While interpreting tax provisions, the principles of equity and logic are often not applied. However, two recent decisions of the Karnataka High Court have been exceptions, with both favouring the assessees, and these could turn out to be a precedent for many more cases to come.
In the Balakrishnan (290 ITR 227) case, the assessee took voluntary retirement and received Rs 6.01 lakh. After exemption of Rs 5 lakh under Section 10(10C), the balance was subjected to TDS (tax deduction at source), and Rs 29,331 deducted. The matter related to the assessment year 2003-04 and the assessee filed return of income in May 2006, beyond the time prescribed in law. The legal cut-off time expired on March 31, 2005.
The assessee claimed that the entire tax deducted at source was eligible for refund as his total income was below the taxable limit resulting in `nil' tax liability. The assessing officer (AO) refused to act on the time-barred return and in the writ it was argued by the Revenue that the assessee can seek condonation of delay in filing the return by having recourse to Section 119(2)(b) of the Act.
The High Court held that when the income of the assessee is below the taxable limit and there is refund legitimately due to the assessee, it has to be given and the time limit prescribed in Section 139 would not apply. This decision per se appears well reasoned and equitable as it mandates refund of money which does not belong to the exchequer. However, how the AO can act on the return which is barred by limitation not only for filing purposes but also for assessment under Section 153 (1) is an issue with no direct solution.
In CIT vs M. M. Gujamgadi (290 ITR 168), the High Court dealt with levy of concealment penalty. In this case, the assessee who took loan from agriculturists could not produce the agriculturists before the income-tax officer (ITO) and, hence, agreed for additions to his income. The concealment penalty was proposed to be levied subsequently.
The court held that `in spite of honest efforts' the assessee could not secure the loan creditors for examination by the ITO. This observation is a subjective expression which may vary from one case to another. Explanation (1B) says that if the assessee offers an explanation which he is not able to substantiate and fails to prove the bona fide of the explanation, the amount added to income is liable for concealment penalty.
How the assessee substantiated his explanation is debatable and in many instances satisfaction of this twin requirement would require greater inquiry which, in reality, is difficult.
Decisions in tax law, which provide justice by applying principles of equity, are welcome as they come from out-of-box thinking by the Judiciary. How the administrators will implement the decisions by applying the provisions of law remains to be seen.
In the Balakrishnan case, accepting the court verdict under what provision the return filed by the assessee would be processed by the AO for grant of refund would show that decisions though are equitable and logical defy the provisions of law but in many instances they are unworkable.
V. K. Subramani (The author is an Erode-based chartered accountant.)