1998 (9) TMI 56 - HC - Income Tax

Advance tax paid by mistake after proceedings dropped; refund ordered, s.237 allows claim without prior assessment.

A taxpayer sought refund of amounts paid to the Government as advance tax under a mistaken belief, after proceedings under the Act were dropped. The HC ... Refund Of Tax - Mistake Notion - Limitation - Condonation Of Delay - Reopening - Payment of the monies to the Government under the mistaken notion - HELD THAT:- The Act is not intended to benefit the State by enabling it to collect or retain monies not payable to it under the Act. What is required to be collected from the assessees under the Act is only the tax and other amounts properly payable under the Act. Section 237 of the Act does not specify that an assessment order must be made and that some amount must be found to be payable as tax and that some amount in excess of that amount should have been paid. It is not a pre-condition for invoking that section that some liability for tax must have been cast upon the person claiming refund. This is hardly the manner in which the State is expected to deal with the citizens, who in their anxiety to comply with all the requirements of the Act pay monies as advance tax to the State, even though the monies were not actually required to be paid by them and, thereafter, seek refund of the monies so paid by mistake after the proceedings under the Act are dropped by the authorities concerned. The State is not entitled to plead the hypertechnical plea of limitation in such a situation to avoid return of the amounts. Section 119 of the Act vests ample power in the Board to render justice in such a situation. The Board has acted arbitrarily in rejecting the petitioner's request for refund. Writ petition is allowed. Issues involved: Refusal to refund tax amount paid under mistaken notion, interpretation of u/s 237 of the Act for refund eligibility, delay in claiming refund, arbitrary rejection of refund request by the Board.Refusal to refund tax amount paid under mistaken notion: The petitioner paid tax under the mistaken belief that it was required, even though no tax was actually due. The Income-tax Officer refused the refund citing failure to file the return voluntarily and apply for refund in time u/s 139(1) and u/s 237 of the Act respectively. The Court held that the Act aims to collect only the tax and amounts properly payable, not to benefit by retaining excess payments made in error.Interpretation of u/s 237 of the Act for refund eligibility: The Revenue argued that u/s 237 does not permit refund in this case, but the Court disagreed. Section 237 allows refund of excess amounts paid beyond what the payer is properly chargeable under the Act. Since the entire amount paid was in excess of the chargeable amount, the petitioner was entitled to a refund.Delay in claiming refund: The Department claimed delay in refund application as the payments were made in 1982-83, and the proceedings were dropped in 1990. The petitioner applied for refund to the Board in 1990 u/s 119(2)(b) of the Act. The Income-tax Officer rejected the request without providing reasons, leading the Court to criticize the State's handling of the situation and emphasize the Board's power to ensure justice.Arbitrary rejection of refund request by the Board: The Court found the Board's rejection of the petitioner's refund request as arbitrary. It stated that the State should not use technical limitations to avoid refunding amounts paid in error, especially when citizens act in good faith to comply with tax requirements. The Court directed the respondents to refund the sum with interest and allowed the writ petition with costs.