The Tribunal has annulled my client's assessment as time-barred. Does he get back the whole of the advance tax, TDS and self-assessment tax he had paid?
No. What Chapter XIX refunds is only the amount paid wrongly or in excess of what is properly chargeable under the Act; it does not authorise refund of tax that was properly collected. The failure of the regular assessment — whether by annulment or by its becoming time-barred — does not turn tax payable on the assessee's own returned income into tax wrongly collected.
Decided by the High Court (Full Bench of the Gujarat High Court; the retrieved text names S.B. Majmudar J and R.K. Abichandani J) on 1992-01-28, reported as [1992] 194 ITR 659 (Guj) (FB); Special Civil Applications Nos. 6656 of 1987, 5944 of 1987, 1638 of 1980 and 7835 of 1988. It bears on section 240, section 237, section 239, section 141A of the Income Tax Act 1961, in Refunds, Interest & Condonation, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the Full Bench that the Supreme Court agreed with in Shelly Products, and it is worth having in its own right because it deals with the point the client actually asks about: he has won on limitation, so why is he not getting his money. The answer is that section 237 measures the refund against what is properly chargeable, and section 240 is expressly subject to the rest of the Act by the words 'except as otherwise provided in this Act'. The Full Bench went further than the outcome required and held that clause (b) of the proviso to section 240, inserted with effect from 1 April 1989, only makes explicit what was always implicit — so a taxpayer arguing that the proviso cannot be applied to a pre-1989 year gains nothing, because the same result follows from section 237 read with the unamended section 240. What the assessee does get is the difference: the decision preserves his right to have a genuine excess considered, and in the leading petition the Court directed the Revenue to treat the reduction of Rs 14 lakhs claimed in the revised return as a claim under section 239 and dispose of it under section 237. Keep clause (a) of the proviso distinct: where the assessment is set aside or cancelled and a fresh assessment is directed, no refund becomes due at all until that fresh assessment is made.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A group of writ petitions raised the common question whether an assessee in whose case a provisional assessment for refund was made under section 141A, or who had paid advance tax, tax deducted at source or self-assessment tax, is entitled to refund of the entire tax paid if for any reason the regular assessment becomes time-barred or is annulled. A Division Bench referred the matters to a Full Bench. In the leading petition, Saurashtra Cement and Chemical Industries Ltd. filed its return for assessment year 1980-81 on 12 June 1980 declaring total income of Rs 88,15,660, having paid Rs 52,40,000 by advance tax and deduction at source. On its application a provisional assessment under section 141A was made on 23 September 1980 fixing tax on the returned income at Rs 52,12,221 and ordering refund of Rs 27,779, later rectified to Rs 29,687 and refunded. On 22 February 1983 it filed a revised return showing total income of Rs 74,15,660, the reduction of Rs 14,00,000 being a trading loss said to arise from an embezzlement. After directions under section 144B the Income-tax Officer passed an assessment order on 29 June 1984 assessing total income at Rs 90,33,160 and raising a further demand of Rs 1,30,077. The Commissioner (Appeals) upheld the assessment, but the Tribunal by order dated 17 March 1987 annulled it as barred by time. The Income-tax Officer then refunded Rs 1,76,783, being the tax paid on the basis of the annulled assessment order. The assessee's miscellaneous application to the Tribunal for a direction to refund the entire tax collected by deduction at source and advance tax was rejected on 27 October 1987, and it petitioned for a mandamus to refund Rs 52,12,221 with interest, alternatively Rs 8,27,751 on the basis of the revised return.
The claim for refund of the entire amount of tax was rejected in the leading petition and the other three petitions were dismissed. Only the amount of tax paid wrongly or in excess of what is properly chargeable under the Act can be refunded, and the Act does not authorise refund of tax which is properly collected; there is no warrant for holding that the entire income-tax properly chargeable and collected in accordance with the Act must be refunded on failure of the regular assessment (para 33). In the leading petition the Revenue was directed to consider the reduction of Rs 14,00,000 claimed in the revised return of 22 February 1983 as a claim made under section 239 and to dispose of it in accordance with section 237 and the other relevant provisions (para 34).
The Full Bench rejected the argument that section 240, as it stood before the proviso was added with effect from 1 April 1989, obliged the Income-tax Officer to refund the entire amount collected as tax once an appellate order was passed. Section 240 even before the proviso made the refund subject to the other provisions of the Act, as the words 'except as otherwise provided in this Act' show, and there was no indication in it that the entire tax properly chargeable had to be refunded. To read it that way would put it in direct conflict with section 237, which envisages refund only of what is in excess of the tax properly chargeable. The provision in clause (b) of the proviso to section 240 therefore only makes explicit what was always implicit, namely that what is refunded is the amount which exceeds the tax properly chargeable; the petitioners' argument that the proviso could not be given retrospective effect accordingly failed. Even when deciding refund consequential on an order passed in appeal or other proceeding under section 240, the Income-tax Officer must bear in mind the mandate of section 237 and find out what the excess amount to be refunded is. There can never be any question of refunding tax which is properly chargeable even on the assessee's own return or revised return. The Court distinguished the authorities pressed on it — B. C. Srinivasa Setty as decided in a different context on section 45 (para 30), Nagri Mills as a decision that no question of law arose on section 216 (para 31), and Manmohanlal as concerning recovery following a valid notice of demand (para 32) — before stating its conclusion at para 33.
We hold that only the amount of tax which is paid wrongly or in excess of what is properly chargeable under the Act can be refunded and the provisions of the said Act do not authorise refund of tax, which is properly collected.
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Handle my notice → Ask a CA on WhatsAppNo. What Chapter XIX refunds is only the amount paid wrongly or in excess of what is properly chargeable under the Act; it does not authorise refund of tax that was properly collected. The failure of the regular assessment — whether by annulment or by its becoming time-barred — does not turn tax payable on the assessee's own returned income into tax wrongly collected. This was decided by the High Court (Full Bench of the Gujarat High Court; the retrieved text names S.B. Majmudar J and R.K. Abichandani J) and bears on section 240, section 237, section 239, section 141A of the Income Tax Act 1961. It is reported as [1992] 194 ITR 659 (Guj) (FB); Special Civil Applications Nos. 6656 of 1987, 5944 of 1987, 1638 of 1980 and 7835 of 1988. This is the Full Bench that the Supreme Court agreed with in Shelly Products, and it is worth having in its own right because it deals with the point the client actually asks about: he has won on limitation, so why is he not getting his money. The answer is that section 237 measures the refund against what is properly chargeable, and section 240 is expressly subject to the rest of the Act by the words 'except as otherwise provided in this Act'. The Full Bench went further than the outcome required and held that clause (b) of the proviso to section 240, inserted with effect from 1 April 1989, only makes explicit what was always implicit — so a taxpayer arguing that the proviso cannot be applied to a pre-1989 year gains nothing, because the same result follows from section 237 read with the unamended section 240. What the assessee does get is the difference: the decision preserves his right to have a genuine excess considered, and in the leading petition the Court directed the Revenue to treat the reduction of Rs 14 lakhs claimed in the revised return as a claim under section 239 and dispose of it under section 237. Keep clause (a) of the proviso distinct: where the assessment is set aside or cancelled and a fresh assessment is directed, no refund becomes due at all until that fresh assessment is made. If it applies to you, the first step is this: Before promising a refund on an annulment, compute the tax chargeable on the total income the client himself returned — under clause (b) of the proviso to section 240 that is the floor, and only the excess over it is refundable.
A group of writ petitions raised the common question whether an assessee in whose case a provisional assessment for refund was made under section 141A, or who had paid advance tax, tax deducted at source or self-assessment tax, is entitled to refund of the entire tax paid if for any reason the regular assessment becomes time-barred or is annulled. A Division Bench referred the matters to a Full Bench. In the leading petition, Saurashtra Cement and Chemical Industries Ltd. filed its return for assessment year 1980-81 on 12 June 1980 declaring total income of Rs 88,15,660, having paid Rs 52,40,000 by advance tax and deduction at source. On its application a provisional assessment under section 141A was made on 23 September 1980 fixing tax on the returned income at Rs 52,12,221 and ordering refund of Rs 27,779, later rectified to Rs 29,687 and refunded. On 22 February 1983 it filed a revised return showing total income of Rs 74,15,660, the reduction of Rs 14,00,000 being a trading loss said to arise from an embezzlement. After directions under section 144B the Income-tax Officer passed an assessment order on 29 June 1984 assessing total income at Rs 90,33,160 and raising a further demand of Rs 1,30,077. The Commissioner (Appeals) upheld the assessment, but the Tribunal by order dated 17 March 1987 annulled it as barred by time. The Income-tax Officer then refunded Rs 1,76,783, being the tax paid on the basis of the annulled assessment order. The assessee's miscellaneous application to the Tribunal for a direction to refund the entire tax collected by deduction at source and advance tax was rejected on 27 October 1987, and it petitioned for a mandamus to refund Rs 52,12,221 with interest, alternatively Rs 8,27,751 on the basis of the revised return. The matter was decided on 1992-01-28 by the High Court (Full Bench of the Gujarat High Court; the retrieved text names S.B. Majmudar J and R.K. Abichandani J). On those facts the High Court held as follows. The claim for refund of the entire amount of tax was rejected in the leading petition and the other three petitions were dismissed. Only the amount of tax paid wrongly or in excess of what is properly chargeable under the Act can be refunded, and the Act does not authorise refund of tax which is properly collected; there is no warrant for holding that the entire income-tax properly chargeable and collected in accordance with the Act must be refunded on failure of the regular assessment (para 33). In the leading petition the Revenue was directed to consider the reduction of Rs 14,00,000 claimed in the revised return of 22 February 1983 as a claim made under section 239 and to dispose of it in accordance with section 237 and the other relevant provisions (para 34).
The Full Bench rejected the argument that section 240, as it stood before the proviso was added with effect from 1 April 1989, obliged the Income-tax Officer to refund the entire amount collected as tax once an appellate order was passed. Section 240 even before the proviso made the refund subject to the other provisions of the Act, as the words 'except as otherwise provided in this Act' show, and there was no indication in it that the entire tax properly chargeable had to be refunded. To read it that way would put it in direct conflict with section 237, which envisages refund only of what is in excess of the tax properly chargeable. The provision in clause (b) of the proviso to section 240 therefore only makes explicit what was always implicit, namely that what is refunded is the amount which exceeds the tax properly chargeable; the petitioners' argument that the proviso could not be given retrospective effect accordingly failed. Even when deciding refund consequential on an order passed in appeal or other proceeding under section 240, the Income-tax Officer must bear in mind the mandate of section 237 and find out what the excess amount to be refunded is. There can never be any question of refunding tax which is properly chargeable even on the assessee's own return or revised return. The Court distinguished the authorities pressed on it — B. C. Srinivasa Setty as decided in a different context on section 45 (para 30), Nagri Mills as a decision that no question of law arose on section 216 (para 31), and Manmohanlal as concerning recovery following a valid notice of demand (para 32) — before stating its conclusion at para 33. In the words reproduced by the source cited on this page: "We hold that only the amount of tax which is paid wrongly or in excess of what is properly chargeable under the Act can be refunded and the provisions of the said Act do not authorise refund of tax, which is properly collected."
It was decided by the High Court on 1992-01-28 and is reported as [1992] 194 ITR 659 (Guj) (FB); Special Civil Applications Nos. 6656 of 1987, 5944 of 1987, 1638 of 1980 and 7835 of 1988. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 240, section 237, section 239, section 141A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The claim for refund of the entire amount of tax was rejected in the leading petition and the other three petitions were dismissed. Only the amount of tax paid wrongly or in excess of what is properly chargeable under the Act can be refunded, and the Act does not authorise refund of tax which is properly collected; there is no warrant for holding that the entire income-tax properly chargeable and collected in accordance with the Act must be refunded on failure of the regular assessment (para 33). In the leading petition the Revenue was directed to consider the reduction of Rs 14,00,000 claimed in the revised return of 22 February 1983 as a claim made under section 239 and to dispose of it in accordance with section 237 and the other relevant provisions (para 34). It arises in Refunds, Interest & Condonation, Assessment & Scrutiny and How Tax Law Is Read matters, on section 240, section 237, section 239, section 141A of the Income Tax Act 1961, and was decided by Full Bench of the Gujarat High Court; the retrieved text names S.B. Majmudar J and R.K. Abichandani J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check which limb of the proviso the appellate order attracts: annulment engages clause (b) and produces a refund now of the excess; a set aside or cancellation with a direction for fresh assessment engages clause (a) and produces no refund until the fresh assessment is made. Do not build the case on the proviso being inapplicable to a pre-1989 year — this Full Bench holds the same result follows from section 237 and the unamended section 240. Identify separately any item on which the client says the returned income was itself overstated, and press that as a claim in its own right — here the Court directed the Rs 14 lakh reduction claimed in the revised return to be dealt with as a claim under section 239 and disposed of under section 237. Where the client wants the whole of the tax back on the footing that no assessment survives, warn him at the outset; this decision and Shelly Products close that door.
Still good law. The Supreme Court in CIT v. Shelly Products, decided 8 May 2003 (Santosh Hegde and B.P. Singh JJ), reported (2003) 261 ITR 367, considered this Full Bench and recorded that it found itself in agreement with the view of the Gujarat High Court in Saurashtra Cement and Chemical Industries Ltd.; the High Court under appeal in Shelly Products had disagreed with it. That approval passage was read on the indiankanoon print view of Shelly Products and is the basis of this status. No decision doubting or overruling the Full Bench was located. No search was made for any later Gujarat High Court or Supreme Court decision confining it to its facts. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read from the indiankanoon print view; paragraphs 1, 2 (facts of Special Civil Application No. 6656 of 1987), 30 to 33 and the operative paragraphs 34 and 35 were reproduced verbatim, together with the passage on the effect of the proviso to section 240. The judgment was referred to a Full Bench by a Division Bench, but the retrieved text and the site's bench line name only S.B. Majmudar J and R.K. Abichandani J; the third member is not named in what could be read, and no attempt has been made to supply the name. The report reproduces a figure as 'Rs. 74,15.660' in the facts of Special Civil Application No. 6656 of 1987, evidently for Rs 74,15,660; that is a typographical error in the report and is noted rather than silently corrected. The Court also refused a certificate for appeal to the Supreme Court under Article 133 read with Article 134 (para 35). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The claim for refund of the entire amount of tax was rejected in the leading petition and the other three petitions were dismissed. Only the amount of tax paid wrongly or in excess of what is properly chargeable under the Act can be refunded, and the Act does not authorise refund of tax which is properly collected; there is no warrant for holding that the entire income-tax properly chargeable and collected in accordance with the Act must be refunded on failure of the regular assessment (para 33). In the leading petition the Revenue was directed to consider the reduction of Rs 14,00,000 claimed in the revised return of 22 February 1983 as a claim made under section 239 and to dispose of it in accordance with section 237 and the other relevant provisions (para 34).
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