Law: Income Tax Act, 1922

Section: 66(7)

Income-tax-Firm-Assessment as unregistered firm-Assess ment set aside on reference to High Court-Officer adjusting tax paid by firm against individual assessments of partners-Liability to pay interest-Reference pending-Whether operates as stay-Indian Income-tax Act, 1922, S. 66(7), proviso. The petitioner firm was refused registration for 1951-52. The matter was ultimately decided in its favour by the High Court on reference. Pursuant to this the officer worked out the tax effect on the individual assessment of each of the partners and a sum of Rs. 51,137.03 out of the total amount paid by the firm was adjusted against the tax due from the partners. After making adjustments for certain other refunds made, the officer granted a net refund of Rs. 11,298.27. On the question of the liability to pay interest also under the proviso to section 66(7) of the Income-tax Act, 1922, the Department took the view that the nil liability of the firm being only an indirect result of the earlier reference to the High Court, the proviso can have no application. In a writ petition filed in the High Court: Held, that the liability to pay interest under the proviso extended to the entire sum of Rs. 62,435, 30. Pendency of a reference in the High Court would not be an excuse and would not also act as a stay of collection of tax. Section 66(7) indicates that the subject-matter of the reference should involve and be related to a liability to pay in accordance with the assessment, having been used in the sense of liability to pay tax which has to be the subject-matter of the reference. The proviso to the subsection enables a successful assessee to get interest on the amount by which the tax liability has been reduced; but, for the proviso to apply, the result or consequence must spring or flow directly from the reference. JUDGMENT VEERASWAMI, J.-The petitioner is a registered firm which seeks a direction to the respondent to exercise his powers under section 66(7) of Income-tax Act, 1922, and allow interest on a sum of Rs. 51,137.03 due as refund. The firm was, for the assessment year 1951-52, assessed to income-tax under sec tion 23(3), its prayer for refund as a registered firm having…