1967 (1) TMI 20 - HC - Income Tax

Court clarifies interest on tax refunds under Income-tax Act; limited to specific assessment period

SVPN Sithambara Nadar And Sons Versus Commissioner Of Income-Tax, Madras.

The court interpreted the proviso to sub-section (7) of section 66 of the Indian Income-tax Act, 1922, in a case where a firm sought interest on refunds ... On the basis of High Court`s order the assessment of assessee were modified and refund was given - assessee claimed interest on the entire refund amount - he was granted interest on refund for the period which was subject matter of reference before the High Court - against this the assessee filed a writ petition - Petition dismissed Issues: Interpretation of the proviso to sub-section (7) of section 66 of the Indian Income-tax Act, 1922 in relation to the entitlement of interest on refunds for accounting periods beyond the one covered by a specific reference under the Excess Profits Tax Act, 1940.Analysis:The judgment delivered by Justice Veeraswami concerns a petition where the petitioner, a firm assessed for Income-tax and excess profits tax, sought interest on refunds for accounting periods beyond the one covered by a specific reference. The key contention revolved around the construction of the proviso to sub-section (7) of section 66 of the Indian Income-tax Act, 1922, read with the relevant provisions of the Excess Profits Tax Act, 1940. The petitioner argued that the deficiency found in the reference should be distributed over other accounting periods before and after the reference, entitling them to interest on all refunds. However, the court rejected this interpretation, emphasizing that the proviso applies to the assessment subject to the reference and the resulting refund, with interest at the Commissioner's discretion.The court examined the provisions of the Excess Profits Tax Act, 1940, defining accounting periods and chargeable accounting periods, which are crucial for determining the tax liability. It highlighted that the proviso to sub-section (7) of section 66 addresses the refund of overpaid amounts if the assessment is reduced due to a reference, with the High Court's permission required for postponing the refund pending a Supreme Court appeal. The judgment clarified that the refund with interest applies to the specific assessment under reference, and not to subsequent accounting periods unless the same principle is applied.Furthermore, the court rejected the petitioner's argument that the deficiency could be carried back or forward for assessment purposes, leading to refunds for other accounting periods due to the reference's result. It emphasized that each accounting period is assessed independently, and the reference's impact is limited to the specific period under consideration. The judgment drew an analogy to the carry-forward of unabsorbed losses under section 24, illustrating that refunds in subsequent years do not result directly from the reference but from applying the settled principle.Lastly, the court addressed the petitioner's argument that the proviso should be interpreted independently, contending that it applies to any assessment, not just the one under reference. However, the court disagreed, stating that the proviso's context limits it to the assessment subject to the reference under section 66. Ultimately, the court upheld the respondent's view that interest on refunds is only applicable to the amount for the particular accounting period covered by the reference, dismissing the petition with costs.