Court allows adjustment of interest against tax liability, broad interpretation of "refund" upheld

The court held that interest under section 244(1A) could be adjusted against tax liability under section 245, interpreting "refund" broadly to avoid impractical results. Despite a technical lapse in prior intimation, the adjustment was valid. Seized drafts were encashed for tax liability, except for one invalid draft, leading to a refund of Rs. 2,500. The writ petition was mostly dismissed, with the exception of the refund order. The respondents were directed to pay Rs. 2,500 within two weeks, and no costs were awarded.

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Issues Involved:
1. Adjustment of interest against tax liability u/s 245.
2. Intimation requirement u/s 245.
3. Refund of seized drafts or their value.

Summary of Judgment:

1. Adjustment of Interest Against Tax Liability u/s 245:
The petitioner was entitled to a sum of Rs. 1,95,295 on account of interest u/s 244(1A) of the Income-tax Act, 1961. The crucial issue was whether this interest could be adjusted against the petitioner's tax liability for the assessment year 1983-84 u/s 245. The court held that the term "refund" in section 245 includes any amount payable by the Income-tax Department to an assessee, including interest. The court reasoned that interpreting "refund" narrowly would lead to impractical results, requiring the Department to pay interest with one hand and collect it back as tax liability with the other. Thus, the adjustment of interest against tax liability was permissible.

2. Intimation Requirement u/s 245:
The petitioner argued that no prior intimation was given before the adjustment of interest against tax liability, as required u/s 245. The court found that the letter dated July 21, 1986, served as a prior intimation, even though it was issued fifteen months after the petitioner's entitlement to interest arose. The court considered this a technical lapse but not a violation of the statutory requirement, as the letter clearly indicated the proposed adjustment.

3. Refund of Seized Drafts or Their Value:
The petitioner sought the return or revalidation of thirty drafts seized during a raid or their value amounting to Rs. 1,24,558. Initially, the court was inclined to agree with the petitioner. However, it was later clarified that the drafts were revalidated, encashed, and the amounts appropriated towards the petitioner's tax liability, except for one draft of Rs. 2,500, which had become invalid. The court directed the respondents to refund Rs. 2,500 to the petitioner due to the lapse on the part of the Income-tax Department.

Conclusion:
The writ petition was largely dismissed except for the direction to refund Rs. 2,500 to the petitioner. The respondents were ordered to pay this amount within two weeks. The rule was discharged with no order as to costs.

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