Income Tax Department Can't Retain Tax Collected Twice On Same Income: Telangana High Court

The Telangana High Court has held that the Income Tax Department cannot retain tax collected twice on the same income and that the Commissioner must exercise powers under Section 264 of the Income Tax Act, 1961. The provision enables revision of an assessment to provide relief against over-assessment, even where the mistake is attributable to the taxpayer.

A Division Bench comprising Justices P. Sam Koshy and Narsing Rao Nandikonda made the observation while allowing a writ petition filed by Premier Solar Power Tech Private Limited, which challenged the rejection of its claim that Rs. 6.85 crore had effectively been subjected to tax twice. The judges observed:

“The authorities discussed hereinabove make it clear that the source of the error whether traceable to the assessee or to the Department is wholly immaterial to the exercise of power under Section 264; what is material, is the existence of prejudice to the assessee and the consequent duty of the Commissioner to correct it.”

The dispute arose from liquidated damages relating to a solar power project undertaken by Premier Solar Power Tech for NLC India Limited. The company had initially claimed the liquidated damages as a deduction. Subsequently, after reversing part of the provision, it offered an amount including Rs. 6.85 crore to tax for Assessment Year 2021-22.

However, the Assessing Officer also disallowed the same Rs. 6.85 crore while completing the assessment for Assessment Year 2020-21. The company paid the tax arising from the disallowance. The Court found that this resulted in the same amount being subjected to tax twice.

Premier Solar Power Tech then approached the Principal Commissioner under Section 264 seeking correction of the double taxation. After the application was rejected, the company approached the High Court.

The High Court observed that Section 264 is a beneficial and remedial provision intended to protect a taxpayer against over-assessment. It held that the source of the mistake is immaterial while considering relief under the provision. What matters is whether the taxpayer has suffered prejudice and whether the Commissioner has a duty to correct it.

Further, the Division Bench held that permitting the Government to retain tax collected twice on the same Rs. 6.85 crore would amount to “unjust and undue enrichment of the exchequer at the cost of the petitioner.” It also criticised the mechanical rejection of the company's claim despite the detailed submissions and reconciliations placed before the authority. Therefore, it set aside the Principal Commissioner's order and remanded the application under Section 264 for fresh consideration on merits in accordance with law.

Accordingly, the High Court allowed the petition with no order as to costs.

Appearances: Karan Talwar for the petitioner; Kamasuni Sudhakar Reddy, Senior Standing Counsel for the Income Tax Department, for the respondents.