Principal Commissioner of Income Tax Can’t Assess Merits of Refund Claims; Kerala High Court Orders Fresh Consideration based solely on Delay Justification [Read Order]

The High Court of Kerala has held that the Principal Commissioner of Income Tax cannot assess the merits of refund claims but should focus solely on whether there are justifiable reasons for condoning the delay in filing such claims.

The decision came in response to a writ appeal filed by a taxpayer, Daisy, who was seeking a refund of tax deducted at source (TDS) from an enhanced compensation amount.

The case revolved around the late husband of the appellant, who had received compensation for land acquired by the state under Land Acquisition laws. The husband had initially filed a return of income for the assessment year 2005-2006, claiming a refund of the TDS amount deducted from payments made to him by the Land Acquisition Authority. This refund was granted, but the husband omitted to file a return for the assessment year 2012-2013 before he passed away in December 2014.

The appellant, Daisy, became aware of the need to file this return only on August 19, 2015, and promptly filed a “nil return” on her husband’s behalf, along with an application for condonation of delay under Section 119(2)(b) of the Income Tax Act, 1961. The delay sought to be condoned spanned from the due date of July 31, 2012, until the date of filing, August 19, 2015.

The Principal Commissioner of Income Tax, Thiruvananthapuram, rejected the appellant’s application under Section 119(2)(b) of the Income Tax Act, 1961, citing the failure to establish the land’s agricultural nature and a lack of clear evidence regarding the conditions specified under Section 10(37)(ii) of the Income Tax Act.

The appellant challenged this decision by filing a writ petition. She argued that the Principal Commissioner had overstepped his authority by delving into the merits of her refund claim.

The appellant contended that the Principal Commissioner’s role was limited to determining whether the delay in filing the refund claim was justified and if so, he should condone the delay and refer the refund application to the assessing authority for further consideration.

The Single Judge of the Kerala High Court upheld the Principal Commissioner’s decision. The bench found that the Principal Commissioner had acted in accordance with an administrative circular, particularly paragraph 5 of Circular No. Ext.P10, issued by the Central Board of Direct Taxes (CBDT). This circular authorised the Principal Commissioner to ensure the correctness and genuineness of the refund claim and assess whether the case involved genuine hardship. However, the single judge ruled that the Principal Commissioner’s decision did not warrant interference.

Aggrieved by the said order, the appellant filed a writ appeal before the division bench. In the subsequent writ appeal, the Kerala High Court disagreed with the Single Judge’s decision.

The appellant was represented by S. Krishnamoorthy, Sneha Rose and P. S. Aruna while the respondent revenue, the Principal Commissioner of Income Tax and the Assistant Commissioner of Income Tax were represented by Christopher Abraham.

The division bench, comprising Dr. Justice A.K. Jayasankaran Nambiar and Dr. Justice Kauser Edappagath, held that Section 119(2)(b) of the Income Tax Act only empowers CBDT to admit applications or claims for various tax-related reliefs after the specified deadline. The statute does not grant CBDT or its authorised officials the discretion to assess the merits of refund claims. While CBDT can delegate this authority, the delegation cannot exceed the discretion defined by the Income Tax Act, 1961.

The bench also highlighted that the Principal Commissioner had not taken a decision on the merits of the delay condonation application under Section 119(2)(b) of the Income Tax Act but had instead assessed the refund claim itself. The Principal Commissioner's finding that the land was not agricultural, despite a previous refund claim being granted, was deemed flawed. The Court pointed out that this issue needed to be considered by the assessing authority.

In result, the bench allowed the writ appeal, setting aside the judgment of the single bench and ordered the Principal Commissioner to reconsider the appellant’s application under Section 119(2)(b) of the Income Tax Act. This reconsideration must focus solely on whether justifiable reasons have been presented for condoning the delay in filing the refund claim. The Principal Commissioner was directed to pass fresh orders within two months, following this judgment.

The Kerala High Court decision clarifies the scope of authority of the Principal Commissioner of Income Tax and underscores the importance of adhering to statutory provisions when assessing refund claims.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates