# COMMISSIONER OF INCOME TAX, BHOPAL v. MIS. SHELLY PRODUCTS AND ANR

- **Citation:** [2003] Supp. 1 S.C.R. 79
- **Court:** Supreme Court of India
- **Decided:** 2003-05-08
- **Bench:** N. Santosh Hegde, B.P. Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-bhopal-v-mis-shelly-products-and-anr-19231
- **Pages:** 22

## Headnote

Income Tax Act, I96I; Sections 4, I30, 140A, I43, 144, I90, I92, I93,
I94, I99, 207 to 211 and 240 with amendments and Circular dated 23rd
January, 1990:
Seif-assessment/payment of advance tax by the assessee-Order of regular
assessment annulled by the Appellate Authority/Tribunal-Failure of the
authorities to pass fresh order of assessment-Refund of the tax with interest
allowed by the Tribunal and affirmed by the High Court on appeal-Held:
A
B
c
Seif-assessment of the total income and income tax thereon was done by the D
assessee as per provisions of the Finance Act/Income Tax Act-Hence it
amounts to admission of tax liability-Since payment of1he advance tax is
done under the authority of law, retention of advance tax by the Revenue is
not violative of Article 265 of the Constitution of India-Constitution of India,
1950-Article 265.
Payment of advance tax-Failure of the Authorities to pass fresh order
of assessment-Effect of-Held: When the authorities failed to pass a fresh
order of assessment, it amounts. to deemed acceptance of the return of the
income tax-Authorities denuded to veri.fY further correctness and completeness
E
of the return-Debarred jiwn raising demand of further tar-Authorities are
under obligation to refimd on its own the tax paid in excess of liability but F
cannot make recovery of balance amount from the assessee even if the tax
paid was less than the liability-Payment of excess tax due to mistake/
inadvertence/ignorance of assessee-Authority could grant appropriate reliefConstitution of India, 1950-Article 265.
Amendment-Insertion of Proviso (b) to Section 240-Ef!ect of -Held:
Proviso is clarificatory in nature-Seeks to clari.fY meaning of certain provisions
of the Principal Act regarding refund of tax paid in excess of liability by
making explicit that which was implicit-Hence, a declarat01y Act and could
be applied retrospectively-Interpretation of Statutes.
·G
79
H
80
SUPREME COURI REPORTS (2003 J SUPP. I S.C.R.
A
Words and Phrases:
'Self assessment', 'advance Im' and ·refund of tax '-Meaning of
The question which arose for consideration in these appeals was
whether the advance tax and self-assessment tax paid by the assessee could
B be refunded on the sole ground of the failure of authorities to pass an order
of assessment.
It was contended for the Revenue that when an order of assessment
was annulled/set aside and further assessment was not made, assessee
would be entitled to refund of the tax paid consequent to final assessment
C and not the advance tax on self-assessment; and that with the introduction
of proviso (b) to Section 240 of the Act which is a declaratory provision
of the law it could be effected retrospectively to the assessment in question.
On behalf of the assessee, it was submitted that when the Revenue
failed to pass a fresh order of assessment as required by law, assessee was
D entitled to claim refund of the advance tax paid by him and its refusal by
the Revenue would be violative of Article 265 of the Constitution of India.
Answering the question in negative, the Court
HELD: 1.1. An assessee who has defaulted or delayed payment of
advance tax or the instalment of advance tax is liable to pay interest. The
E provisions of the Act cast an obligation on the assessee to pay the advance
tax by making the deposits in instalments as required by the provisions
of the Act, and after taking into account the tax paid in advance, to pay
the balance of the tax and interest, if any payable, while filing the return
of income. Similar is the provision with regard to the income tax deducted
F at source. 1t· cannot be contended that the deposit of advance tax or
deduction of income tax at source is not authorized by law in view of the
clear mandatory provisions of the Act. (88-C-Df
1.2. The Income Tax Act enjoins upon the assessee the duty to file a
return of income disclosing his true income. On the basis of the income
G so disclosed, the assessee is required to make a self-assessment and to
co

## Text

_Characters 0–39,729 of 57,159. This is a partial read: ask again with offset=39729 for what follows._

COMMISSIONER OF INCOME TAX, BHOPAL
v.
MIS. SHELLY PRODUCTS AND ANR.
MAY 8, 2003
[N. SANTOSH HEGDE AND B.P. SINGH, JJ.]
Income Tax Act, I96I; Sections 4, I30, 140A, I43, 144, I90, I92, I93,
I94, I99, 207 to 211 and 240 with amendments and Circular dated 23rd
January, 1990:
Seif-assessment/payment of advance tax by the assessee-Order of regular
assessment annulled by the Appellate Authority/Tribunal-Failure of the
authorities to pass fresh order of assessment-Refund of the tax with interest
allowed by the Tribunal and affirmed by the High Court on appeal-Held:
A
B
c
Seif-assessment of the total income and income tax thereon was done by the D
assessee as per provisions of the Finance Act/Income Tax Act-Hence it
amounts to admission of tax liability-Since payment of1he advance tax is
done under the authority of law, retention of advance tax by the Revenue is
not violative of Article 265 of the Constitution of India-Constitution of India,
1950-Article 265.
Payment of advance tax-Failure of the Authorities to pass fresh order
of assessment-Effect of-Held: When the authorities failed to pass a fresh
order of assessment, it amounts. to deemed acceptance of the return of the
income tax-Authorities denuded to veri.fY further correctness and completeness
E
of the return-Debarred jiwn raising demand of further tar-Authorities are
under obligation to refimd on its own the tax paid in excess of liability but F
cannot make recovery of balance amount from the assessee even if the tax
paid was less than the liability-Payment of excess tax due to mistake/
inadvertence/ignorance of assessee-Authority could grant appropriate reliefConstitution of India, 1950-Article 265.
Amendment-Insertion of Proviso (b) to Section 240-Ef!ect of -Held:
Proviso is clarificatory in nature-Seeks to clari.fY meaning of certain provisions
of the Principal Act regarding refund of tax paid in excess of liability by
making explicit that which was implicit-Hence, a declarat01y Act and could
be applied retrospectively-Interpretation of Statutes.
·G
79
H
80
SUPREME COURI REPORTS (2003 J SUPP. I S.C.R.
A
Words and Phrases:
'Self assessment', 'advance Im' and ·refund of tax '-Meaning of
The question which arose for consideration in these appeals was
whether the advance tax and self-assessment tax paid by the assessee could
B be refunded on the sole ground of the failure of authorities to pass an order
of assessment.
It was contended for the Revenue that when an order of assessment
was annulled/set aside and further assessment was not made, assessee
would be entitled to refund of the tax paid consequent to final assessment
C and not the advance tax on self-assessment; and that with the introduction
of proviso (b) to Section 240 of the Act which is a declaratory provision
of the law it could be effected retrospectively to the assessment in question.
On behalf of the assessee, it was submitted that when the Revenue
failed to pass a fresh order of assessment as required by law, assessee was
D entitled to claim refund of the advance tax paid by him and its refusal by
the Revenue would be violative of Article 265 of the Constitution of India.
Answering the question in negative, the Court
HELD: 1.1. An assessee who has defaulted or delayed payment of
advance tax or the instalment of advance tax is liable to pay interest. The
E provisions of the Act cast an obligation on the assessee to pay the advance
tax by making the deposits in instalments as required by the provisions
of the Act, and after taking into account the tax paid in advance, to pay
the balance of the tax and interest, if any payable, while filing the return
of income. Similar is the provision with regard to the income tax deducted
F at source. 1t· cannot be contended that the deposit of advance tax or
deduction of income tax at source is not authorized by law in view of the
clear mandatory provisions of the Act. (88-C-Df
1.2. The Income Tax Act enjoins upon the assessee the duty to file a
return of income disclosing his true income. On the basis of the income
G so disclosed, the assessee is required to make a self-assessment and to
compute the tax payable on such income and to pay the same in the
manner provided by the Act. Thus the filing of return and the payment
of tax thereon computed at the prescribed rates amounts to an admission
of tax liability which ~he assessee admits to have incurred in accordance
with the provisions of the Finance Act and the Income Tax Act. Both the
H quantum of tax payable and its mode of recovery are authorized by law.
COMMR.OF INCOME TAX v. SHELLY PRODUCTS
81
The liability to pay income tax chargeable under Section 4(1) of the Act A
does not depend on the assessment being made. As soon as the Finance
Act prescribes the rate or rates for any assessment year, the liability to
pay the tax arises. The assessee himself is required to compute his total
income and pay the income tax thereon which involves a process of selfassessment. Since all this is done under authority of law, Article 265 is B
not violated. 196-D, E, F, GI
1.3. When an assessment made earlier is set aside or nullified in
appropriate proceedings and the assessing authority could not make a
fresh assessment in accordance with the provisions of the Act, it amounts
to deemed acceptance of the return of income furnished by the assessee. C
In such a case the assessing authority is denuded of its authority to verify
the correctness and completeness of the return. The Authority must accept
the return as furnished and shall not in any event raise a demand for
payment of further taxes. It must refund to the assessee any tax paid in
excess of the liability incurred by him on the basis of income disclosed,
since its retention may offend Article 265 of the Constitution of India. Even D
if the tax paid is found to be less than the liability, no further demand
can be made for recovery of the balance amount since a fresh assessment
is barred. 196-G, H; 97-A, Bl
Commissioner of Income-tax v. Chittoor Electric Supply Corporation
and Anr., (1995) 212 ITR 404 SC, relied on'.
E
Saurashtra Cement and Chemical Industries ltd. v. Income Tax Officer,
(1992) 194 ITR 659, approved.
Chandra Mohan v. Union of India and Ors., (2000) 241 ITR 484 and
E. Philip Joseph v. Income-tax Officer and Anr., (1998) 234 ITR 846, referred F
to.
R. Gopal Ramnarayan v. Third Income Tax Officer, (1980) 126 ITR
369; Deep Chand Jain v. Income Tax Officer, (1984) 145 ITR 676; Smt.
Shantibai v. Commissioner of Income-tax, (1984) 148 ITR 49; Gu/abchand G
Motilal v. Commissioner of Income-tax and Ors., (1994) 205 ITR 62 and
i
Aroon K. Basak v. Union of India and Ors., (1999) 236 ITR 93, distinguished.
1.4. In case, an assessee chooses to deposit by way of abundant
caution advance tax on self-assessment which is in excess of his liability
on the basis of return furnished or there is any arithmetical error or H
82
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A inaccuracy, it is open to him to claim refund of the excess tax paid in the
course of assessment proceeding. He can certainly make such a claim
before the concerned authority. Similarly, if he has by mistake or
inadvertence or on account of ignorance, included in his income any
amount which is exempted from payment of income-tax, or is not income
B within the contemplation of law, he may likewise bring this to the notice
of the assessing authority, which if satisfied, may grant him relief and
refund the tax paid in excess, if any. In cases governed by Section 240 of
the Act, an obligation is cast upon the Revenue to refund the amount to
the assessee without his having to make any claim in that behalf. So viewed,
an assessee will not be placed in a more disadvantageous position than
C what he would have been, had an assessment been made in accordance
with law. (97-D, E, F, H; 98-A(
1.5. Merely because one part of the proviso to Section 240 of the Act
has been held to be declaratory it does not follow that the second part of
the proviso is also declaratory. However, it supports the stand of the
D Revenue that proviso (b) to Section 240 is also declaratory. Being
clarificatory in nature it must be held to be retrospective, in the facts and
circumstances of the case. It is well settled that the legislature may pass a
declaratory Act to set aside what the legislature deems to have been a
judicial error in the interpretation of statute. It only seeks to clear a
E meaning of a provision of the principal Act and make explicit that which
was already implicit. (98-G-H; 99-B, Cf
F
Commissioner of Income-tax v. Chilloor Electric Supply Corporation
and Anr., (1995) 212 !TR 404 SC, referred to.
1.6. Circular dated 23rd January, 1990 issued by CBDT indicates
that the Board took the view that the amendment was clarificatory and
that it had become necessary to get over the difficulties posed by the
judicial pronouncements directing refund of the entire tax including the
advance tax and tax deducted at source, which were payable on the basis
of income declared in the return by the assessee himself. The relevant part
G of the Circular contains only a statement of fact. There is no instruction,
direction or order to the authorities to act in a particular manner. The
statutory provision has to be examined for its true effect. Hence the
Circular, in the instant case, is not relevant. (100-8, C, DI
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7501-7504 of
H 1997.
COMMR. OF INCOME TAX v. SHELLY PRODUCTS [B. P. SINGH, J.)
83
From the Judgment and Order dated 9.7.1996 of the Madhya Pradesh A
High Court in M.C.C. No. 369, 368/93 and M.P. No. 2750/84 and 3773 of
1987.
T.L.Y. Iyer, P.S. Narasimha, Sridhar P. and Ms. Sushma Suri, for the
Appellants.
C.S. Agarwal, Sanjeev Kr. Singh, Bhargava V. Desai and Sarin Aggarwal
for the Respondents.
The Judgment of the Court was delivered by
B
B.P. SINGH, J. These four appeals by special leave have been preferred C
by the revenue impugning the common judgment and order of the High
Court of Madhya Pradesh at Jabalpur dated July 9, 1996 in M.C.C. Nos. 368
- 369 of 1993 and Misc. Petition Nos. 2750 of 1984 and 3773 of 1987.
The question that arises for consideration in these appeals is whether on
the facts and in the circumstances of the case the respondents are entitled to D
the refund of income-tax paid by them by way of advance tax and selfassessment tax in the event of assessment framed being nullified by the
Tribunal on the ground of jurisdiction and there being no possibility of framing
a fresh assessment. The High Court by its common judgment and order has
answered the question in the affirmative rejecting the submission of the E
department that the refund must be limited to income-tax paid pursuant to
order of assessment, other than income tax paid by way of advance tax and
self-assessment tax.
The facts of the case, in so far as they are relevant for the disposal of
these appeals, are not in dispute. The respondents herein are the assessees F
and the assessment year in question is 1976-1977. The assessments were
framed by the Income Tax Officer on August 23, 1980 under section 143(3)
read with section 1448 of the Income-Tax Act (hereinafter referred to as 'the
Act') against which the assessees went in appeal to the Commissioner
(Appeals). The Appellate Commissioner by his order dated February 3, 1981 G
partly allowed the appeal on other points but rejected the contention urged
on behalf of the assessees that the assessments made by the Income Tax
t
Officer Indore were without jurisdiction. The assessees went up in appeal
before the Income Tax Appellate Tribunal. Their appeals were allowed by
the Tribunal by its order dated January 14, 1984 which held that the assessment
orders passed by the I.T.O. (SIC)-!, Indore on August 23, 1980 were ab H
84
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A initio void on the ground that l.A.C. Assessment Indore had no jurisdiction
to deal with the pending reference under section I 44(N)(i) of the Act and to
issue directions to the Income Tax Officer (SIC)-1, Indore under section
1448 of the Act.
The revenue sought a reference to the High Court which was refused,
B but by order dated April 21, 1989 the High Court directed the Tribunal to
refer the questions of law in both references for its decision. Accordingly the
Tribunal framed the questions of law and referred the matter to the High
Court for its opinion. The said reference is still pending before the High
Court.
c
In the meantime the assessees filed applications before the Assessing
Officer for refund of the tax paid pursuant to the Tribunal's order dated
January 14, 1984. The Income Tax Officer by his letter dated August 13,
1984 informed the assessees that the refund may be given for taxes paid on
regular assessments which have since been annulled excluding tax paid in
D advance and on self-assessments. The second application for refund of tax
was also not granted and the Income Tax Officer by his order dated August
21, 1987 informed the assessees that the refund has been withheld till the
reference application filed in the case of M/s. Shelly Products Bhopal is
decided by the High Court. Appeals were preferred to the Appellate
Commissioner, which were allowed by orders dated February 3, 1981 and the
E
F
Income Tax Officer was directed to refund to the assessees the advance tax
and self-assessment tax also. The Tribunal on appeal affirmed the order of
the Appellate Commissioner, but at the instance of the revenue framed the
following question of law for decision of the High Court :-
"Whether on the facts and in the circumstances of the case the IT AT
was justified in directing the Assessing Officer to refund the tax with
interest paid by the assessees on the income returned."
The two references were numbered as M.C.C. Nos. 368-369 of 1993
which were heard by the High Court alongwith Misc. Petition Nos. 2750 of
G 1984 and 3773 of 1987 challenging the orders passed by the Income Tax
Officer refusing to refund the tax as prayed for by orders dated August 13,
1984 and August 21, 1987. All these four matters were disposed of by the
High Court by a common judgment which is impugned in these appeals.
The High Court has answered the reference in the affirmative and in
H favour of the assessees. The revenue has, therefore, challenged the correctness
'
'
COM MR. OF INCOME TAX v. SHELLY PRODUCTS [B.P SINGH. J ]
85
of the decision of the High Court.
A
Two main submissions have been advanced before us on behalf of the
revenue. Firstly it was contended that when an order of assessment is set
aside or annulled and no further assessment can be made, the assessee wou Id
be entitled refund only to the amount of tax paid consequent to final
assessment, and not the tax paid by him by way of advance tax or self- B
assessment tax. This is on the premise that the tax paid by the assessee under
these two heads are paid by the assessee admitting his liability in law to pay
the tax. Secondly it was contended, the amendment of section 240 with effect
from April 1, 1989 by addition of proviso (b) is declaratory of the law, and
will apply to the assessments in question. The assessees are, therefore, not C
justified in contending that only with effect from the date on which the law
was amended, the department is entitled to retain the tax paid by way of self
-assessment or advance tax. On the other hand the assessees supported the
judgment of the High Court and contended that even the tax paid by way of
·advance tax or self-assessment tax become refundable if the revenue authorities
failed to pass an order of assessment as required by law. On the failure of the D
authorities to pass an assessment order no income is chargeable to tax in the
year in question. The revenue has, therefore, no right to retain even the tax
deposited by the assessee by way of advance tax or self-assessment tax. Such
retention or collection of income-tax is unauthorized and in the teeth of
Article 265 of the Constitution.
In the impugned judgment the High Court has taken the view that
under the scheme of the Income Tax Act the amount of tax is recoverable
under section 156 by way of demand only when the liability of tax has been
assessed by the competent authority. If the assessment has been made and
E
any amount has been found to be due from the assessee, then alone the law p
confers a power on the assessing authority to recover the same. It is only
after the assessment has been made in accordance with the provisions laid
down in the Act, then and then alone, the liability to recover tax arises. Thus
once the order of assessment is quashed, there remains no alternative for the
assessing authority but to return the amount of tax or any self-assessment tax
paid by the assessee because the first and foremost condition for recovery of G
the amount is that there should be an assessment and an amount of tax due
against the assessee under the provisions of the Act. The recovery of tax or
retention of any amount of tax paid by the assessee becomes unauthorized in
the absence of an order of assessment. The mere fact that the assessee is
obliged under the law to file return and pay advance tax or self-assessment H
86
SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A tax, makes no difference, and only after a proper assessment is framed, he
may be assessed to the liability of tax. The High Court did not agree with the
view expressed by a Full Bench of the Gujarat High Court in Saurashtra
Cement and Chemical Industries Ltd. v. Income Tax Officer: (1992] 194 ITR
659 which held that there was no warrant for holding that the entire amount
B of income-tax which is properly chargeable under the Act and is collected by
the department in accordance with the provisions of the Act should be refunded
on the failure to make a regular assessment. The High Court agreed with the
view expressed by the Madhya Pradesh High Court in Gulabchand Motilal
v. C.l. T: (1994] 205 ITR 62 and R. Gopa/ Ramnarayan v. Third Income Tax
Officer: (1980] 126 ITR 369 in which a Single Judge of the Karnataka High
C Court took the contrary view. The High Court also agreed with the principle
laid down by the Punjab and Haryana High Court in Deep Chand Jain v.
I.TO., (1984] 145 ITR 676.
The High Court was further of the view that the amendment to section
240 by the Direct Tax Laws (Amendment) Act, 1987 with effect from April
D I, 1989 which introduced the proviso, has brought about a change in the
legal position, but the proviso is applicable only with effect from April 1,
1989 and would not apply to the assessments in question.
We may at the threshold observe that in the reported decisions the
assessees have laid considerable emphasis on Article 265 of the Constitution
E of India which provides that no tax shall be levied or collected except by
authority of law. The arguments advanced before the High Courts proceed on
the premise that the tax paid by way of advance tax or self-assessment tax
acquires the character of income tax only after an order of assessment is
made in accordance with the provisions of the Income Tax Act. As a corollary,
p if no order of assessment is made in accordance with the provisions of the
Act, the retention of the tax paid shall be in breach of the provisions of
Article 265 of the Constitution of India.
Before considering the authorities cited at the Bar it may be useful to
notice the relevant provisions of the Income Tax Act which have a bearing
G on the question which falls for consideration. Section 4 of the Act, as it stood
during the relevant period, provided as follows :-
"4. (I) Where any Central Act enacts that income-tax shall be charged
for any assessment year at any rate or rates, income-tax at that rate
or those rates shall be charged for that year in accordance with, and
H
subject to the provisions of, this Act in respect of the total income of
COMMR. OF INCOME TAX v. SHELLY PRODUCTS [B.P. SINGH, J.)
87
the previous year or previous years, as the case may be, of every A
person :
Provided that where by virtue of any provision of this Act incometax is to be charged in respect of the income of a period other than
the previous year, income-tax shall be charged accordingly.
(2) In respect of income chargeable under sub-section (I), income- B
tax shall be deducted at the source or paid in advance, where it is so
deductible or payable under any provision of this Act."
Sub-section (2) of section 4 in terms provides for payment of tax in
advance or deduction of tax at source as provided under the Act. For the
deduction of tax at source and payment of tax in advance, the relevant C
provision is section 190. It provides that notwithstanding that the regular
assessment in respect of any income is to be made in a later assessment year,
the tax on such income shall be payable by deduction at source or by advance
payment, as the case may be, in accordance with the provisions of Chapter
XVII. This is without prejudice to the charge of tax on such income under D
the provisions of sub-section (I) of section 4. Section 192 enjoins on any
person responsible for paying any income chargeable under the head "Salaries"
to deduct income tax on the amount payable at the average rate of income
tax at tlie time of making payment. Section 199 provides that any deduction
made in accordance with the provisions of sections 192 to 194 and other
sections mentioned therein and paid to the Central Government shall be E
treated as payment of tax on behalf of the person from whose income the
deduction was made and credit shall be given to him for the amount so
deducted. Section 202 clarifies that the power to levy tax under the aforesaid
sections is without prejudice to any other mode of recovery. Under section
205 where tax is deductible at the source, the assessee shall not be called F
upon to pay the tax himself to the extent to which tax has been deducted from
his income.
Under section 207 tax is payable in advance in accordance with the
provisions of section 208 to 219 except in the cases of incomes specified
therein. Such advance tax is payable during the financial year in accordance G
with the provisions of section 208. Section 209 and 210 provide for
computation of advance tax and for payment of advance tax by the assessee.
Section 211 prescribes the instalments of advance tax and the due dates.
The aforesaid provisions, therefore, clearly spell out the scheme of the
Act which provides for deduction of tax at source and advance payment of H
88
SUPREME COURT REPORTS (2003) SUPP. I S.C.R.
A tax. On such deduction or deposit of tax credit is given to the assessee for
the amount so deducted or paid as advance tax.
Section 139 of the Act mandates every person to furnish a return of the
total income during the previous year if the income is chargeable to tax.
Section 140A provides for self-assessment and lays down that any tax payable
B on the basis of any return required to be furnished under section 139 or
section 148, after taking into account the amount of tax, if any, already paid,
shall be paid by the assessee together with interest payable under any provision
of the Act for any delay in furnishing return or for any default or delay in
payment of advance tax. Thus an assessee who has defaulted or delayed
C payment of advance tax or the instalment of advance tax, is liable to pay
interest. The provisions of the Act, therefore, cast an obligation on the assessee
to pay the advance tax by making the deposits in instalments as required by
the provisions of the Act, and after taking into account the tax paid in advance,
to pay the balance of the tax and interest, if any payable, while filing the
return of income. Similar is the provision with regard to the income tax
D deducted at source. It cannot, therefore, be contended that the deposit of
advance tax or deduction of income tax at source is not authorised by law in
view of the clear mandatory provisions of the Act. The question is whether
the charge itself fails if there is no computation of total income by the
assessing officer and whether as a consequence thereof the tax paid as advance
E tax or self-assessment tax or tax deducted at source, cannot be retained by the
department without violating the provisions of Article 265 of the Constitution
of India.
We shall first refer to the judgment of the Full Bench of Gujarat High
Court in Saurashtra Cement and Chemical Industries Ltd (supra). In that
F case also it was argued on behalf of the assessee that the liability to pay the
tax did not crystallize nor was it quantified unless a regular assessment was
made under the Act. Payment by way of advance tax, tax deducted at source
and tax paid by way of self-assessment were ad hoc payments to be adjusted
ultimately when the regular assessment was made under section 143. Even
though a liability to tax arises under section 4 of the Act, no liability to pay
G the tax arises until the regular assessment is made. If regular assessment is
not possible for any reason, the charge itself would fail since the tax payable
cannot be quantified or determined and consequently no recovery can be
made. Any retention of such amount collected towards the tax, which could
not be ultimately determined, would violate the provisions of Article 265 of
H the Constitution of India since such a recovery would become a levy and
COMMR. OF INCOME TAX v. SHELLY PRODUCTS(B.P. SINGH, J.)
89
collection of tax without the authority of law. On this reasoning, it was A
argued that the entire amount so collected must be refunded.
The Full Bench of the Gujarat High Court after a detailed consideration
of the provisions of the Act held that in view of the elaborate provisions
made in the Act for deduction of tax at source and advance payment of tax,
it could not be said that the tax has been levied and collected without authority B
of law and in violation of Article 265 of the Constitution of India whether
it is deducted or paid in accordance with the prc•Jisicr.s of the Act. These
provisions eloquently indicate that the liability to pay tax is not dependent on
the regular assessment being made by the assessing offo;er, and where returns
are filed under section 139 on the basis of which tax is payable, the assessee C
is made liable to pay such tax together with interest payable for any delay in
furnishing the return or any default or delay in payment of advance tax. After
referring to section 234B pertaining to interest for default in payment of
advance tax and more particularly to Explanation 1, it observed :-
"It would, thus, be clear that, not only the liability to be subjected to D
tax arises under the charging section 4, but the liability to pay tax
also arises immediately on determination of the rates of taxes with
effect from the date on which such rates are made applicable and the
liability to pay crystallizes in the context of such rates when the total
income is computed in accordance with the provisions of the Act. On E
filing of the return under section 139, wherein such total income is
indicated, section l 40A, providing for self-assessment, comes into
operation and it becomes obligatory on the part of the assessee to
discharge his liability which has arisen to pay the tax together with
the interest that may be payable for late furnishing of returns. The tax
payable on the basis of the returns filed by the assessee is treated as F
"assessed tax". It is not at all made dependent on any regular
assessment being made though, in the event of regular assessment,
the amount paid under sub-section (I) of section l 40A is deemed to
have been paid towards the regular assessment. Therefore, by no
stretch of imagination, can the tax paid and collected under section G
l 40A be described as a mere ad hoc or interim payment which can
be said to fail in the absence of a regular assessment, as was sought
to be contended on behalf of the petitioners".
It further held that when the assessee files his return under section 139
and pays tax under section l 40A by way of self-assessment claiming allowance H
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A of the advance tax or tax deducted at source in the amount of tax payable
according to him, there is clear admission of the liability that has arisen under
the Act to pay the tax on the total income as is computed by the assessee and
duly quantified in the return. The procedure of assessment by the Income-tax
Officer is essentially to check the computation of total income done by the
B assessee. Therefore the acceptance of the proposition canvassed by the assessee
would produce a startling result where though, according to the assessee, he
is liable to pay the tax as per the return filed by him and has in fact paid the
tax in accordance with the provisions of section l 40A of the Act and the
Assessing Officer did not find it necessary to assess the total income since
he may have accepted the return on expiry of the period during which the
C regular assessment is required to be made, the entire tax amount, admittedly
payable under the Act would be required to be refunded. The scheme of the
Act clearly indicates that the liability to pay income tax chargeable under
section 4(1) of the Act does not depend upon the assessment being made by
the Income-tax Officer but depends on the enactment by any Central Act
prescribing rate or rates for any assessment year. Thus, as soon as the rates
D are prescribed by the appropriate legislation, the liability to pay tax arises on
the total income which is to be computed by the assessee in accordance with
the provisions of the Act. By the process of self-assessment, the assessee is
required to pay tax on the basis of his return and such tax is treated as
assessed tax. Therefore, until it is disturbed by any further regular assessment,
E it remains as tax levied and collected in accordance with law. Having
considered all aspects of the matter the Full Bench concluded :-
F
G
"We are, therefore, of the view that, on failure of a regular assessment
being made within the time prescribed or in the event of annulment
of the assessment order pursuant to which any further demand is
required to be made under section 156, no consequence of refund of
the entire tax collected according to the total income shown in the
returns filed by the assessee can ensue and such tax which is collected
on the basis of the return filed by the assessee remains a valid and
legal recovery in accordance with the provisions of the said Act and
there is no question of any violation of Article 265 of the Constitution
of India in respect of the tax so recovered on the basis of the total
income shown by the assessee in his return."
So far as the amendment to section 240 is concerned, the Full Bench
of Gujarat High Court rejected the contention of the assessee that the proviso
H to section 240 brought in by way of amendment could not be given
;
COMMR. OF INCOME TAX v. SHELLY PRODUCTS [B.P. SINGH, J.]
91
retrospective effect. It was held that section 240 even as it stood before the A
addition of the proviso, made the refund of any amount becoming due as a
result of an order passed in appeal or other proceeding under the Act subject
to other provisions in the Act. There is no indication in section 240 as it
stood prior to the addition of the proviso that the entire amount of tax which
was properly chargeable under the Act was required to be refunded. Clearly, B
therefore, the provision contained in clause (b) of the proviso to section 240
only makes explicit what was always implicit, namely, to refund the amount
which exceeded the tax which was properly chargeable under the Act. In sum
and effect it was held that clause (b) of the proviso to section 240 which was
brought in by amendment with effect from April I, 1989 was only clarificatory
of the law.
C
We may at this stage observe that clause (a) of the aforesaid proviso
has been held to be clarificatory by this Court in Commissioner of IncomeTax v. Chittoor Electric: Supply Corporation and Anr., [1995] 212 !TR 404
(S.C.).
A learned Judge of the Madhya Pradesh High Court in Chandra Mohan
v. Union of India and Ors, [2000] 241 !TR 484 followed the principle laid
down by the Fu II Bench of Gujarat High Court in Saurashtra Cement and
Chemical Industries Ltd. (supra) and held that the assessee having filed his
return and paid the taxes, even if no order of assessment was passed within
D
the time provided under the Act, the taxable income shown in the return filed E
by the petitioner shall be binding on him unless he files a revised return
claiming some non-taxable income and on that basis refusing the liability of
tax payment. The assessee was, therefore, not entitled to refund of the tax
paid. The learned Judge distinguished the decisions in R. Gopal Ramnarayan
(supra) of Karnataka High Court and Deep Chand Jain (supra) of Punjab and
Haryana High Court on the ground that the principles laid down therein were
not applicable to the facts of the case.
A learned Judge of the Kerala High Court in£. Philip Joseph v. JncomeF
Tax Officer and Anr., [1998] 234 ITR 846 followed the Full Bench of the
Gujarat High Court. In that case there was no dispute as to the refund of tax G
which was levied on the income added by the Income-tax Officer at the time
of regular assessment. The dispute was only with regard to the refund of tax
on the income returned as per the self-assesment. It also appears from the
report that the assessment framed by the Assessing Officer was set aside in
appeal by the Commissioner of Income-tax who set aside the additions made
by the Income-tax Officer and thereafter no fresh assessment was made H
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SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
A pursuant to the appellate order. The assessee made a representation before the
Commissioner whereafter the Income-tax Officer passed an order on the
basis of the directions issued by the Commissioner of Income-tax. As against
the said order the assessee filed a revision petition before the Commissioner
and the Commissioner finally passed an order under section 264 of the Act
B which was impugned by the assessee before the High Court. The learned
Judge held that the setting aside of the regular assessment did not mean that
the self-assessment made under section 140A had been set aside. Even ifthe
regular assessment is declared to be void, it has no effect on the self-assessment
made under section 140A. The direction to refund the tax paid on regular
assessment does not mean that the tax paid along with the return under
C section 140A shall be refunded, because the payment of tax under selfassessment is on the admitted income returned by the assessee. When tax has
been paid on the admitted income, even if the income added by the Incometax Officer by way of addition in the regular assessment has been set aside
in appeal or revision, the assessee has no legal right to claim refund of the
tax so paid because what has been set aside is not the self-assessment but the
D regular assessment.
Counsel for the revenue drew our attention to certain observations made
by this Court in Commissioner of Income-Tax v. Chittoor Electric Supply
Corporation and Anr., (supra). In that case the question which arose for
E consideration by this Court was whether a claim for refund arose where an
assessment order was set aside and a fresh assessment which was directed to
be made was pending when the application for refund was made. This Court
held that refund became due only upon making the fresh assessment and
refund could not be claimed after the earlier assessment was set asid~ and
proceedings for fresh assessment were taken pursuant to the direction of the
F appellate authority. In such a case it must be held that during the pendency
of the proceedings for fresh assessment it could not be said that any amount
of refund had become due to the assessee in respect of that assessment year
because the proceeding was still pending and, therefore, it was idle to talk of
any amount or any refund becoming due to the assessee in respect of that
G assessment year. The judgment of the Full Bench of Gujarat High Court in
Saurashtra Cement and Chemical Industries ltd. (supra) has been referred to
in the judgment of this Court but this Court was primarily concerned with
proviso (a) to section 240 which was brought in by amendment with effect
from April I, 1989. This Court held inter alia that the said proviso was
merely clarificatory of the law. Counsel for the respondent sought to rely
H upon certain observations made in the judgment but we cannot give any
)
COM MR. OF INCOME TAX v. SHELLY PRODUCTS [13.P. SINGH. J.]
93
benefit of those observations to the revenue because this Court has itself A
made it clear that what has been held in that judgment is confined to a case
where an appellate or other authority under the Act sets aside or cancels the
assessment and directs a fresh assessment to be made i.e. a situation
contemplated by clause (a) of proviso to section 240. It has been clearly
stated that this Court did not propose to express any view as to what would B
be the position where the situation is different.
In R. Gopal Ramnarayan (supra) a iearned Judge of the Karnataka
High Court dealt with a case where the order of assessment framed by the
Income-tax Officer was annulled by the Income Tax Appellate Tribunal,
whereafter the assessee made a demand for refund of the tax paid. The C
demand was rejected by the Income-tax officer compelling him to file a writ
petition under Article 226 of the Constitution of India for direction to the
Income-tax Officer to refund the tax paid by the petitioner for the relevant
assessment year on the ground that there being no assessment order made in
accordance with law the tax retained by the Income-tax officer was without
the authority of law and was liable to be refunded under section 240 of the D
Act. It was held that the payment of advance tax was a mere convenience of
collection which was liable to be adjusted against the actual tax due when the
final assessment order was made. It is well settled that no tax can be levied
except with the authority oflaw as enjoined by Article 265 of the Constitution
of India. After noticing section 240 of the Act the learned Judge held :-
E
"As is apparent from the language of the section, it is very wide
in its scope and application. There is a mandate on the revenue
to make the refund even without a demand. That, in turn, leads
me to the irresistible conclusion that if a demand is properly
made then it certainly cannot be refused. Section 240 of the Act F
provides for refund of any amount that becomes due to the
assessee. It cannot be restricted to excess payment only. It is
possible in many instances that for a good number of reasons the
whole of the advance tax paid may become refundable, if the
assessee is ultimately found not liable to pay tax after the
assessment proceedings are completed. Such a possibility cannot G
be ruled out. If that be the position, the mere fact of the
compulsion of payment under section 210 of the Act, as contended
by Shri Rajasekhara Murthy, cannot be accepted to mean that,
by the operation of that section, that tax had been levied, assessed
and collected. Assessment is the final process which completes H
A
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SUPREME COURT REPORTS [2003] SUPP. I S.C.R.
the levy of tax under section 4 of the Act."
The learned Judge went on to hold that the effect of annulment of
assessment order is that there is no assessment at all in the eye of law and
in such a case the revenue could not take a stance that even without an
assessment order in existence, the assessee for the relevant assessment year,
B was liable to tax under section 4 of the Act.