W.P.(MD) No.5542 of 2012 BEFORE MADURAI BENCH OF MADRAS HIGH COURT ORDERS RESERVED ON : 25.07.2018 ORDERS PRONOUNCED ON : 03.11.2020 CORAM: HONOURABLE MR.JUSTICE M. GOVINDARAJ W.P. (MD) No. 5542 of 2012 Visalakshi Anandkumar, Rep. by Power of Attorney, K.Shunmugham. ... Petitioner Vs. Assistant Commissioner of Income Tax, Circle III, Trichy. ... Respondent PRAYER : Writ Petition is filed under Article 226 of Constitution of India, for issuance of Writ of Certiorarified Mandamus, to call for records in matter of assessment of petitioner in File No.AANPS3093CACIT/CIR-III/TRY for assessment year 2002-2003 quash order dated 06.03.2012 and direct amount of tax paid on erroneously admitted capital gain and deleted by Tribunal with interest thereon from date of payment to date of refund. For Petitioner : Mr.R.Srinivasan For Respondent : Mr.N.Dilipkumar ----- 1/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 ORDER Inveighing revision order of assessing authority refusing to refund tax paid on admitted income, present Writ Petition has been filed. 2. From materials placed before this Court by both sides, it is seen that Power of Attorney of Writ Petitioner entered into lease agreement in respect of property at No.149, Luz Church Road, Mylapore, Chennai, and handed over possession. lessee namely, M/s.Eskee Cee Medical Foundation Pvt. Ltd., (hereinafter referred to as 'ECM') put up construction and run hospital. Thereafter, writ petitioner along with ECM entered into sale agreement with Devaki Hospital Pvt. Ltd. for sale of above property on 27.08.1992 for sale consideration of Rs.1.45 Crores. It was agreed between writ petitioner and ECM to share sale proceeds in ratio of Rs. 62,00,000/- to writ petitioner and Rs.83,00,000/- to ECM. On 27.08.1992, Rs.50,00,000/- was paid to writ petitioner towards sale consideration. balance sale consideration was paid on 10.12.1999 and on same date, writ petitioner executed Power of Attorney to one 2/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 of Directors of purchaser Company. Ultimately, Power of Attorney of purchaser had made additions and registered sale for value of Rs.4.30 Crores on 13.03.2002. writ petitioner filed returns for year ended 31st March, 2002, for assessment year 2002-2003 admitting income towards capital gains and interest and paid tax on advice of Auditor. 3. However, Assessment Officer had added sale consideration of Rs.4.30 Crores in addition to Rs.62,00,000/- received by writ petitioner and passed assessment order on 31.10.2006. Commissioner of Income Tax, by his order dated 29.12.2009, confirmed Assessment order, against which, petitioner preferred appeal to Income Tax Appellate Tribunal. Appellate Tribunal, by its order dated 16.12.2010, had quashed addition of Rs.4.30 Crores under Section 45(5)(b) of Income Tax Act, 1961, and held that transfer, as contemplated in Section 2(47) of Act had happened in year ended 31.03.1993, relevant assessment year 1993-1994 and not in Assessment years 2000-2001 or 2002-2003. 3/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 4. Assessing Officer, while giving effect to Tribunal's order dated 16.12.2010, had re-determined income at Rs.51,85,268/- as per returns filed by petitioner and passed revised assessment order on 25.02.2011. Thereafter, petitioner filed Miscellaneous Petition for clarification with regard to retention of capital gains wrongly admitted by petitioner on ground that voluntary admission is no ground to assess same, as there is no estoppel in law. According to petitioner, transfer had taken place, as observed in paragraph 7 of order of appellate Tribunal on 27.08.1992 and capital gains were assessable only in relevant year 1993-1994 and not in 2001-2002 or 2002-2003 and hence, voluntary admission made by assessee on wrong advice, shall be ignored. Since no tax is payable in 2002-2003, amount remitted shall be refunded. 5. Tribunal, after considering petition, by its order dated 09.09.2011, has observed that relief sought for has to be granted by assessing authority, if it is justifiable and dismissed petition, as there is nothing to review or for rectification of any mistakes. 4/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 6. Again, petitioner made petition to assessing authority on 03.10.2011 for revision of assessment order in terms of paragraph 7 of order of Appellate Tribunal. Assessing Authority, by impugned proceedings dated 06.03.2012, rejected request. 7. learned counsel for petitioner would vehemently contend that there is no estoppel against law. When income is not assessable in particular assessment year, even it is wrongly admitted in self assessment, Income Tax Department shall refund amount not assessable to tax. When Appellate Tribunal nullified assessment order and held that income is not assessable for assessment years 2000-2001 or 2002-2003, assessing authority shall refund same. Refusal to refund is illegal and since order is passed without jurisdiction, alternative remedy of appeal need not be availed and hence, Writ Petition is maintainable. 8. Countering submissions, learned counsel for respondent would submit that main order of assessment has become final, as there is no challenge to same and writ petition challenging 5/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 consequential order is not maintainable. petitioner, having filed petition for revision of assessment order and after having submitted to jurisdiction of assessing authority, cannot turn around and state that order is without jurisdiction. Since there is appeal remedy available, non-exhaustion of appeal remedy will render writ petition not maintainable. Filing voluntary returns admitting income on wrong advice is not ground for refund. income is assessable to tax and non- payment of tax taking dubious stands is nothing but tax avoidance, which cannot be entertained. 9. Of course, it is admitted fact that writ petitioner is assessee and derived income under head capital gains for selling property. sale agreement was admittedly entered on 27.08.1992 and possession was handed over to purchaser. However, amount was not disclosed on ground that as per terms of sale agreement, sale would be complete on registering property. balance sale consideration of Rs.12,00,000/- was made on 10.12.1999 and assessee had executed Power of Attorney in favour of purchaser. possession would have been handed over at least on 10.12.1999 on date of receipt of balance sale consideration. Therefore, transfer is 6/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 complete in view of Section 53-A of Transfer of Property Act on date of putting purchaser in possession of property either on 27.08.1992 or on 10.12.1999. relevant assessment years for paying tax is 1993-1994 or 2000-2001. 10. petitioner has not paid tax during assessment year 1993-1994 on ground that sale was not complete in terms of sale agreement. Admittedly, transfer was complete during assessment year 2000-2001. 11. Though it was not assessed in relevant assessment year, petitioner filed returns on self assessment and admitted income and paid tax with interest. According to Income Tax Act, payment of tax belatedly attracts interest. Accordingly, petitioner filed returns in year ended 31.03.2002, relevant assessment year 2002-2003 and paid tax on admitted income. Whether returns were filed for admitted income on wrong advice or right advice, what is imperative is that payment of tax is mandatory. Only because, returns for year 1993-1994 were accepted and assessment order was passed without demanding tax on capital gains, in view of Section 53-A of 7/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 Transfer of Property Act, for completed transaction, it will not entitle assessee to avoid tax. There is huge difference between tax planning and tax avoidance. Whenever and wherever law permits to pay lesser tax or no tax, assessee is entitled to plan for availing such benefits to extent, law permits or it is legal. But, not paying tax taking refuge under one pretext or other, is illegal and no law permits citizen from sulking away from discharging duty expected by law. If person omits to perform duty cast upon him or evades to pay tax, it is tax avoidance. Hon'ble Supreme Court in Union of India Vs. Azadi Bacho Andolan and Anr. [(2003) 263 ITR 706] observed as under:- "The principle does not involve, in my opinion, that it is part of judicial function to treat as nugatory any step whatever which taxpayer may take with view to avoidance or mitigation or tax. It remains true in general that taxpayer, where he is in position to carry through transaction in two alternative ways, one of which will result in liability to tax and other of which will not, is at liberty to choose latter and to do so effectively in absence of any specific tax avoidance provision such as s.460 of Income and Corporation Taxes Act, 1970." ......... situation in United States is reflected in following passage from American Jurisprudence's case (American Jurisprudence [1973] second edition, volume 71): "The legal right of taxpayer to decrease amount of what 8/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 otherwise would be his taxes, or altogether to avoid them, by means which law permits, cannot be doubted. tax-saving motivation does not justify taxing authorities or courts in nullifying or disregarding taxpayer's otherwise proper and bona fide choice among courses of action, and state cannot complain, when taxpayer resorts to legal method available to him to compute his tax liability, that result is more beneficial to taxpayer than was intended. It has even been said that it is common knowledge that not infrequently changes in basic facts affecting liability to taxation are made for purpose of avoiding taxation, but that where such changes are actual and not merely simulated, although made for purpose of avoiding taxation, they do not constitute evasion of taxation. Thus, man may change his residence to avoid taxation, or change form of his property by putting his money into non-taxable securities, or in form of property which would be taxed less, and not be guilty of fraud. On other hand, if taxpayer at assessment time converts taxable property into non-taxable property for purpose of avoiding taxation, without intending permanent change, and shortly after time for assessment has passed, reconverts property to its original form, it is discreditable evasion of taxing laws, fraud, and will not be sustained." 12. From above, assessee can choose either one of ways which law permits, but cannot avoid tax which is assessable to tax. Only because, it was not assessed during relevant year, it will not be income not assessable to tax. assessment can be revised within period of limitation prescribed by law or assessee can also voluntarily pay tax on escaped or omitted to be disclosed. But income, which is assessable to tax, which was not assessed in relevant year, but, admitted by assessee on later date, cannot be said not assessable 9/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 and it shall be refunded. When speaking on tax avoidance, Hon'ble Supreme Court in M/s.McDowell and Company Limited Vs. Commercial Tax Officer [ (1985) 3 SCC 230 ] held as under:- "17. We think that time has come for us to depart from Westminister principle as emphatically as British Courts have done and to dissociate ourselves from observations of Shah, J. and similar observations made elsewhere. evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in welfare state like ours. Next there is serious disturbance caused to economy of country by piling up of mountains of blackmoney, directly causing inflation. Then there is "the large hidden loss" to community (as pointed out by Master Sheatcraft in 18 Modern Law Review 209) by some of best brains in country being involved in perpetual war waged between tax- avoider and his expert team of advisers, lawyers and accountants on one side and tax-gatherer and his perhaps not so skilful, advisers on other side. Then again there is 'sense of injustice and inequality which tax avoidance arouses in breasts of those who are unwilling or unable to profit by it'. Last but not least is ethics (to be precise, lack of it) of transferring burden of tax liability to shoulders of guideless good citizens from those of 'artful dodgers'. It may, indeed, be difficult for lesser mortals to attain state of mind of Mr. Justice Holmes, who said, "Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civilization." But, surely, it is high time for tho judiciary in India too to part its ways from principle of Westminister and alluring logic of tax avoidance. We now live In welfare state whose financial needs, if backed by law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is pretence to say that avoidance of taxation is not unethical and that It stands on no less moral plane than honest payment of taxation. In our view, proper way to construe taking statute, while considering device to avoid tax, is not to ask whether 10/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 provisions should be construed literally, or liberally, nor whether transaction is not unreal and not prohibited by statute, but whether transaction is device to avoid tax, and whether transaction is such that judicial process may accord its approval to it.A hint of this approach is to be found in judgment of Desai, J. in Wood Polymer Ltd. v. Bengal Hotels Limited(1) where learned judge refused to accord sanction to amalgamation of companies as it would lead to avoidance of tax. 18. It is neither fair nor desirable to expect legislature to intervene and take care of every device and scheme to avoid taxation. It is upto Court to take stock to determine nature of new and sophisticated legal devices to avoid tax and consider whether situation created by devices could be related to existing legislation with aid of 'emerging' techniques of interpretation as was done in Ramsay, Burma Oil and Dawson, to expose devices for what they really are and to refuse to give judicial benediction." 13. Hon'ble Supreme Court in Commissioner of Income Tax, Bhopal Vs. Shelly Products and Another [(2003) 5 SCC 461], while dealing with similar claim for refund of tax paid on admitted income, has observed as under:- 19. It further held that when assessee files his return under section 139 and pays tax under section 140A by way of self- assessment claiming allowance of advance tax or tax deducted at source in amount of tax payable according to him, there is clear admission of liability that has arisen under Act to pay tax on total income as is computed by assessee and duly quantified in return. procedure of assessment by Income- tax Officer is essentially to check computation of total income done by assessee. Therefore acceptance of proposition 11/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 canvassed by assessee would produce startling result where though, according to assessee, he is liable to pay tax as per return filed by him and has in fact paid tax in accordance with provisions of section 140A of Act and Assessing Officer did not find it necessary to assess total income since he may have accepted return on expiry of period during which regular assessment is required to be made, entire tax amount, admittedly payable under Act would be required to be refunded. scheme of Act clearly indicates that liability to pay income tax chargeable under section 4(1) of Act does not depend upon assessment being made by Income-tax Officer but depends on enactment by any Central Act prescribing rate or rates for any assessment year. Thus, as soon as rates are prescribed by appropriate legislation, liability to pay tax arises on total income which is to be computed by assessee in accordance with provisions of Act. By process of self-assessment, assessee is required to pay tax on basis of his return and such tax is treated as assessed tax. Therefore, until it is disturbed by any further regular assessment, it remains as tax levied and collected in accordance with law. Having considered all aspects of matter Full Bench concluded :- "We are, therefore, of view that, on failure of regular assessment being made within time prescribed or in event of annulment of assessment order pursuant to which any further demand is required to be made under section 156, no consequence of refund of entire tax collected according to total income shown in returns filed by assessee can ensue and such tax which is collected on basis of return filed by assessee remains valid and legal recovery in accordance with provisions of said Act and there is no question of any violation of Article 265of Constitution of India in respect of tax so recovered on basis of total income shown by assessee in his return." 23. learned Judge of Kerala High Court in E. Philip Joseph vs. Income-Tax Officer and another: [1998] 234 ITR 846 12/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 followed Full Bench of Gujarat High Court. In that case there was no dispute as to refund of tax which was levied on income added by Income-tax Officer at time of regular assessment. dispute was only with regard to refund of tax on income returned as per self-assesment. It also appears from report that assessment framed by Assessing Officer was set aside in appeal by Commissioner of Income-tax who set aside additions made by Income-tax Officer and thereafter no fresh assessment was made pursuant to appellate order. assessee made representation before Commissioner whereafter Income-tax Officer passed order on basis of directions issued by Commissioner of Income-tax. As against said order assessee filed revision petition before Commissioner and Commissioner finally passed order under section 264 of Act which was impugned by assessee before High Court. learned Judge held that setting aside of regular assessment did not mean that self-assessment made under section 140A had been set aside. Even if regular assessment is declared to be void, it has no effect on self-assessment made under section 140A. direction to refund tax paid on regular assessment does not mean that tax paid along with return under section 140A shall be refunded, because payment of tax under self- assessment is on admitted income returned by assessee. When tax has been paid on admitted income, even if income added by Income-tax Officer by way of addition in regular assessment has been set aside in appeal or revision, assessee has no legal right to claim refund of tax so paid because what has been set aside is not self- assessment but regular assessment." 14. In instant case also, assessee paid tax which is admittedly payable. Even assessment order is set aside, it will not have any impact on self assessment made by assessee. Income 13/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 Tax Appellate Tribunal has considered addition of income under Section 45(5)(b) of Act as incorrect and nullified it. But, assessment order on admitted income was not nullified. Only because, there is observation that relevant year of assessment is 1993-1994 in view of Section 53-A of Transfer of Property Act, it will not confer any legal right on assessee to claim refund. Admittedly, income is assessable to tax and it was not assessed due to statement made by assessee that transfer was not complete in terms of sale agreement. assessee cannot blow hot and cold or approbate and reprobate that what is not paid on due date cannot be assessed at all. It is true to state that there is no estoppel against law. In judgment in Sail DSP Vr Employees Association Vs. Union Of India [ (2003) 128 Taxman 704 (Cal) ] referring to CIT Vs. Bhaskar mitter [ (1994) 73 Taxman 437 (Cal) ], it has been held as under:- "17. question of estoppel because of option exercised with eyes open to subsequent modification cannot be sustained. What is not otherwise taxable cannot become taxable because of admission of assessee. Nor there can be any waiver of right otherwise admissible to assessee in law. chargeability is not dependent on admission of or waiver by assessee. Chargeability is dependent on charging section, which needs to be strictly construed. Referring to decision in 14/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 CIT v. Bhaskar Mitter (1994) 73 Taxman 437 (Cal) at p. 442 (paragraph 8), we had occasion to so hold in decision in Maynak Poddar (HUF) v. WTO (IT Appeal No. 84 of 1998, dated 24-2-2003)." 15. chargeability is dependent on charging section. It is not in dispute that income of petitioner is chargeable to tax. In other words, assessment authority has not assessed income which is not assessable to tax. Hence, claim for refund of tax paid on admitted income is not sustainable. 16. Further, as contended by learned counsel for respondent, revised order of assessment pursuant to annulment of addition of sale consideration by purchaser dated 25.02.2011 has not been challenged. assessment as such has become final. What is challenged in present Writ Petition is rejection of request for rectification of assessment. When assessment order, which accepts tax liability as proposed by assessee, is intact, consequential order refusing to rectify defects in filing returns on wrong advice cannot be sustained. As mandated by law, assessee filed self assessment and paid tax on income assessable to tax along with 15/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 interest for delayed payment, which is in conformity with legal provision of Income Tax Act, 1961. If at all, petitioner is aggrieved, she should have filed appeal against assessment order dated 25.02.2011. Apart from this, order impugned has been passed in terms of Office Memorandum issued in cases of claim for refund and following ratio laid down by Hon'ble Supreme Court in Shelly Products case cited supra. 17. In such circumstances, this Court is of opinion that tax avoidance of income chargeable to tax is not permissible under law and above case is squarely covered by judgment of Supreme Court in Shelly Products case. Therefore, prayer sought for by petitioner cannot be granted. In fine, Writ Petition is dismissed. No costs. 03.11.2020 Index : Yes / No Internet : Yes / No Speaking Order : Yes / No asi To Assistant Commissioner of Income Tax, Circle III, Trichy. 16/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 17/18 http://www.judis.nic.in W.P.(MD) No.5542 of 2012 M. GOVINDARAJ, J. asi Order Made In W.P. (MD) No.5542 of 2012 03.11.2020 18/18 http://www.judis.nic.in Visalakshi Anandkumar v. Assistant Commissioner of Income-tax, Circle III, Trichy