COMMISSIONER OF INCOME TAX, BHOPAL vs. M/S. SHELLY PRODUCTS AND ANR.

CIVIL APPEAL No. 7501/1997Supreme Court2003 INSC 28708 May 2003Bench: 2 JudgesAuthor: N. SANTOSH HEGDE, B.P. SINGH OF22 pages
AI SummaryAllowed

What were the facts?

The assessee had paid advance tax and self-assessment tax. The assessment order was annulled by the Appellate Authority/Tribunal, and no fresh assessment order was passed by the revenue authorities. The Tribunal and the High Court had allowed the refund of the tax paid with interest. The revenue appealed this decision. The core issue was whether the assessee was entitled to a refund of advance tax and self-assessment tax solely due to the failure of the authorities to pass a fresh assessment order. The dispute revolved around the interpretation of Section 240 of the Income Tax Act, 1961, particularly the effect of the inserted proviso (b) and its retrospective applicability.

What did the Supreme Court hold?

The Supreme Court held that the assessee is not entitled to a refund of advance tax and self-assessment tax solely on the ground of the revenue's failure to pass a fresh assessment order. The Court reasoned that the payment of advance tax and self-assessment tax, done under the authority of law, amounts to an admission of tax liability by the assessee. The liability to pay tax arises as soon as the Finance Act prescribes the rates, and the assessee is obligated to compute and pay the tax. Therefore, retention of such tax by the revenue is not violative of Article 265 of the Constitution. The Court further held that proviso (b) to Section 240 of the Act is declaratory in nature and retrospective. It clarifies that where an assessment is annulled, the refund is due only for the amount, if any, of tax paid in excess of the tax chargeable on the total income returned by the assessee. The Court found that even under the unamended Section 240, the assessee was only entitled to a refund of tax paid in excess of the tax chargeable on the returned income. The CBDT Circular dated 23rd January, 1990, was found not to advance the assessee's case, as it merely stated the difficulty posed by judicial pronouncements and the legislative intent behind the amendment. The appeals were allowed, and the High Court's judgment was set aside.

What were the issues?

1. Whether the assessee is entitled to a refund of advance tax and self-assessment tax on the sole ground that the revenue authorities failed to pass a fresh order of assessment after the original assessment order was annulled? (Question of law) 2. Whether proviso (b) to Section 240 of the Income Tax Act, 1961, is declaratory in nature and can be applied retrospectively? (Question of law) Assessee's contentions: - When the revenue fails to pass a fresh order of assessment as required by law, the assessee is entitled to claim a refund of the advance tax paid. - Refusal of such refund by the revenue would be violative of Article 265 of the Constitution of India. - Relied on the CBDT Circular dated 23rd January, 1990, arguing it binds the income-tax authorities to give only prospective operation to the amendment in Section 240. Revenue's contentions: - When an assessment order is annulled and further assessment is not made, the assessee would be entitled to a refund of tax paid consequent to the final assessment, not advance tax on self-assessment. - With the introduction of proviso (b) to Section 240, which is a declaratory provision, it could be effected retrospectively to the assessment in question. - Relied on Commissioner of Income-Tax v. Chittoor Electric Supply Corporation and Anr., (1995) 212 ITR 404 SC.

Which sections of the Income-tax Act were involved?

Section 4,Section 130,Section 140A,Section 143,Section 144,Section 190,Section 192,Section 193,Section 194,Section 199,Section 207,Section 208,Section 209,Section 210,Section 211,Section 240

AI-generated summary — verify with the full judgment below

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

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