JUDGMENT
1. Petitioner is a private limited company registered under the Companies Act and is an assessee for the purpose of income-tax.
2. The dispute relates to the assessment year 1985-86. Petitioner owns a building which was let out to a firm as partnership since 1981 which in turn has sublet the building to various other parties. Admittedly, there is a variation in the rent received by the firm from its tenants (sub-lessees) and the rent received by the petitioner from the firm, in that petitioner was receiving a higher rent than what was paid by them to the landlord. The return filed by the petitioner includes the rental income received from the firm. The assessing officer took the view that the partners of the firm are none other than the shareholders of the private limited company and the transaction between the petitioner and the firm was found to be a sham one. Thus, the entire amount received by the firm as rent was assessed in the hands of the petitioner-assessee and, hence, there was an addition made to the rental income being the difference in the amount as already stated above. For the previous assessment years also, the assessee was assessed for the difference of the amount. Since the firm had returned the income received by them and paid tax, the same was adjusted as against the tax payable by the assessee on the request made by him as well as by the firm. Hence, the question of payment of any interest on tax did not arise as the payment made by the firm by such adjustment was deemed to be the date on which the assessee/petitioner paid the tax. Thus, there was no question of any delay attracting any interest.
3. However, for the assessment year 1985-86, the request for adjustment was refused by the assessing officer and thereupon petitioner himself paid the balance tax. Thus, there was a delay in remitting the tax due and interest was levied under section 320A (sic) of the Income Tax Act. Though the assessee pleaded waiver of interest or reduction thereof, the Commissioner did not think it as a fit case for exercising any discretion in favour of the petitioner against which the present original petition is filed.
4. According to the petitioner, if the adjustment was granted as in the case of previous years, there would not have been any liability on the part of the assessee/petitioner. It was only after the assessing officer refused to accede to the request for adjustment that the demand for making the payment was made on the petitioner which he complied with.
5. According to the learned counsel for the petitioner, if the request for adjustment was disposed of earlier, petitioner would have paid the amount even before and, therefore, the delay in disposal of the request of adjustment should be excluded and appropriate relief should have been granted reducing the quantum of interest.
6. Learned standing counsel Sri George, on the other hand, submits that when the assessing officer declined the request for adjustment petitioner did not challenge the said order and having paid the tax, it is not open to him now to canvass the correctness of the action of the assessing officer in refusing to adjust the tax paid as in the case of the previous year. It is also contended that since the entire amount received by the firm is assessed on the petitioner any tax paid by the firm on the rental income in question is refundable to the firm with interest.
7. There is force in this contention. If only the firm was made a party, appropriate relief could have been granted to the petitioner. Since the firm statutorily entitled to refund of the portion of the tax amount relating to the rental income with interest, necessarily it cannot be said that the discretion exercised by the officer under section 220(2A) is arbitrary or without any jurisdiction.
In the circumstances, the original petition is devoid of any merit. in the circumstances, there will be no order as to costs.