TMI Blog1955 (11) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... know. After this, an assessment was made for the year 1948-49 and the amount assessed was ₹ 2,16,994-7-0 on all the partners of the firm. It appears from a letter of the Income- tax Officer, Lucknow, dated 5th February, 1952 (marked as annexure I to the affidavit, filed along with the petition) that the petitioner had claimed an adjustment of the excess advance payments said to have been made by him in Lahore under section 18A of the Income-tax Act, in the assessment made for the year 1948-49. In this letter the Income-tax Officer in effect says that the matter regarding the adjustment of surplus money for the year 1946-47 and 1947-48 had been referred to the higher authorities and on getting instructions, credit for these amounts was to be allowed. If the higher authorities did not allow credit, a demand for the balance would then be sent to the petitioner. This letter was followed by another letter of the Income-tax Officer, dated 24th June, 1952, in which it was stated that the liability for adjustment of advance payment of tax under section 18A rested with the Dominion which was in possession of the assessment record. This record had not been transferred from Lahore to Lu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers said to have been sent by Mulk Raj one of the partners of the petitioner on 7th June, 1948, and 27th February, 1950. A further defence has been taken to the effect that under section 9 of the Indian Independence Act, the Governor-General issued certain Orders, including Orders known as the Indian Independence (Partition Councils) Order, 1947, and the Arbitral Tribunal Order, 1947. Reference is also made to the report of the Expert Committee and to the acceptance of this report by the Partition Committee. The result of these, according to the respondent, is that the Dominion of India was not liable for the adjustment of advance payments of income-tax in respect of payments made in the territory, which now forms part of Pakistan. A rejoinder affidavit has been filed on behalf of the petitioner saying that he was not aware of any assessment having been made as to his income in Lahore for the assessment years 1946-47 and 1947-48 nor was any application made to Pakistan Officers by the petitioner for refund of the amounts he had paid under section 18A for the above years. The question, that arises for consideration in this petition, is whether the petitioner is entitled to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assertion, the learned counsel relied on paragraph No. 9(f) of the Report of Expert Committee No. III(i), dated 1st August, 1947, published at page 10 of Partition Proceedings, Vol. III, a publication of 1948 by the Manager, Government of India Press, New Delhi. This clause deals with refund or adjustment of advance payments of income-tax, and it says that the liability will be on the Government to whom the assessment file is transferred. But the Muslim members made their acceptance of the agreement conditional on the corresponding deposits being transferred to Pakistan. The argument of the learned counsel is that the file of this case not having been transferred by Pakistan authorities, the Dominion of India was not liable for the refund of the excess payments made under section 18A of the Income-tax Act. The learned counsel further contended that the petitioner has not filed the assessment order passed in Pakistan with respect to the assessment years 1946-47 and 1947-48, and it was not known what excess payments had actually been made by the petitioner in those years. The learned counsel further urged that the claim, if it is treated to be a claim for refund, is barred by time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in lieu of payment of the amount, may set off the amount to be refunded or any part of that amount, against the tax remaining payable by the person to whom the refund is due. The Income-tax Officer thus has the power either to refund the amount or to set it off against the income-tax due for the subsequent years and the petitioner requested him to adopt this latter course of setting off the excess paid under section 18A. There cannot be much doubt that, if the Income-tax Officer had decided to make the refund, he would have preferred to follow the course of setting off the excess from the amount due for the subsequent years under section 49E of the Act. But he refused to do so as, according to him, the payment having been made in Lahore, the petitioner was not entitled to claim a refund of that amount from the assessments made in Lucknow. The learned counsel for the respondent argued that the discretion for setting off the amount rests with the Income-tax Officer and the petitioner cannot compel him to do so. According to him, the petitioner could have prayed in his petition that he should be allowed to have the refund of the amount, but that is not the prayer and the prayer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd intricate questions of law arose with respect to the construction of a document and their Lordships held that, under the circumstances, it was the duty of the Revenue Authority, as a public servant, to make the reference. In case the Authority omitted to perform that duty, it was within the power of the Court to direct the Authority to discharge it and make a reference to the High Court. The principle laid down in the cases covers the present case and it is the duty of the Income-tax Officer to allow a set-off to the assessee, if he claims it and it is proved that he is entitled to a refund. It was argued on behalf of the respondent that the power contained in section 49E is for the benefit of the Department and not for the benefit of the assessee, and the assessee, therefore, cannot compel the Department to exercise the power. I think that it is to the convenience and benefit of both the parties that, where a refund is due, a set-off may be claimed and allowed, because it would avoid the necessity of first taking the money from the Department and then again paying it back to the Department. I may also dispose of here the contention of the learned counsel for the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by that expression, which is meant to cover only cases of obligations to the States by the Dominion. The meaning of this expression came up for consideration before the Supreme Court in the case of The State of West Bengal v. Sheikh Sirajuddin Batley [1954] S.C.R. 378. The question in that case was whether the liability to pay rent under a lease came within the expression financial obligations , as used in article 9 of the Order, mentioned above. Their Lordships held that, if the expression was taken in its ordinary meaning, it would cover all monetary obligations of every nature, but this construction renders the provisions of article 8 nugatory, which specifies the nature of contracts for which the liability will be of the Dominion of India. The case was taken to be covered by article 8 and it was held to be outside the purview of the expression financial obligations , used in article 9. Their Lordships held that the expression should be construed ejusdem generis and, so construed, it only refers to obligations which are obligations in the nature of loans and guarantees incurred or undertaken by the Government. Reference was then made to three other cases, two of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind. The payment really is an advance payment of income-tax with an obligation to pay interest on the amount paid in advance. It is really not a loan but a payment to be made for the liability expected to be incurred on account of income-tax, in future. But I think the nature of this payment is that of a loan which is to be adjusted in the regular assessment and interest is to be paid by the assessee or the Government, as the case may be. The payment also concerns the revenue of the Central Government and I think that it is included in the expression financial obligations , as used in article 9 of the Order. The liability for the payment of this advance amount devolved after the Partition on the Dominion of India. The next question is whether it devolved after that on the Union of India. Reference in this connection may be made to article 294(b) of the Constitution, which says that all rights, liabilities and obligations of the Government of the Dominion of India, whether arising out of any contract or otherwise, shall be the rights, liabilities and obligations of the Government of India subject to any adjustment made by reason of the creation, before the commencement of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent also aver that no such transfer has taken place. The argument is that the case not having been transferred, the Dominion of India is not liable for any sum found due to the petitioner, even if he had made any excess payment in Lahore. I do not think the inference drawn by the learned counsel for the respondent is correct. A reading of the article shows that in the two cases provided for in it, all proceedings relating to the case are to be transferred to the Income-tax Authority to whom the case has been transferred. It only confers jurisdiction on a Tax Authority of a different place to deal with the case, if there has been an alteration of jurisdiction of the Tax Authority, as a result of setting up of two Dominions, or if the file of the case has been transferred by an agreement by one Dominion to another. The article does not concern itself with the liabilities for the refund of excess payments. Further, the article is merely an enabling one and it nowhere says what is to happen to those cases in which the files have not been transferred or the jurisdiction has not been altered. The instant case is said to be one where the petitioner's file has not been transferred and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is to consider all questions relating to such of the matters as are mentioned in article 4 of the Arbitral Tribunal Order, 1947, and to attempt to reach an agreed decision on all such questions. In the event of the failure to reach an agreed decision, the Partition Council is to make a reference to the Arbitral Tribunal set up by another Order, issued under the Independence Act. The matters which the Arbitral Tribunal is to consider are mentioned in article 4(1), and the first matter is the division between the Dominions of India and Pakistan, of the assets and liabilities of the Governor-General-in-Council. It is also said here that the Tribunal shall have power to make awards in respect of references made to it by any of the bodies mentioned later. Under clause (2) of article 4, the Partition Council is one of the bodies referred to in clause (1). Clause (3) provides that when the appropriate body, mentioned in clause (2), was unable to reach an agreed decision in regard to the matters mentioned in clause (1), that body was to make a reference to the Tribunal. Article 5, clause (2), says that when a question has been referred to a Tribunal, if the two members of the Tribunal ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above, and if that is so, the decision of the Partition Council would have no binding force. Assuming, however, it was the decision of the Partition Council of India and Pakistan, constituted under the relevant Order of the Governor-General, it does not appear that the decision of the Partition Council itself had any binding force on the two Dominions unless the two Dominions entered into an agreement on the point. An example of a binding agreement arrived at between the two Dominions is to be found in the Agreement for Avoidance of Double Taxation in India and Pakistan, issued under Notification No. 28, dated 10th December, 1947, (printed in Income- tax Act by Kanga and Palkhivala, Second Edition, Div. 2, page 146). As a result of this agreement, section 49AA was added in the Income-tax Act providing for entering into of such an agreement for the avoidance of double taxation. The instant case is not a case of double taxation and the agreement has only been mentioned as an instance of a binding agreement arrived at between the two Dominions. No such agreement appears to have been arrived at for the liability to refund income-tax under section 48 of the Income-tax Act. It is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment, since then, must have decided this matter. In these circumstances, it would have been futile for the petitioner to have filed any appeal against the order of the Income- tax Officer dated 24th June, 1952. That order can hardly be said to be an order of the Income-tax Officer and, in any case, the Assistant Commissioner of Income-tax, to whom an appeal lay, was not likely to have taken a different view. The petitioner referred the matter to the Government and had been waiting for its decision, and it was when the recovery of the tax was threatened on the 5th February, 1955, that he moved the present petition. The remedy of an appeal, under the circumstances, cannot be said to be an adequate or efficacious remedy. The learned counsel for the respondent argued in the end that it was not clear how much excess payment had been made by the petitioner in Pakistan, as no assessment orders of Pakistan authorities for the relevant period had been filed, and it appeared from the petitioner's letter attached to the affidavit that some proceedings were pending in Pakistan. Mr. G.S. Pathak, learned counsel for the petitioner, said that no regular assessments had been made in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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