Report No. 12

Chapter XX

Refunds

Notes to clause 247

General

Existing section 48, dealing with refunds, is confused in its arrangement. The general right to claim refund, dealt with in existing sub-section (1), is mixed up with provisions relating to special situations in sub-section (3). Further, the restriction regarding questions that can be raised in refund proceedings is unnecessarily put in the same section in sub­section (4). An attempt has, therefore, been made, in the draft, to separate these various topics.

Clause 247

The following drafting changes have been made in existing section 48(1):-

(i) The words "any individual, Hindu undivided family" etc. have been replaced by one word "person". Existing section 3, as proposed in the draft, uses only the word "person",1 and it is felt that the right to claim refund should be co-extensive with the liability to tax. In the case of State Governments, it may be pointed out, there is a prohibition against tax being charged from them, under the Constitution. Even in respect of shares held by State Government, refund of tax deemed to have been paid under existing section 49B is allowed only if the dividend is included in the total income of the person concerned; see existing section 49B(1). There is, therefore, no harm in using the word "person" in section 48(1).

1. See draft clause 3.

(ii) The existing provision empowers the grant of refund by the Income-tax Officer, "or other authority appointed by the Central Government in this behalf". It is understood that the Central Government has not appointed any such authority and the need for such appointment is not likely to arise. The words in question have, therefore, been omitted.

(iii) Other changes are minor.

Notes to clause 248

Sub-clause (1).- Existing words "such other person only" have, in the draft, been replaced by the words "the latter alone", for simplicity.

Sub-clause (2).- Existing section 49F has been embodied in this sub-clause with the following changes:-

(1) the words "who would but for such cause have been entitled to a refund under any of the provisions of this Act" have been omitted, as unnecessary.

(2) References to sections 48 and 49 have been deleted; it may also be pointed out that section 49 was repealed in 1948.

(3) Besides executors etc., a reference to guardians has been added. Notes to clause 249 Sub-clause (1).-This is new and embodies a provision at present contained in the rules.

Sub-clause (2).- The main paragraph of existing section 50 has been embodied in this sub-clause, with slight verbal changes. The two provisos to that section have been omitted, as not applicable to future assessment years.

The starting point of limitation has been expressed in a more simple manner.

Notes to clause 250

Existing section 48(2) has been incorporated in this clause, and it has also been made clear that the Income-tax Officer shall make the refund without any express claim by the assessee.

The words "except as otherwise provided in this Act" are intended to cover cases where payment of refund is postponed under any express provision of the Act; for example, existing section 66(7), proviso, latter half.

Notes to clause 251

Existing section 48(4) is unnecessarily elaborate. The propositions enacted in that section can be expressed in simple language, without using the words "nothing,...... shall operate to validate any objection or appeal which is otherwise invalid", or the words "to authorise the revision of any assessment." The concluding lines of the section, dealing with refund of tax payable before the 1939 Amendment Act, are also obsolete now. The draft clause, therefore, attempts to simplify the section, keeping in mind the considerations stated above.

Notes to clause 252

This is new. If after a refund application is made under this Chapter, the Income-tax Officer does not make an order within three months, the assessee should be entitled to interest at the rate of 2 per cent. on the amount to be refunded. In the Taxation Enquiry Commission Report,1 the complaint of delays in making refunds was considered. After an analysis of the figures, the Commission pointed out that nearly 86% of the claims for refunds were disposed of within the year in which they were received, and of the pending claims as on 1st April, 1953, approximately 60% were less than three months old, while only 13% were over a year old. It was represented to them by the Department that under administrative instructions it was obligatory on the part of the Income-tax Officer to dispose of refund claims within three months.

In view of this, it is obvious that normally the refund applications are disposed of, (at any rate at present) within a period of three months. The Department will not, therefore, be affected by a provision for payment of interest. The provision is intended only to make sure that the representation made to the Taxation Enquiry Commission by the Department would invariably be followed with no exception. The liability to pay interest will act, as an incentive for an early disposal of the refund applications and allay the fears of the assessees that there might be delay in the disposal of refund applications.2

1. TEC Report, 1958-1954, Vol II, p. 214, Ch XIII, para 11.

2. It may be added here that the Income-tax Investigation Commission(1948) has also made a similar recommendation for interest on refunds where disposal of the application is delayed for more than six months, vide its report, p. 125, para. 279.

Notes to clause 253

The only change is the addition of a requirement to the effect that the Income-tax Officer shall, while making an adjustment under this section, intimate the assessee.