Bombay High Court Upholds Tax Authority's Decision on Refunds & Interest in Bombay Dyeing Case

Bombay High Court Upholds Tax Authority's Decision on Refunds & Interest in Bombay Dyeing Case

The Bombay High Court, in a recent ruling, has rejected the writ petition filed by Bombay Dyeing & Manufacturing Co. Ltd. (petitioner), upholding the tax authority's decision to offset the refund and interest amount from the tax paid by the petitioner. The Court emphasized the importance of considering any refunds issued by the revenue to the assessee and the corresponding interest paid on those refunds for an accurate determination of the disputed tax amount.

In this case, Bombay Dyeing & Manufacturing Co. Ltd., a public limited textile company, (the petitioner), challenged the legality of certain orders issued under the Kar Vivadh Samadhan Scheme, 1998, regarding the determination of tax payable. The dispute centred around the deduction of both the refund and interest amounts from the aggregate of advance tax and tax deducted at source (TDS) paid by the petitioner.

The petitioner argued that only the refunded tax amount should be considered for calculating the tax paid, excluding the interest component, as including interest would lead to an unreasonable outcome. They contended that any deduction should be limited to the refund of tax alone, not the interest component.

On the other hand, the revenue authority countered the petitioner's claims by pointing out that for the assessment year 1991-92, the petitioner's assessed income was ₹31,96,52,478, with a determined tax liability of ₹14,70,40,140. The petitioner had already paid ₹5,53,22,454 as advance tax and TDS. However, the petitioner was issued a refund of ₹2,50,06,177, which comprised ₹1,93,76,497 as excess prepaid taxes and ₹56,29,680 as interest on the refunded amount.

The Division Bench of Justices K.R. Shriram and Firdosh P. Pooniwalla made significant observations regarding the determination of disputed tax and disputed income under the Finance Act.

The Court highlighted that the definitions provided in the Finance Act offer guidance on calculating the disputed tax amount. As per these definitions, the total assessed tax for the relevant year must be computed, and any taxes paid by the assessee should be subtracted from that amount.

The Court further clarified that the term "disputed tax" refers to the total tax determined and payable, which remains unpaid as of the date of making the declaration, as mentioned in Section 88(f) of the Finance Act. To ensure accuracy in calculating the unpaid tax, it was essential to take into account any refunds issued by the revenue to the assessee and the corresponding interest paid on those refunds.

The Court emphasised that ignoring such refunds and interest payments by the revenue would lead to an incorrect representation of the disputed tax amount, as it would not accurately reflect the tax that remained unpaid by the assessee.

Based on their observations and analysis, the Bench concluded that the calculations carried out by the authority under the Kar Vivadh Samadhan Scheme (KVSS) were in line with the provisions of the Finance Act and were free from any errors or faults.

The Bench highlighted the significance of this because the Revenue refunded tax to the Petitioner and also paid interest on the refunded amount. This refund and interest payment was made because the Petitioner had not properly disclosed and calculated the tax liability.

“This being the situation, 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. We are not inclined to entertain such an argument at all, and, in any case, definitely not whilst exercising our Writ Jurisdiction,” the Bench stated.