohibiting respondents Nos. 4 and 5 from taking any action for recovery of any amount relating to the assessment years 1985-86, 1986-87 and 1987-88 ;

(c) directing respondents Nos. 4 and 5 to refund the amount recovered, amounting to Rs. 8,41,143 and any other amounts recovered thereafter along with interest at the rate of 18 per cent., as provided under the Income Tax Act, 1961 ;

(d) prohibiting respondents Nos. 4 and 5 from taking any action or recovery in respect of the alleged outstanding demands against the petitioner for the assessment years 1985-86 to 1987-88 from his relatives and as a whole from the petitioner ;

(e) directing the Income Tax authorities to hold the properties standing in the names of relatives of the petitioner as belonging to them and not to the petitioner ; and

(f) rental income from properties belonging to the relatives of the petitioner attached u/s 281B be held as invalid and the attachment orders be quashed.

In view of some changes that took place subsequent to the filing of the present writ petition, some of the reliefs sought for in this petition as enumerated above have now become redundant. There is no dispute regarding this position at the Bar. Paragraph 4 of the affidavit filed on behalf of the Income Tax Department states that the, assessment for the assessment years 1985-86 to 1987-88 have already been set aside by the learned Central Income Tax Tribunal (CIT). It is stated further that since the assessment orders for the assessment years aforesaid have been set aside, no demands are now outstanding against the petitioner for the said period as on today and there is no recovery proceeding initiated by respondents Nos. 4 and 5 at present. In view of this relief (a) and (b) are already redundant. For the same reason relief (d) also goes.

The main relief now sought for at the time of final hearing of this petition is regarding refund of the amount recovered, i.e., Rs. 8,41,143 and any other amounts recovered thereafter along with interest at the rate of 18 per cent. as enumerated in relief (c).

I have heard Mr. B.N. Sarma, learned counsel for the petitioner, as well as Mr. N.N. Saikia, learned counsel for the Income Tax Department.

As regards prayer (c) regarding refund of the recovery made from the petitioner as stated above, Mr. Sarma submits that since the assessments made for the period aforesaid have been held to be bad, recovery made in connection with the aforesaid period is also bad. It is, therefore, submitted that the recovery made from the petitioner should now be refunded to him with interest as permissible under the law. As regards this, paragraph 11 of the affidavit filed on behalf of the Income Tax Department states that in view of the disposal of appeal by the Central Income Tax Tribunal in respect of the assessment years 1985-86 to 1987-88, there are no coercive measures by respondents Nos. 4 and 5 as regards recovery in question until fresh assessments are made, for the same period. As regards the attachment of rent by the respondent to the tune of Rs. 8,41,142.85, it is stated that though there are no demands outstanding against the petitioner for the assessment years 1985-86 to 1987-88, there are demands outstanding to the tune of Rs. 39,29,494 for the assessment years 1975-76, 1976-77 and 1988-89. As such it is stated that Rs. 8,41,142.85 can be adjusted against the above demands. In this view, it is the submission of Mr. Saikia, appearing for the Income Tax Department, that the amount which has already been attached by respondent No. 5 should not be released to the petitioner. As stated above, Mr. Saikia submits that it will be in the interest of the Revenue that the said amount of Rs. 8,41,142.85 should be adjusted against the demands made in respect of the assessment years 1975-76, 1976-77 and 1988-89. Mr. B.N. Sarma, on the other hand, submits that the sum of Rs. 8,41,142.85 was illegally recovered and held by the Department and as such this amount belongs to the petitioner and, therefore, to allow adjustment of any amount recovered from the petitioner which has been held to be bad will not be in the interest of justice in the present facts and circumstances of the case. Mr. Sarma further submits that the petitioner has every right to appeal against the assessment made in respect of entirely different periods, viz., for the years 1975-76, 1976-77 and 1988-89. It is further submitted by Mr. Sarma that in fact attachment orders were made in respect of his relatives on the wrong assumption that the petitioner was the benamidar. It is contended by Mr. Sarma that since the assessments made in respect of the period in question for which the recovery was made has been held to be bad, there is no reasonable ground to have the illegally recovered amount of money in question to be adjusted against any subsequent and entirely fresh assessments made in respect of entirely different assessment years. As mentioned above in paragraph 7 of the affidavit filed on behalf of the Income Tax Department, there is a demand outstanding to the tune of Rs. 39,29,494 for the assessment years 1975-76, 1976-77 and 1988-89. It is submitted by Mr. Sarma that the aforesaid amount is as a result of fresh assessment made against the petitioner, whereas the amount already recovered to the tune of Rs. 8,41,142.85 belongs to the relatives of the petitioner and, therefore, this amount should not be allowed to be adjusted against any future assessment in respect of the petitioner. It is also submitted that in view of the attachment orders passed by the respondent earlier, the petitioner has not received any rent from the tenant so far.

It is true, however, that after this court had stayed further recovery, no further recovery has been made from the petitioner. Mr. Sarma submits that attachment order passed u/s 281B has expired. But in spite of this fact no rent has been paid to the petitioner. It appears on expiry of the order of attachment, the petitioner should stand entitled to receive normal rent which was paid before the order of attachment was passed. Mr. Saikia submits that payment of Income Tax is a continuous process. It is submitted that even payment of advance Income Tax is permissible under the provisions of law. According to him, the amount of Rs. 8,41,142.85 held by the Department should be allowed to be adjusted against the assessment of Rs. 39,29,494 made in respect of the assessment years 1975-76, 1976-77 and 1988-89 and such adjustment should be taken as advance tax from the petitioner. Mr. Sarma submits that in fact the present assessment of Rs. 39,29,494 is not a fresh assessment inasmuch as the petitioner had earlier cleared his Income Tax already in respect of the same period. Mr. Saikia submits that such demand cannot be said to be remote inasmuch as payment of tax is continuous. According to him, no appeal has been preferred against the assessments made by the Department for the assessment years mentioned above. Mr. Sarma states that an appeal has already been filed. Mr. Saikia further submits that since the assessment of Rs. 39,29,494 has already been made against the petitioner, it is in the interest of justice to allow the Department to adjust the money already held by it against the present assessment. It is also further submitted by Mr. Saikia that it is still open to the Income Tax Department to make reassessment of Income Tax of the petitioner for the periods 1986 to 1988. As regards this submission, it may be stated that since no such fresh assessments have been made, it is not necessary for me to enter into this issue. According to Mr. Saikia the question of ownership of properties has already been proved by the Department based on the documents seized by the CBI. Mr. Saikia contends that the relatives of the petitioner are only name-lenders who have no known source of income to cover the investments. In this view, Mr. Saikia submits that the petitioner stands liable to pay Income Tax assessed against him and, therefore, the sum of Rs. 8,41,142.85 should be allowed to be adjusted. In this situation, Mr. Saikia submits that release/refund of the sum of money already recovered from the petitioner should not arise.

Upon a perusal of the pleadings and upon hearing learned counsel for both sides, I am of the view that to allow adjustment of the sum of Rs. 8,41,142.85 recovered from the petitioner against the present assessment will not be fair and reasonable inasmuch as the assessment made for the period in question had already been set aside by the learned Central Income Tax Tribunal and, consequently, the recovery becomes bad for the said period. At the same time assessments are for different periods. Further, since the recovery has been held to be bad, it appears to allow this money to be held by the Department will not be in the best interest of justice,

In the result, in the light of the facts and circumstances that I have narrated above on the basis of record and submissions made on behalf of the parties, this petition is allowed, The respondents are directed to refund the amount of Rs. 8,41,142,85 (rupees eight lakhs forty-one thousand one hundred forty-two and paise eighty-five) only with interest at the rate of ten per cent. This shall be done within one month from the date of receipt of this order.

In the facts and circumstances of the case, the parties are directed to bear their own costs.