While Deducting Tax That Has Already Been Paid, Effect Would Have To Be Given To Any Refund As Well As Interest Issued By IT Dept: Bombay HC

While dismissing the petition filed by Bombay Dyeing & Manufacturing Co. Ltd. (petitioner), the Bombay High Court upheld the tax authority's decision to deduct the refund and interest amount from the tax paid by the petitioner.

The High Court emphasized that to determine the disputed tax accurately, it was essential to consider any refunds issued by the revenue to the assessee and any interest paid on those refunds.

The Division Bench comprising of Justice K.R. Shriram and Justice Firdosh P. Pooniwalla observed that “in order to arrive at the disputed tax, the total assessed tax for that particular year would have to be worked out, and, from the same, the taxes which may have been paid by the assessee have to be deducted. That disputed tax must be total tax determined and payable but which remains unpaid, as per the provisions of Section 88(f), ‘tax which remains unpaid’ as on the date of making declaration”.

The Bench clarified that to calculate the tax that remains unpaid, it is obvious that, whilst deducting from the total assessed tax the tax already paid, effect would have to be given to any refund issued by the Revenue to the Assessee and to any interest paid thereon by the Revenue to the Assessee.

“If effect is not given to the said Refund and interest paid by the Revenue to the Assessee, then the figure of disputed tax which would be arrived at would not be tax which remained unpaid”, added the Bench.

Advocate Madhur Agrawal appeared for the Petitioner, whereas Advocate Suresh Kumar appeared for the Respondents.

The brief facts of the case were that the petitioner, a public limited company engaged in the textile business, had challenged the legality and validity of certain orders issued by the authority regarding the determination of tax payable under the Kar Vivadh Samadhan Scheme, 1998. The petitioner contested the deduction of refund and interest from the aggregate of advance tax paid and tax deducted at source. The petitioner argued that only the refunded tax amount should be considered for calculating the tax paid, excluding the interest amount. According to their submission, any reduction should be limited to the refund of tax and not the refund of interest. The revenue authority however, countered the petitioner's claims by stating that although the petitioner had an assessed income of Rs. 31,96,52,478 for the assessment year 1991-92, and the tax determined on that income was Rs. 14,70,40,140, the petitioner had already paid Rs. 5,53,22,454 as advance tax and tax deducted at source. However, the petitioner was issued a refund of Rs. 2,50,06,177.

After considering the submission, the Bench found that the calculations made by the authority under the KVSS were consonance with the provisions of the Finance Act and cannot be faulted.

The Bench further noted that the Revenue refunded tax to the Petitioner, and paid interest thereon, because the Petitioner had not disclosed and calculated tax properly.

Thus, the High Court clarified that the Petitioner cannot take advantage of its own wrong and claim that the interest which has been paid to it should not be reduced while computing the disputed tax. 

Cause Title: The Bombay Dyeing & Manufacturing Co. Ltd v. H.D. Trivedi and Ors. [Neutral Citation No. :2023:BHC-OS:6527-DB]

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