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Commissioner of Income-tax Vs. S.C. Shah - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference Nos. 98 of 1971 and 194 of 1975
Judge
Reported in(1981)25CTR(Bom)401; [1982]137ITR287(Bom); [1982]11TAXMAN66(Bom)
ActsIncome Tax Act, 1961 - Sections 144, 154, 155, 158, 244 and 246(1)
AppellantCommissioner of Income-tax
RespondentS.C. Shah
Appellant AdvocateR.J. Joshi, ;S.V. Naik and ;L.K. Chatterjee, Advs.
Respondent AdvocateS.H. Jagtiani, Adv.
Excerpt:
.....served on the firm as well as on the assessees notices under section 139(2) of the i. act, 1961. pursuant to these notices the firm as well as the assessees filed their returns. thereafter, notices under section 142 were issued against the firm and the assessees failed to comply with these notices, whereupon the ito completed the assessment against them under section 144 on or about 30th december, 1963. on the basis of his assessment of the firm's income for the relevant assessment year, the ito apportioned to the assessees their share of profit in the firm under section 158 of the i. such an order of the ito clearly falls within section 246(1)(f) and is appealable. 937): it is a well-established principle that if an intermediary appellate authority purported to deal with a matter..........them under section 144 on or about 30th december, 1963. on the basis of his assessment of the firm's income for the relevant assessment year, the ito apportioned to the assessees their share of profit in the firm under section 158 of the i.t, act. the share of each of the partners so assessed by the ito was rs. 70,000. the firm of m/s, k. c. shah and company filed an appeal against the ex parte assessment made against it before the aac. by his order dated 9th november, 1964, the aac set aside the assessment of the firm made under section 144 of the i.t. act and directed the ito to make a fresh assessment. it seems that thereafter the revenue preferred an appeal before the income-tax appellate tribunal, but the same was dismissed on i7th may, 1966, the assessees did not prefer any.....
Judgment:

Sujata Manohar, J.

1. The assessees in Income-tax Reference No. 98 of 1971 and Income-tax Reference No. 194 of 1975 are partners in the firm of M/s. K, C. Shah and Company. Apart from these two asses-sees the partnership firm of M/s. K. C. Shah and Company also has a third partner. For the assessment year 1962-63 the assessees in both these references could not file their income-tax returns under Section 139(1) of the I.T. Act, 1961, since the accounts of the partnership firm of M/s. K. C. Shah and Company were not finalised. The partnership firm of M/s. K. C. Shah and Company also could not file its income-tax return for this assessment year since the firm was engaged in some urgent military contracts at the border. The ITO thereupon served on the firm as well as on the assessees notices under Section 139(2) of the I.T. Act, 1961. Pursuant to these notices the firm as well as the assessees filed their returns. The firm showed an income of Rs. 60,000, while the assessees in both the references showed their income at Rs. 25,079 each. Thereafter, notices under Section 142 were issued against the firm and the assessees failed to comply with these notices, whereupon the ITO completed the assessment against them under Section 144 on or about 30th December, 1963. On the basis of his assessment of the firm's income for the relevant assessment year, the ITO apportioned to the assessees their share of profit in the firm under Section 158 of the I.T, Act. The share of each of the partners so assessed by the ITO was Rs. 70,000. The firm of M/s, K. C. Shah and Company filed an appeal against the ex parte assessment made against it before the AAC. By his order dated 9th November, 1964, the AAC set aside the assessment of the firm made under Section 144 of the I.T. Act and directed the ITO to make a fresh assessment. It seems that thereafter the revenue preferred an appeal before the Income-tax Appellate Tribunal, but the same was dismissed on I7th May, 1966, The assessees did not prefer any appeals against the ex parte assessments made against them on the basis of their share in the profits of the firm as determined by the assessment made against the firm and its partners.

2. However, after the order of the AAC dated 9th November, 1964, setting aside the assessment against the firm, the assessees made an application dated 20th November, 1964, to the ITO for a rectification of the assessment order made against them. In this application the assessees requested the ITO to substitute their income on the basis of the returns filed by them instead of on the basis of their share in the profits of the firm as per the ex parte assessment made against the firm, since the order of ex parte assessment made against the firm had been set aside by the AAC.

3. By his order dated 24th December, 3964, the ITO rejected the application of the assessees for rectification. The assessees went in appeal to the AAC from this order. By his order dated 18th October, 1966,-the AAC allowed the appeals of the assessees and directed the ITO to modify the assessments of the assessees under the provisions of ss. 154 and 155 of the I.T, Act. The revenue went in appeal from the order of the AAC on the ground, apparently, that the directions which were given by the AAC to modify the assessments of the assessees were not specific. In view of this grievance made by the revenue, the Tribunal clarified that the ITO should accept the figure of income as shown by the assessees in their returns, subject to it being modified at a later date, after the completion of the assessment of the firm. This order was passed by the Tribunal on 13th March, 1967. Thereafter on 17th July, 1967, the ITO rectified the assessments of the assessees and made an order for refund of the excess amounts. The ITO, however, did not award any interest to the assessees, on the amounts ordered to be refunded, under the provisions of Section 240 of the I.T. Act. The assessees thereupon preferred appeals to the AAC in respect of not awarding to them interest on the amounts refunded. By his order dated 29th July, 1968, the AAC rejected the appeals of the assessees and held that their claim for interest was not tenable, since the refund was given within six months of the Tribunal's order dated 13th March, 1967. The assessees went on appeal from this order to the Tribunal. The Tribunal by its order dated 26th May, 1970, allowed the appeals of the assessees and held that the assessees were entitled to interest on the amounts refunded. According to the Tribunal, the assessees became entitled to a refund immediately on the order of the AAC dated 9th November, 1964, setting aside the ex parte assessment of the firm. The Tribunal held that the ITO ought to have immediately rectified the assessments of the assessees and given them refunds within a period of six months from the date of the order setting aside the ex parte assessment against the firm. The Tribunal thereupon awarded interest to the assessees for the period of delay after the expiry of six months from 10th November, 1964. Before the Tribunal the revenue had urged that no appeal lay to the AAC from the order of the ITO refusing interest. The revenue also urged that no appeal lay to the Tribunal from the order of the AAC refusing to award interest. Both these contentions were negatived by the Tribunal. Thereafter, under the provisions of Section 256(1) of the I.T. Act, 1961, a reference has been made to us.

4. In Income-tax Reference No. 98 of 1971, the following three questions have been referred to us for determination :

'(1) Whether, on the facts and in the circumstances of the case, it was open to the revenue to contend before the Tribunal for the first time that the assessee's appeal before it was not tenable, as the assessee had no right of appeal before the Appellate Assistant Commissioner ?

(2) If question No. 1 is answered in the affirmative, whether the assessee had a right of appeal before the Appellate Assistant Commissioner against not granting of interest for the period of delay in granting refund ?

(3) Whether, on the facts and in the circumstances of the case, the assessee was entitled to interest under Section 244 of the Income-tax Act. 1961, on the amount of refund due to him for the period of delay after the expiry of six months from 10th November, 1964 ?'

5. In I.T. Ref. No. 194 of 1975 the following two questions have been referred to us for determination :

' (1) Whether the order dt. July 17, 1967, could be appealed against to the AAC under Section 246 of the Act ?

(2) Whether the assessee was entitled to any interest under Section 244 on the amount of refund due to him for the period of delay after the expiry of six months from November 10, 1964 '

6. The main question that arises for determination is question No. 3 in Income-tax Reference No. 98 of 1971 and question No. 2 in Income-tax Reference No. 194 of 1975, namely, whether the assessees were entitled to claim any interest under Section 244 of the I.T. Act on the amount of refund due to them for the period of delay after the expiry of six months from 10th November, 1964.

7. Under Section 244 of the I.T. Act, as it then was, it was provided that where a refund was due to the assessee in pursuance of an order referredto in Section 240 and the ITO did not grant the refund within a period of six months from the date of such order, the Central Govt. shall pay to the assessee simple interest at the rate of 6 per cent per annum on the amount of refund due from the date immediately following the expiry of the period of six months aforesaid to the date on which the refund is granted. Thus, the refund has to be made to the assessee within a period of six months from the date of the order pursuant to which a refund becomes due to the assessee. If such payment is not made within a period of six months, interest is required to be paid to the assessee. Mr. Joshi, learned counsel for the revenue, submitted that the relevant order for the purpose of Section 244 of the I.T. Act is the order of the Tribunal dated 13th March, 1967. According to Mr. Joshi, it was pursuant to the order of the Tribunal dated 13th March, 1967, that the ITO rectified the assessments in question and made a refund order. In the alternative, Mr. Joshi submitted that the relevant date would be the date of the order of the AAC dated 18th October, 1966, which allowed the appeal of the assessee against the order of the ITO refusing to rectify the assessments in question. Both these submissions of Mr. Joshi cannot be accepted.

8. What requires consideration is the date when the assessee became entitled to a refund. In the present case, the assessments, which were originally made on the assessees, were based upon the ex parte assessment which was made against the firm of which they were partners. The only income of the assessees is the profit which they derived from the business of the firm apart from a small sum of Rs. 200, which was by way of interest on securities, which is also shown in the firm's return. Their share in the profits of the firm was apportioned to them by the ITO under the provisions of Section 158 of the I.T. Act on the basis of the ex parte assessment which he made against the firm itself. If this ex parte assessment against the firm was set aside by the AAC by his order dated 9th November, 1964, and a fresh assessment was directed to be made against the firm, it is clear that the assessment against the partners of the firm which was based entirely on the ex parte assessment against the firm also could not be sustained. In fact, it was incumbent upon the ITO under the provisions of as. 154 and 155 of the I.T. Act to immediately rectify the assessments of the partners also without waiting for any application in that behalf from the assessees. The right, therefore, of the assessees to obtain a refund arose as a result of the order dated 9th November, 1964, setting aside the ex parte assessment against the firm. The assessments against the partners of the firm on the basis of the ex parte assessment against the firm could not stand when the assessment against the firm itself was set aside. The assessees, therefore, became entitled to a refund pursuant to the order of the AAC dated 9th November, 1964. There is no dispute that the actual refund was granted to them long after the expiry of six months after the order dated 9th November, 1964. The assessees' application for rectification dated 20th November, 1964, was made by the assessees because they wanted the refund due to them to be adjusted towards the pending demand for other assessment years. Even without such an application the ITO was bound in law to rectify the assessments already made. The subsequent proceedings, therefore, which arose out of the ITO's rejection of the assessees' application for rectification could not affect the right, which the assessees acquired, to obtain a refund, pursuant to the order dated 9th November, 1964. Under the order dated 9th November, 1964, the assessment made under Section 144 of the I.T. Act was set aside and the ITO was directed to pass a fresh assessment order according to law. Impliedly, the assessments against the partners of the firm which were based upon the assessment order under Section 144 were also set aside and the ITO was required to make a fresh assessment against the partners also. The right, therefore, of the partners to receive a refund arose under the order dated 9th November, 1964.

9. The order of the AAC dated 18th October, 1966, did not give rise to any fresh right to obtain a refund. Hence, the only relevant order for the calculation of interest on refund under Section 244 is the order dated 9th November, 1964. The contention of Mr. Joshi that the assessees became entitled to a refund pursuant to the order of the Tribunal dated 13th March, 1967, also cannot be accepted for the above reasons. In fact, the order dated 13th March, 1967, in terms merely clarified the order of the AAC dated 18th October, 1960, and gave to the ITO a specific direction to complete the assessments of the partners on the basis of the returned income, which assessments he may modify later after the completion of the assessement of the firm. The Tribunal, therefore, rightly came to the conclusion that the assessees were entitled to interest on the amounts refunded after the expiry of the period of six months from the order dated 9th November, 1964.

10. In this connection, a reference may be made to the case of Purshottam Dayal Varshney v. CIT : [1974]94ITR187(All) . The Allahabad High Court in this case has observed that as soon as the assessment order is set aside, the tax paid by the assessse under the assessment order becomes refundable to him. No doubt, the ITO is entitled to withhold the refund with the previous approval of the Commissioner during the pendency of remand proceedings under the provisions of Section 241 of the I.T. Act. But even in such a case, under the provisions of Section 244, Sub-section (2), interest becomes payable on the amount of refund ultimately determined to be due for the period commencing after the expiry of six months from the end of the month in which the order referred to in Section 241 is passed, to the date the refund is granted. There is no dispute that the refund has not been withheld in the present case by the ITO under the provisions of Section 241.

11. The next question that arises for determination is whether the assessees had a right of appeal before the AAC against the order of the ITO not granting interest for the period of delay in granting refund. Under the provisions of Section 246(1)(f) of the I.T. Act, an order under Section 154 or Section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under the said sections is an appealable order. In the present case by his order dated 1 7th July, 1967, the ITO rectified the assessment of the partner under the provisions of Section 154 read with Section 155 of the I.T. Act. By his order although he granted a refund, he did not grant any interest on the refund amount. His order, therefore, had the effect of reducing the amount repayable to the assessees. His order can, therefore, be construed as an order tinder Section 154 read with Section 155 of the I.T. Act, reducing the amount of refund payable to the partners. In any case his order can also be construed as an order which refused to allow the assessees' claim for interest on the refund amount to which they would have been entitled on the rectification made under these two sections. Such an order of the ITO clearly falls within Section 246(1)(f) and is appealable. Mrs. Jagtiani, who appears for the assessees in both the references, also urged that the order of the ITO dated 17th July, 1967, is appealable because it can also be construed as an order which can fall under Section 246, Sub-section (!)(c) or Section 246, Sub-section (1)(n). Since we have held that the order in question is covered by Section 246(1)(f), it is not necessary to examine these two additional contentions.

12. The last point that requires determination is whether it was open to the revenue to contend before the Tribunal for the first time that the assessees' appeals before it were not tenable as the assessees had no right of appeal before the AAC. Since we have held that the assessees had a right of appeal before the AAC from the order of the ITO dated 17th July, 1967, it is not strictly necessary to go into this question at all. Our attention was, however, drawn to the observations of the Madras High Court in the case of Addl. CIT v. Dalmia Magnesite Corporation : [1979]117ITR930(Mad) . In that case the Madras High Court observed as follows (p. 937):

' It is a well-established principle that if an intermediary appellate authority purported to deal with a matter in appeal as if that intermediary authority had jurisdiction to deal with that appeal though in fact that authority had no jurisdiction to deal with the appeal, the order of that appellate authority would become appealable to a higher appellate authority.'

13. It should, however, be pointed out that there is a distinction between cases where the court or tribunal inherently lacks jurisdiction and casts where the jurisdiction is exercised irregularly by courts or tribunals In Mulla's Code of Civil Procedure, 13th edn., vol. I, at p. 157* it is observed as follows:

' It is a fundamental rule that a judgment of a court without jurisdiction is a nullity. ' Where by reason of any limitation imposed by statute, charter, or commission, a court is without jurisdiction to entertain any particular action or matter, neither the acquiescence nor the express consent of the parties can confer jurisdiction upon the court nor can consent give a court jurisdiction if a condition which goes to the jurisdiction has not been performed or fulfilled'...... '

14. The right of appeal is a statutory right, and if the statute does not give a right of appeal in a given category of cases, then any judgment given in appeal ia such matters would be a nullity, and it would be possible for a party to point this out in a further appeal. However, as we have held that an appeal to the AAC in the present case was competent, answering the question at issue would be academic. It is, therefore, unnecessary to answer the question.

15. Under the circumstances, the questions which have been raised in these references are answered as under : Income-tax Reference No. 98 of 1971 :

(1) It is unnecessary to answer question No. 1, for the reasons which are set out in the judgment.

(2) The assessee had a right of appeal to the AAC against the order of the ITO not granting interest to the assessee on the amount of refund for the period of delay in granting refund.

(3) The assessee is entitled to interest on the amount of refund due to him for the period of delay after the expiry of six months from 9th November, 1964.

Income-tax Reference No. 194 of 1975 :

16. Both the questions are answered in the affirmative, that is, in favour of the assessee and against the revenue.

17. The applicant in both these references to pay to each of the respondents herein the costs of these references.


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