Op/6635/1999 Of M/S.mini Muthoottu Mutual Funds Ltd v. The Commissioner Of Incometax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN THURSDAY, THE 19TH FEBRUARY 2009 / 30TH MAGHA 1930 OP.No. 6635 of 1999(M) ---------------------- PETITIONER(S): --------------- MINI MUTHOOTTU MUTUAL FUNDS LTD.,P.B.NO.8, MUTHOOTTU BUILDINGS,KOZHENCHERY, PATHANAMTHITTA DIST.REP. BY ROY M.MATHEW,JOINT MANAGING DIRECTOR. BY ADV. SRI.C.KOCHUNNY NAIR SRI.M.C.MADHAVAN SRI.P.GOPINATH(B/O) RESPONDENT(S): --------------- THE COMMISSIONER OF INCOME-TAX (CENTRAL-I),108-UTHAMAR GANDHI SALARI, CHENNAI-34. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 19/02/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P.No. 6635/99. APPENDIX PETITIONER(S)' EXHIBITS P1.COPY OF THE ASSESSMENT ORDER DTD.12.11.96 FOR 89-90. P2.COPY OF THE DECLARATION DTD.24.12.98. P3.COPY OF THE CERTIFICATE OF INTIMATION. P4.COPY OF THE REVISION PETITION DTD.26.11.98. ANNEXURE 1. COPY OF THE ORDER DTD.7.1.06. Sdk+ ///True copy/// P.A. to Judge S.SIRI JAGAN, J. ================== O.P.No. 6635 of 1999 ================== Dated this the 19[th] day of February, 2009 The petitioner is an assessee under the Income Tax Act. Certainamounts were assessed as due from him under the Income tax Act byExt.P1 assessment order, which was subjected to challenge before theIncome Tax Appellate Tribunal. While that appeal was pending, by theFinance (No.2) Act of 1998, a Scheme was introduced by theParliament, by name, “Kar Vivad Samadhan Scheme”, whereby on adeclaration made by an assessee in accordance with the provisions ofthe Scheme in respect of tax arrears due from an assessee, theamount payable under the Kar Vivad Samadhan Scheme by thedeclarant shall be determined at the rates specified in that Schemeand the declarant would only be liable to pay that amount, instead ofthe actual amount due. The petitioner filed a declaration, Ext.P2 dated24.12.1998, before the respondent claiming the benefit of the Schemein respect of an amount of Rs.26,82,606/- due as interest from thepetitioner as per Ext.P1 assessment order. Pursuant thereto, Ext.P3order dated 5.2.1999 was passed, whereby the petitioner was givenbenefit under the Scheme amounting to only fifty percent ofRs.12,29,969/-. This Rs.12,29,969/- was arrived at by the respondentafter adjusting the refund of Rs.22,00,000/- due to the petitioner inrespect of subsequent assessment years. That adjustment of refund o.p.6635/99 was made under Section 245 of the Income Tax Act, by Ext.P5 andsimilar orders dated 7.9.1998. Against those orders, the petitionerfiled revision dated 26.11.1998 before the respondent herein, which isExt.P4. It was at a time when Ext.P4 was pending, the petitioner hasfiled this original petition challenging both the adjustment of the refunddue to him under Section 245 as also Ext.P3 order under the Kar VivadSamadhan Scheme, in which, for computing the amounts due from thepetitioner, the refunds due to the petitioner had been deducted toarrive at the tax arrears on which only the benefit under the Schemewas computed, which is illegal according to the petitioner, in so far asbefore making the adjustment of the refund no prior intimation asstipulated in Section 245 of the Income Tax Act was issued to thepetitioner. 2.After passing of Ext.P3 order, the Tribunal withoutreference to Ext.P3 order, allowed the petitioner's appeal against theassessment made, which was the subject matter of Ext.P3. In themeantime, this original petition was dismissed for default. Thereupon,the Revenue filed a review petition before the Tribunal pointing outthat since the order under the Kar Vivad Samadhan Scheme hadbecome final, the Tribunal could not have legally decided the appeal onmerits and, therefore, the appeal should be restored to file. Pursuantthereto, the Tribunal allowed the review petition and restored the o.p.6635/99 2.After passing of Ext.P3 order, the Tribunal withoutreference to Ext.P3 order, allowed the petitioner's appeal against theassessment made, which was the subject matter of Ext.P3. In themeantime, this original petition was dismissed for default. Thereupon,the Revenue filed a review petition before the Tribunal pointing outthat since the order under the Kar Vivad Samadhan Scheme hadbecome final, the Tribunal could not have legally decided the appeal onmerits and, therefore, the appeal should be restored to file. Pursuantthereto, the Tribunal allowed the review petition and restored the o.p.6635/99 appeal to file, which is still pending. Later on, this original petition wasrestored to file and now comes up for hearing before me. As I havealready stated, the petitioner challenges both the adjustment of therefund due to him against the amounts due under the assessment inquestion and Ext.P3 order under the Kar Vivad Samadhan Schemebased on the adjusted amount of tax arrears due from the petitioner. 3.The petitioner's contentions are two fold. The first is thatsince the petitioner had filed Ext.P2 declaration claiming the benefit ofan amount of Rs.26,82,606/-, which has now been denied based onthe adjustment of refund due to the petitioner, the petitioner should beallowed to retract from the declaration under the Kar Vivad SamadhanScheme and must be permitted to pursue the appeal against theassessment order itself. The second is that in view of the specificstipulation in Section 245 of the Act, which requires the assessingofficer to put the petitioner to notice on the proposal to adjust therefund against tax payable before making the adjustment, which hasnot been done in this case, the adjustment itself is bad and, therefore,for the purpose of Kar Vivad Samadhan Scheme, the respondent couldnot have legally taken into account the adjustment of the refund forthe purpose of determining the amount due from the petitioner underthe Kar Vivad Samadhan Scheme. The petitioner relies on thefollowing decisions in support of his contentions that the refund could o.p.6635/99 not have been adjusted without a prior notice regarding the proposalto adjust refund against tax due and also in support of the contentionthat such invalid adjustment of refund could not have been taken intoaccount for the purpose of determining the amounts payable by thepetitioner pursuant to Kar Vivad Samadhan Scheme: HIRALAL AND SONS V. INCOME TAX OFFICER[(1985) 156 ITR 30(All.)],J.K.INDUSTRIES LTD. v. COMMISSIONER OF INCOME TAX ANDOTHERS[ (1999) 238 ITR 820 (Cal.)] and,JAPSON ESTATES (P) LTD.v. DY. CIT & ANR.[(2006) 206 CTR (AP) 238]. 4.The prayers of the petitioner in the original petition arestoutly opposed by the respondent. According to the Revenue, thepetitioner cannot after having suffered Ext.P3 order now contend thathe must be permitted to retract from the declaration filed under theKar Vivad Samadhan Scheme and permitted to pursue the appealpending before the Tribunal in respect of the assessment in question inview of the specific provisions in Section 90(4) of the Kar VivadSamadhan Scheme. 5.Regarding the second contention, the Revenue wouldcontend that the petitioner had in fact been put on notice regardingthe adjustment of refund by a specific intimation given to thepetitioner, which has been produced by the petitioner as Ext.P5.According to the counsel for the Revenue, such an intimation alone iscontemplated by Section 245. Therefore, according to the Revenue, o.p.6635/99 5.Regarding the second contention, the Revenue wouldcontend that the petitioner had in fact been put on notice regardingthe adjustment of refund by a specific intimation given to thepetitioner, which has been produced by the petitioner as Ext.P5.According to the counsel for the Revenue, such an intimation alone iscontemplated by Section 245. Therefore, according to the Revenue, o.p.6635/99 the petitioner cannot now contend that the adjustment of refundunder Section 245 is bad. Alternatively the Revenue would contendthat even otherwise the petitioner had challenged the adjustment ofrefund in a statutory revision petition and the revisional authoritydismissed the same, by Ext.R(B) order, which the petitioner had notchosen to challenge. That order having become final, the petitioner isnow estopped from contending that the adjustment of refund is invalidbecause of non-compliance with Section 245. The Revenue would alsocontend that even otherwise, the contention of the petitioner is purelytechnical in so far as the petitioner has not been able to point out anyvalid objection to the adjustment of the refund, that has been made,without which the adjustment of the refund cannot be faulted.Therefore, according to the counsel for the Revenue, notwithstandingany procedural irregularities which may be cited by the petitioner, theadjustment of refunds made is a valid adjustment against which thepetitioner cannot now complain and therefore, this Court may notinterfere with the orders passed under the Kar Vivad SamadhanScheme on such a technical contention. 6.In answer to the contentions of the Revenue, the counselfor the petitioner would contend that if Section 90 of the Finance Act isread as a whole, it is celar that there is no prohibition in an assesseeretracting from the declaration filed under the Scheme. He would o.p.6635/99 further submit that the fact that he had not challenged the revisionalorder which was passed pending the original petition, does not preventthe petitioner from pursuing the original petition, in which he hadspecifically challenged the validity of the adjustment of refund of taxdue to him also. He would submit that, at the most, the same is onlya technicality which shall not stand in the way of giving justice to thepetitioner, if he is otherwise entitled to the same. 7.I have considered the rival contentions in detail. 8.First I shall consider the question as to whether the petitioner can now validly retract from the declaration made under theScheme. Section 90 of the Scheme reads thus: “90.Time and manner of payment of tax arrear. - (1) Withinsixty days from the date of receipt of the declaration under section 88,the designated authority shall, by order, determine the amount payableby the declarant in accordance with the provisions of this Scheme andgrant a certificate in such form as may be prescribed to the declarantsetting forth therein the particulars of the tax arrear and the sum payableafter such determination towards full and final settlement of tax arrears: Provided that where any material particular furnished in thedeclaration is found to be false, by the designated authority at any stage,it shall be presumed as if the declaration was never made and all theconsequences under the direct tax enactment or indirect tax enactmentunder which the proceedings against the declarant are or were pendingshall be deemed to have been revived: Provided further that the designated authority may amend thecertificate for reasons to be recorded in writing. (2)The declarant shall pay the sum determined by thedesignated authority within thirty days of the passing of an order by thedesignated authority and intimate the fact of such payment to thedesignated authority along with proof thereof and the designatedauthority shall thereupon issue the certificate to the declarant. o.p.6635/99 Provided further that the designated authority may amend thecertificate for reasons to be recorded in writing. (2)The declarant shall pay the sum determined by thedesignated authority within thirty days of the passing of an order by thedesignated authority and intimate the fact of such payment to thedesignated authority along with proof thereof and the designatedauthority shall thereupon issue the certificate to the declarant. o.p.6635/99 (3)Every order passed under sub-section (1), determining thesum payable under this Scheme, shall be conclusive as to the mattersstated therein and no matter covered by such order shall be reopened inany other proceeding under the direct tax enactment or indirect taxenactment or under any other law for the time being in force. (4)Where the declarant has filed an appeal or reference or areply to the show cause notice against any order or notice giving rise tothe tax arrear before any authority or tribunal or court, then,notwithstanding anything contained in any other provisions of any law forthe time being in force, such appeal or reference or reply shall be deemed-to have been withdrawn on the day on which the order referred to in subsection (2) is passed: Provided that where the declarant has filed a writ petition orappeal or reference before any High Court or the Supreme Court againstany order in respect of the tax arrear, the declarant shall file anapplication before such High Court or the Supreme Court for withdrawingsuch writ petition, appeal or reference and after withdrawal of such writpetition, appeal or reference with the leave of the court, furnish proof ofsuch withdrawal along with the intimation referred to in sub-section (2).” (Underlining supplied) Sub section 4 of Section 9 is abundantly clear. That stipulates thatonce an order as contemplated under the Kar Vivad SamadhanScheme has been passed, the Tribunal before whom an appeal ispending, does not have jurisdiction to deal with the appeal in so far asthat appeal shall be deemed to have been withdrawn, which is thespecific condition of the Kar Vivad Samadhan Scheme. The petitioner'scontention on the basis of the other sub section does not find favourwith me on that point. Therefore, I have no doubt in my mind thatonce an order under the Scheme has been passed on the declarationby the assessee, which is Ext.P3 in this case, the Tribunal cannotvalidly entertain the appeal at all. That being so, the petitioner cannotnow be allowed to retract from the declaration already made. If that is o.p.6635/99 allowed, then the very purpose of the Scheme would be defeated. Anyassessee after finding that the order under the Scheme is notfavourable to him, can turn around and retract his declaration, if sucha permission is granted which is not contemplated by the Scheme.Further the petitioner filed Ext.P2 declaration dated 24.12.1998 afterbeing made aware of the adjustment of refund by Ext.P5 dated7.9.1998 served on the petitioner on 24.9.98. Therefore, there is nomerit in the first contention of the petitioner and I hold that thepetitioner cannot retract from the declaration made under the KarVivad Samadhan Scheme once the order under the Scheme is passedby the competent authority, which in this case is Ext.P3. 9.Regarding the second contention, I find considerable meritin the contention of the petitioner that adjustment of refund underSection 245 could not have been made without first issuing a notice tothe petitioner. Section 245 of the Income Tax Act reads thus: 9.Regarding the second contention, I find considerable meritin the contention of the petitioner that adjustment of refund underSection 245 could not have been made without first issuing a notice tothe petitioner. Section 245 of the Income Tax Act reads thus: “-245. Set off of refunds against tax remaining payable.Where under any of the provisions of this Act, a refund is found to be dueto any person, the Assessing Officer, Deputy Commissioner (Appeals),Commissioner (Appeals) or Chief Commissioner or Commissioner, as thecase may be, may in lieu of payment of the refund, set off the amount tobe refunded or any part of that amount, against the sum, if any,remaining payable under this Act by the person to whom the refund isdue, after giving an intimation in writing to such person of the action”proposed to be taken under this section. (Underlining supplied) Going by Section 245, adjustment of refund can be made only aftergiving intimation in writing to the assessee of the action proposed to o.p.6635/99 be taken under the Scheme. Although no decision of this Court or theSupreme Court is available on the question, the petitioner has placedthree decisions before me of three high courts on that point, which arethe following: HIRALAL AND SONS V. INCOME TAX OFFICER[(1985) 156 ITR 30(All.)],J.K.INDUSTRIES LTD. v. COMMISSIONER OF INCOME TAX ANDOTHERS[ (1999) 238 ITR 820 (Cal.)] and,JAPSON ESTATES (P) LTD.v. DY. CIT & ANR.[(2006) 206 CTR (AP) 238].InHira Lal's case(supra) the Allahabad High Court held thus: “Proceedings for adjusting an amount towards tax liability underthe Act, out of any sum due to an assessee by way of refund, are quasi-judicial in nature. Without anything more, therefore, the assessee isentitled, on principles of natural justice, to a reasonable notice to placehis version before the authority before an order of adjustment is finallypassed. From the facts noticed earlier and those asserted in the affidavitsexchanged between the parties, it is amply borne out that before theimpugned order of adjustment was passed, no opportunity was affordedto the petitioner firm to have its say in the matter. It is obvious that thepetitioner can legitimately urge that prejudice has been caused to it andthat in case an opportunity was afforded to it, it would have succeeded insatisfying the respondents that no amount, from out of the amount whichbecame due for refund to it in pursuance of the order of the Tribunal,could be adjusted towards any tax liability of Hiralal Mithal. Thepetitioner's grievance in this respect is well founded.” In J.K.Industries Ltd.'s case(supra) the Calcutta High Court heldthus: “The wording of the section leaves no manner of doubt that theproposed adjustment is to be intimated to the assessee. Since theadjustment at the time of intimation is only a proposed one, theintimation has to go before the adjustment has been made. If theassessee objects to the proposed adjustment, whether the Revenue cannonetheless make such an adjustment on its unilateral decision, is a pointwhich does not fall for my consideration. But quite clearly the Revenuehas no jurisdiction to make an adjustment of a refund without followingsection 245 and without giving a prior intimation to the assessee asrequired by that section. o.p.6635/99 Each assessment year for each assessee is generally kept separatein the Act. The assessee has no right to club together assessment years.The Revenue also has no general right to dissect an assessment year intomore than one period of time or agglomerate assessment years as theyplease. Since section 245 is a special right of set off given to the Revenueas a departure from the general rule of keeping assessment years andrights and liabilities in regard thereto separate and isolated, it is essentialthat the section be followed in letter and spirit. The wording of the sectionis so celar that its letter and its spirit speak the same way.” o.p.6635/99 Each assessment year for each assessee is generally kept separatein the Act. The assessee has no right to club together assessment years.The Revenue also has no general right to dissect an assessment year intomore than one period of time or agglomerate assessment years as theyplease. Since section 245 is a special right of set off given to the Revenueas a departure from the general rule of keeping assessment years andrights and liabilities in regard thereto separate and isolated, it is essentialthat the section be followed in letter and spirit. The wording of the sectionis so celar that its letter and its spirit speak the same way.” These decisions have been referred to and agreed with in JAPSON ESTATES' case (supra). In fact the facts inJAPSON ESTATES' case , are very identical to the facts of this case, wherein paragraphs 8 to 10 it isstated thus: '8.In this case, at the footnote of the intimation under s.143(1), it has been inserted, “Adjusted against demand (partly) for the asst.yr. 2003-04 at Rs.45,14,870.”. By no stretch of imagination can thisintimation be treated as intimation under s.245 of the Act. It has beencontended in the counter-affidavit that the assessee did not communicateany reason to the department as to why the adjustment as proposed inthe intimation should not be made, but there is no such intimation of anyproposed adjustment. It is only a notice under s. 143(1) of the Act, inwhich it has been communicated that the amounts have already beenadjusted. Therefore, there was no occasion for the assessee-petitioner toraise an objection to the adjustment. It may be true that s. 245 of the Actdoes not contemplate a show-cause notice or an inquiry, but at the sametime, it requires a prior intimation in writing, of the proposed action ofadjustment. Admittedly, such a notice was not given to the petitioner. 9.The learned counsel for the petitioner has drawn ourattention to various judgments. They are : (1) A.N.Shaikh vs. SureshB.Jain (1986) 58 CTR (Bom.) 204: (1987) 165 ITR 86 (Bom.); (2) StateBank of Patiala vs. CIT (1999) 154 CTR (P&H) 156: (1999) 239 ITR 421(P&H); (3) J.K. Industries Ltd. vs. CIT (1999) 155 CTR (Cal.) 249: (1999)238 ITR 820 (Cal); (4) CIT vs.J.K.Industries Ltd. (2001) 165 CTR (Cal.)218: (2000) 245 ITR 457 (Cal) and (5) Shiv Narain Shivhare v. Asst. CIT(Inv.) (1996) 135 CTR (MP) 365: (1996) 222 ITR 620 (MP) 10.Since there has been no intimation in terms of s. 245 of theAct, therefore, the petitioner has been deprived of his right to raise anyobjections to the order of adjustment. Therefore, the intimation to theextent of adjusting the amount is quashed. ' I am in respectful agreement with the above decisions on the point as o.p.6635/99 to whether adjustment of refund under Section 245 can be madewithout a prior intimation to the assessee regarding the proposal forsuch adjustment. In this case admittedly, there was no intimation ofany proposal to make adjustment as required under Section 245. Whathas been done is only to intimate the petitioner about the amount ofrefund due, on the foot of which intimation, an endorsement has beenmade stating that the refund has been adjusted against the tax due forthe year 1989-90, which is the assessment year for which thepetitioner filed declaration under the Kar Vivad Samadhan Scheme. I am in respectful agreement with the above decisions on the point as o.p.6635/99 to whether adjustment of refund under Section 245 can be madewithout a prior intimation to the assessee regarding the proposal forsuch adjustment. In this case admittedly, there was no intimation ofany proposal to make adjustment as required under Section 245. Whathas been done is only to intimate the petitioner about the amount ofrefund due, on the foot of which intimation, an endorsement has beenmade stating that the refund has been adjusted against the tax due forthe year 1989-90, which is the assessment year for which thepetitioner filed declaration under the Kar Vivad Samadhan Scheme. 10.Normally in view of my findings on the 2[nd] contention of thepetitioner, the petitioner should succeed in this original petition.However, still I have to consider the other contentions raised by theRevenue in respect of the adjustment of refund. As I have pointedout, the counsel for the Revenue argues that since the adjustmentitself has been made the subject matter of a revision under Section264 of the Income Tax Act, which has been repelled by the revisionalauthority by Ext.R(B) order, the petitioner having not challenged thatorder, cannot now raise a contention that the adjustment is bad. TheRevenue also points out that the contention of the petitioner is a puretechnicality in so far as even now, the petitioner cannot now point outany valid objection as to why that refund cannot be adjusted againsttax due for other assessment years, which is a statutory right of the o.p.6635/99 Revenue under Section 245. The counsel for the petitioner wouldsubmit that if he had been given a notice regarding the proposedadjustment, he could have pointed out that since the appeal ispending, adjustment should not be made and also that in view of thebenefits available to him under the Kar Vivad Samadhan Scheme,such adjustment cannot be made. He also points out that in so far asthe petitioner had challenged the adjustment of refund itself in thisoriginal petition, this Court cannot on a pure technicality of not havingchallenged the revisional order, non-suit the petitioner. 11.On a consideration of the rival contentions I am inclined toagree with the Revenue. Admittedly, the petitioner had challenged theorder of adjustment of refund itself in a statutory revision, wherein therevisional authority had considered the matter on merits and rightly orwrongly decided that the adjustment of refund is valid. Admittedly, thepetitioner had not taken any steps to challenge that order. I am ofopinion that the order of adjustment of refund has merged with theorder of the revisional authority and therefore, without challenging theorder of the revisional authority also, the petitioner cannot succeed onthe question as to whether adjustment of refund is valid or not. As faras the contention of the same being a mere technicality on which thepetitioner should not be denied justice, is concerned, I am of opinionthat it is technicality against technicality, in so far as the question as o.p.6635/99 o.p.6635/99 to whether the adjustment is valid or not for want of prior notice itselfis a technicality since the petitioner could not satisfy me that hadnotice been issued to the petitioner, the petitioner could havesuccessfully challenged the adjustment of refund. The fact that theappeal was pending, is no valid ground for objecting to the refund.There is no law saying that refund cannot be adjusted under Section245, if an appeal against tax assessed, against which the adjustmentof refund is to be made is pending. Further, the argument that sincethe declaration of the petitioner under the Kar Vivad SamadhanScheme is pending, adjustment cannot be made also does not appealto me. If before Ext.P3 order was passed the question of refund hadbeen considered after due notice to the petitioner the fact thatproceedings under the Kar Vivad Samadhan Scheme are pendingwould have been no valid ground to object to the refund. It is not as ifsimply because the petitioner objects to the refund, the Revenuewould be prevented from adjusting the refund. Adjustment of refund isa power vested with the Revenue under section 245, which they canvalidly exercise, if the objections raised by the assessee are not valid.In this case, the petitioner has not been able to point out any validobjection against the adjustment now made. Further, immediatelyafter issue of Ext.P5 on 7.9.1998, wherein refund was ordered to beadjusted against refund for the assessment year 1989-90, the o.p.6635/99 petitioner had on 6.10.1998 filed Ext.R(A) seeking modification ofExt.P5, in which he did not raise any objection against the adjustmentof refund without prior intimation, although the adjustment wasintimated by Ext.P5 itself. It was only on 26.11.1998 the petitionerfiled Ext.P4 revision under Section 264 of the Income Tax Act, onwhich Ext.R(B) order was passed on 22.2.2000. Further, thepetitioner filed Ext.P2 declaration under the Kar Vivad SamadhanScheme on 24.12.1998, after being made aware of the adjustment ofthe refund by Ext.P5 dated 7.9.1998, which was served on thepetitioner on 24.9.1998. Therefore, lack of prior intimation regardingthe proposal of adjustment of refund is another technicality. Therefore,as between the two technicalities before me, I am inclined to acceptthe technicality raised by the Revenue on this point. Therefore, sincethe petitioner has not chosen to challenge the order in revision, thepetitioner is not entitled to succeed in this original petition as rightlypointed out by the counsel for Revenue. Accordingly, the original petition is dismissed. sdk+ ///True copy/// Sd/- S.SIRI JAGAN, JUDGE S.SIRI JAGAN, J. ==================O.P.No. 6635 of 1999-M================== J U D G M E N T 19[th] February, 2009