Kerala H.C : Whether, on the facts and in the circumstances of the case, the petitioner is entitled to get interest in terms of s. 132B(4) as well as under s. 244(1A) of the IT Act, 1961, (for short ‘the Act’) ?

Counsel Appeared

G. Sivarajan, for the Petitioner : P.K. Ravindranatha Menon, for the Respondents

K.P. RADHAKRISHNA MENON, J.:

The assessee is before the Court. Exhibits P-1, P-3, and P-4 are under challenge. Exhibit P-1 is the order of the assessing authority giving effect to the order of the appellate authority. By exhibit P-3 order, the CIT has modified exhibit P-1 order based on which exhibit P-4 consequential order has been passed.

2. The short question arising for consideration is this :

“Whether, on the facts and in the circumstances of the case, the petitioner is entitled to get interest in terms of s. 132B(4) as well as under s. 244(1A) of the IT Act, 1961, (for short ‘the Act’) ?”

3. A resume of the facts relevant to decide the issue can be stated thus : An amount of Rs. 5,52,000 was seized by the Enforcement Directorate, Trivandrum, from the residence of the petitioner. On a requisition under s. 132A(1) of the Act, the Enforcement Directorate handed over the above amount to the IT Department on 28th June, 1980. The ITO thereafter passed an order under s. 132(5) on 19th Sept., 1980, and retained the above amount of Rs. 5,52,000 to meet the income-tax liabilities of the petitioner under the order. The said order of the ITO under s. 132(5) was set aside by this Court and the matter was remanded to the assessing authority for a de novo consideration (vide judgment in O.P. No. 3643 of 1980 (K.A. Karim & Sons vs. ITO (1984) 149 ITR 172 (Ker)). The assessing authority thereafter passed a fresh order under s. 132(5) on 28th July, 1983 (see exhibit P-6).

The assessing authority treated the abovementioned amount as the undisclosed income of the petitioner of the previous year in which it was seized, namely, 1980-81, and, accordingly, made the regular assessment on 13th Oct., 1983, raising a demand for Rs. 5,27,022 which is inclusive of interest under s. 215 of the Act. Later, interest under s. 215 to the tune of Rs. 94,666 was waived by the order dt. 25th Oct., 1984. Consequently, the demand as per the regular assessment was reduced to Rs. 4,32,356. The order of assessment was challenged in appeal before the CIT(A), Trivandrum, who by his order dt. 17th March, 1987, directed deletion of the addition of Rs. 5,52,000 mentioned above from the assessable income. On 31st March, 1987, the assessing authority passed exhibit P-1 order giving effect to the appellate order. This order shows the total income at a loss of Rs. 69,016. Accordingly, this consequential order (exhibit P-1) directed refund of Rs. 5,03,280 including interest of Rs. 1,35,093 under s. 244(1A).

4. The petitioner filed a revision against exhibit P-1 order before the CIT and the CIT, by exhibit P3 order, modified exhibit P-1 order. Based on the said modified order, the assessing authority passed exhibit P-4 consequential order. It can be seen from exhibits P-1, P-3 and P-4 that the assessee has been consistently contending that he, in addition to s. 244(1A) interest, was also entitled to get interest on the amount of money retained by the ITO after seizure, from the date of seizure, namely, 18th March, 1980, till the date of payment. In other words, the case of the assessee all through was that he was entitled to get interest both under s. 132B(4) and s. 244(1A). That the authorities concerned have awarded interest only under s. 244(1A) while denying interest under s. 132B(4) is beyond dispute.

5. Learned counsel for the petitioner argues that, in view of the order of the appellate authority directing deletion of the additions made by the assessing authority while making the regular assessment for the year in question, the petitioner is entitled to get interest under s. 132B(4) on the amount of money retained by the assessing authority under cover of the summary order under s. 132(5). This claim for interest is in addition to the interest he is entitled to get under s. 244(1A). In other words, it is submitted that the petitioner is entitled to get interest both under ss. 132B(4) and 244(1A) on the amount in dispute from 18th March, 1980, the date of seizure, till the date of refund. The orders of the authorities concerned to the extent to which they decline to award interest under s. 132B(4) are liable to be set aside, counsel submits. Learned counsel for the Revenue, on the other hand, contends that the assessee is entitled to get interest only under s. 244(1A) and that too only from the date of the order of the assessing authority giving effect to the order of the appellate authority. The claim for interest under s. 132B(4), on the facts of the case, cannot be granted. It is all the more so because the retention of the amount cannot be said to be without the authority of law.

6. I shall first deal with the question whether the assessee is entitled to get interest under s. 132B (4) on the amount in dispute. The answer depends upon the interpretation of ss. 132(5), 132B(1) and (4). Sec. 132(5) empowers the ITO, after affording an opportunity of being heard to the person concerned, to make on order within 90 days of the seizure (this section has subsequently been amended and the amended provision enables the authority to pass the order within 120 days), estimating the undisclosed income in a summary manner to the best of his judgment, i.e., on the basis of such materials as are available with him, and determine the tax liability as also the other liabilities made mention of in cls. (ii), (iia) and (iii) of the said sub-section and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in cls. (ii), (iia) and (iii). The remaining portion of the assets, if any, shall be released forthwith. Sec. 132B(1) prescribes the procedure in regard to the application of the asset retained on the basis of the summary order under s. 132(5). This sub-section provides that the amount of existing liability mentioned in cl. (iii) of sub-s. (5) of s. 132 and the amount of the liability that will be determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in cl. (i) of s. 132 (5) relates (including any penalty levied or interest payable in connection with such assessment or reassessment) and in respect of which he is in default or deemed to be in default can be recovered from out of such assets. This clause suggests that the ITO, if so advised, can treat the assets seized as the income of the year in which it was seized or he can spread over such assets as income of any of the previous years, previous to the year in which the said asset was seized; and, in the former case, the order contemplated is an order of regular assessment and, in the latter, an order of reassessment provided the assessment for the said year has already been completed. Clause (ii) of s.

132B(1) says that if the assets consist solely of money, or partly of money and partly of other assets, the ITO can apply such money in the discharge of the liabilities referred to in cl. (i) and, in that event, the assessee must be deemed to have discharged such liability to the extent of the money so applied. The other sub-clauses and sub- section are not relevant here and, therefore, they are not specifically dealt with in this judgment. Now, we come to sub-s. (4) of s. 132B. It is under this section that the petitioner has laid his claim for interest. This sub-sections makes the Central Government liable to pay simple interest at the rate of 12 per cent per annum (this rate was enhanced to 15 per cent. by subsequent amendment of the section w.e.f. 1st Oct., 1984) on the amount by which the aggregate of money retained under s. 132 as per the order under s. 132(5) exceeds the aggregate of the amount required to meet the liabilities referred to in cl. (i) of sub-s. (1) of this section [s. 132B(1)]. In other words, the Central Government is liable to pay simple interest at the prescribed rate on the amount retained and found to be in excess of the liability the assessee would be called upon to meet on passing the orders under s. 132B(1)(i). Clause (b) of sub-s. (4) of s. 132B says that such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under sub-s. (5) of s. 132 to the date of the regular assessment or reassessment referred to in cl. (i) of sub-s. (1) or, as the case may be, to the date of the last of such assessment or reassessment. Rule 119A of the IT Rules prescribes the mode of calculation of such interest. Sub-s. (4)(a) of s. 132 B would further indicate that the claim for simple interest could be entertained only if the asset seized was money or other assets converted into money in the manner indicated in cl. (iii) of sub- s. (1) of s. 132B and not otherwise. The cumulative effect of these sections, therefore, is that the person from whom the money or other assets converted into money is retained, after seizure, is entitled to interest at 12 per cent per annum on the said amount of money provided the same is in excess of the amount of money that is required to meet the liabilities either existing or that would come into being on making the assessments or reassessments of the undisclosed income, as the case may be, and as provided for under s. 132B(1)(i). As already noted, the amount of money retained by the ITO on the basis of the order under sub-s. (5) of s. 132 has been found not liable to be taxed by the appellate authority and, therefore, on the said amount which was retained by the ITO, the petitioner is entitled to interest under sub-s. (4) of s. 132B(1). The said interest, the Department, therefore, is liable to pay to the petitioner. The authority concerned, therefore, shall determine this interest taking into account the provisions contained in sub-s. (4) of s. 132B. Before a final order in this regard is passed, the authority concerned shall give the petitioner an opportunity of being heard.

7. It is seen from the orders of the assessing authority as also the CIT that they have found that the petitioner is entitled to interest under s. 244(1A). It reads : “244. (1A) Where the whole or any part of the refund referred to in sub-s. (1) is due to the assessee as a result of any amount having been paid by him after the 31st day of March,1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-s. (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted : Provided that, where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted : Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding : Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-s. (1) shall be payable to him in respect of the amount so found to be in excess.”

8. This sub-section provides that an assessee is entitled to interest on the amount directed to be refunded. It is clear from this section that the interest, the Central Government is liable to pay under this section is the interest on the excess amount the assessee paid as tax or penalty on the basis of the order of assessment or order levying penalty which, as the case may be, was later modified or altered by the authorities higher up in the hierarchy of Tribunals. The situation warranting payment of this interest is different from the situation justifying payment of interest under s. 132B(4). A comparative study of these two sections would make it clear that, in order to claim interest under s. 244(1A), the assessee should establish that he paid the tax pursuant to the demand raised on an assessment or paid the penalty in terms of an order levying penalty. But so far as the claim for interest under s. 132B(4) is concerned, the said interest could be claimed only on the assessee establishing that the amount retained by the authority pursuant to the order under s. 132(5) was found not liable to be treated as income and hence not liable to be taxed, and, therefore, the Department is bound to refund the same. In other words, the interest the Central Government is liable to pay under s. 132B(4) is on the amount retained by the authority on the basis of a summary order passed under s. 132(5) and the question of paying tax does not arise. The money retained is adjusted against the liability which will be fastened on the assessee on making an assessment or re- assessment within the meaning of cl. (i) of sub-s. (1) of s. 132B. It, therefore, follows that the Central Government is not liable to pay interest under s. 244(1A) on the amount of money the Department retained on the basis of the order under sub-s. (5) of s. 132 and later ordered to be refunded.

9. In the light of what is stated above, the assessee here has no right to get interest under s. 244 (1A). Learned counsel for the assessee, however, submitted that the order directing payment of interest under s. 244(1A) has become final and, therefore, no direction to modify the order can be issued. He is well-founded in this submission. Whether the orders directing payment of interest under s. 244(1A) can be modified or altered otherwise is a matter, if so advised, the taxing authorities can consider provided law permits the same. That question, therefore, is left open.

10. There will, therefore, be a declaration that the petitioner is entitled to interest on the amount seized under s. 132B(4) from the date immediately following the expiry of the period of six months from the date of the order under sub-s. (5) of s. 132 to the date of the regular assessment or reassessment referred to in cl. (i) of sub-s. (1) or, as the case may be, to the date of last of such assessments or reassessments. It is for the Department to quantify this claim and pass appropriate consequential orders. This claim of the assessee shall be considered and disposed of by the CIT expeditiously after giving the petitioner an opportunity of being heard. This question is remanded to the CIT for disposal in accordance with law.

The original petition is allowed, No costs.

[Citation :186 ITR 97]