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V. Pl. Firm Vs. Commissioner of Income-tax, Madras. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case Number Writ Petition No. 75 of 1964
Reported in[1969]71ITR22(Mad)
AppellantV. Pl. Firm
RespondentCommissioner of Income-tax, Madras.
Excerpt:
- .....16, 1960. after deducting these two amounts from rs. 90,168.69 which was the amount paid by the firm a refund of rs.11,298.27 was made. this is how the income-tax officer worked out :rs.total amount collected from the firm90,168.69less : refund made on the firm consequent on the appellate tribunals order on july 16, 1960.27,733.39 62,435.30less : tax due from the partners consequent on the high courts order adjusted against the refund due to the firm51,137.03net refund granted on account of high courts on march 31, 1962.11,298.27for the petitioner, the argument is that the working sheet of the income-tax officer clearly implied that in the officers opinion the proviso to section 66(7) applied and it was on this view he made the refund of rs. 11,298.27. in any case, the petitioners.....
Judgment:

VEERASWAMI J. - The petitioner is a registered firm which seeks a direction to the respondent to exercise his powers under section 66(7) of Income-tax Act, 1922, and allow interest on a sum of Rs. 51,137.03 due as refund. The firm was, for the assessment year 1951-52, assessed to income-tax under section 23(3), its prayer for refund as a registered firm having been rejected. On the question status, the petitioner eventually succeeded on a reference to this court under section 66(2). Pursuant to the opinion expressed by this court in the reference, the Tribunal, by its order dated October 19, 1961, directed the Income-tax Officer to grant registration to the firm under section 26A for the year 1951-52. The Income-tax Officer carried out the direction by an order of his dated February 2, 1962. Thereafter, the same officer worked out the tax effect on the individual assessment of each of the partners and a s sum of Rs. 51,137.03 was adjusted by him against the tax due from them. As a result of the disposal by the Tribunal of the firms appeal, a refund of Rs. 27,739.39 had been made earlier on July 16, 1960. After deducting these two amounts from Rs. 90,168.69 which was the amount paid by the firm a refund of Rs.11,298.27 was made. This is how the Income-tax Officer worked out :

Rs.

Total amount collected from the firm

90,168.69

Less : Refund made on the firm consequent on the Appellate Tribunals order on July 16, 1960.

27,733.39

62,435.30

Less : Tax due from the partners consequent on the High Courts order adjusted against the refund due to the firm

51,137.03

Net refund granted on account of High Courts on March 31, 1962.

11,298.27

For the petitioner, the argument is that the working sheet of the Income-tax Officer clearly implied that in the officers opinion the proviso to section 66(7) applied and it was on this view he made the refund of Rs. 11,298.27. In any case, the petitioners submission is that the liability to pay interest under the proviso to section 66(7) in respect of Rs. 11,298.27 was as a result of the reference. The revenue, however, maintains that the subject-matter of the reference to this court being only the question of registration of the firm, the nil liability of the firm is but an indirect result of the reference, and that being the case the proviso will have no application. If that is the correct interpretation to be placed on the proviso, it would follow that the payment of interest on the sum of Rs. 11,298.27 would be irregular.

But, in our opinion, the liability to pay interest under the proviso extended to the entire sum of Rs. 62,435.30. Section 66(7) had been enacted in aid of collection of tax. Pendency of a reference to the High Court would not bean excuse and would not also act as a stay of collection of tax. But this provision directs that notwithstanding a pending reference income-tax shall be payable in accordance with the assessment made in the case. That indicates that the subject-matter of the reference should involve and be related to a liability to pay in accordance with the assessment. The expression 'assessment' in section 66(7) has been used in the sense of liability to pay tax which of course has to be the subject-matter of the reference. The proviso to the sub-section in equity does n justice to the assessee who, as a result of the reference, succeeds to any extent in relation to the quantum of tax liability so that he becomes entitled to interest as provided on the amount by which the tax liability has been reduced. We accept the contention for the revenue that, in order for the proviso to apply, the result or consequence must spring or flow directly from the reference. As pointed out in Strouds Judicial Dictionary, the question whether one event results from another involve an examination of the chain of causation and there must be no break in the chain. If there is a break, then the final event is not the result of the initial event. But the break must be an actual effective break, a novus actus interveniene, from which a new chain of causation commences. To constitute an actual effective break in the chain, the predominant and really efficient cause of the final event must be the new act intervening. Otherwise there is no such break in the chain as to prevent the final event from being the result of the initial event. Now what is the position here In our opinion, there is no such break in the causation, that is to say, the effect of tax levied on the firm and the result of the reference. This will be obvious, if the nature of the assessment on a registered firm as the law stood prior to the Finance Act, 1956, is borne in mind. Section 23(5) provided for the procedure in respect of assessment of a firm. As the law stood prior to the Finance Act, 1956, in the case of a registered firm, the sum payable by the firm itself should not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined. In passing, we may mention that by section 14 of the Finance Act, the aforesaid position was changed. In the case of a registered firm, the sum payable by the firm should be determined. When this court in the reference expressed the view that registration should have been granted and it was carried out by the Income-tax Officer on the direction of the Tribunal, the immediate effect was that there was no liability on the firm to pay any tax. This position of the firm that its tax liability became nil, did not depend upon any further orders of the Income-tax Officer, though in point of fact, he made such an order pursuant to a direction from the Tribunal. Sub-section (5) of section 66 clearly says that when a reference is answered in a particular manner by the High Court, the Tribunal shall pass such orders as are necessary to dispose of the case comfortably to the judgment of this court, and when that is done the Income-tax Officer is bound under the Act to carry out the Tribunals direction. Apart from these provisions intended to give effect to the view of the High Court in the reference, the language of section 23(5)(a), as we have mentioned, itself shows that the sum payable by a registered firm itself should not be determined. That provision, in our view, was self acting and the position resulted the moment it was determined that the firm was entitled to registration.

The refund of Rs. 11,298.27 already made by the Income-tax Officer, a we think, really proceeded or should have proceeded on that basis, for otherwise it could not be justified. In the excerpt from the Income-tax Officers computation given above, the Income-tax Officer has stated that the refund was due to the registered firm in the sum of Rs. 51,137.03, and that it was adjusted against the tax due from the firm. But the adjustment was towards tax liability of each of the partners assessed individually on his total income inclusive of his share of profits.

We are of the view, therefore, that the petitioner would be entitled to interest under the proviso to section 66(7) on the sum of Rs. 51,137.03 from the date of payment to the date of assessment. We have no doubt that the respondent would apply the proviso to section 66(7) accordingly and make suitable direction. We do not think that in a petition for mandamus we can properly direct the respondent to pay the petitioner any sum of money as representing interest. It is the function of the respondent under the said proviso to do it. We make no direction, therefore, in this petition for payment of any specified sum. We have sufficiently indicated, however, that the petitioner is entitled to interest under the proviso and the respondent would act under it. We allow the petition on these terms. No costs.


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