Calcutta High Court

Sanjay Somany vs Union Of India & Ors on 6 May, 2025

                                                             2025:CHC-OS:83


               IN THE HIGH COURT AT CALCUTTA
              CONSTITUTIONAL WRIT JURISDICTION
                        ORIGINAL SIDE


BEFORE:
THE HON'BLE JUSTICE RAJA BASU CHOWDHURY


                          WPO/536/2023

                        SANJAY SOMANY
                            VERSUS
                     UNION OF INDIA & ORS.

                               AND

                          WPO/537/2023

                        SANJAY SOMANY
                            VERSUS
                     UNION OF INDIA & ORS.

                               AND

                          WPO/538/2023

                        SANJAY SOMANY
                            VERSUS
                     UNION OF INDIA & ORS.

For the petitioner   : Mr. J.P. Khaitan, Sr. Advocate
                       Mr. Pratyush Jhunjhunwala, Advocate
                       Mr. Mrigank Kejriwal, Advocate
                       Ms. Rishi Raju, Advocate
                       Ms. Sretapa Sinha, Advocate
                       Ms. Sruti Datta, Advocate
                       Mr. Akkal Dudhewala, Advocate

For the respondents : Mr. Smarajit Roychowdhury, Advocate

Mr. Amit Sharma, Advocate 2 2025:CHC-OS:83

Heard on : 07.04.2025, 10.04.2025, 21.04.2025 & 06.05.2025 Judgment on : 6th May, 2025

RAJA BASU CHOWDHURY, J:

1. Challenging the orders passed under Section 264 of the Income Tax Act,

1961 (hereinafter referred to as 'the said Act') in respect of the

assessment years 2016-2017, 2017-18 and 2018-19 all dated 29th

March 2021, the instant writ petitions have been filed. To consider the

scope of the challenge, it is necessary to note down the facts giving rise

to the same.

2. It is the petitioner's case that while he was Vice-Chairman and

Managing Director of Hindustan National Glass and Industries

Limited (hereinafter referred to as the "said Company") which is a

public company and an existing company within the meaning of

Companies Act, 2013 (hereinafter referred to as 'the Companies Act')

by a special resolution of the members of the company passed on 30 th

March, 2015, the petitioner was reappointed as the Vice-Chairman

and Managing Director of the said company for a period of three

years w.e.f. 1st April, 2015 at a salary of Rs.16,67,500/- per month

with an annual increment with the limit of 15% of the salary last

drawn subject to the condition that such increase is in compliance

with the provisions of Sections 196, 197, 203 read with Schedule V

and other applicable provision of the Companies Act.

3 2025:CHC-OS:83

3. According to the petitioner, by reasons of absence/inadequacy of

profits on 25th May, 2015, an application was made by the said

company to the Central Government in terms of Sections 196 and

197 read with Schedule V of the Companies Act seeking approval for

payment of the aforesaid higher remuneration to the petitioner.

Initially, the Central Government vide its communication dated 30 th

May, 2016 informed that the total remuneration of the petitioner

should be Rs.18,00,000/- per annum for a period of three years

without any annual increment as the said company had not

furnished no objection certificate in favour of the proposal from all its

lenders to whom it had allegedly made default in payment of debt. To

remove the above short coming the company subsequently obtained

no objection certificate from the lead banker and had filed another

application with the Central Government on 16 th February, 2017

incorporating such no objection. Unfortunately, the Central

Government required the petitioner to furnish 'no objection

certificate' from HSBC Bank as well.

4. During the pendency of the aforesaid application before the Central

Government, Section 197 of the Companies Act was amended by the

provisions of the Companies (Amendment) Act, 2017 with effect from

12th September, 2018. In the light of the aforesaid amendment, the 4 2025:CHC-OS:83

Central Government no longer had power to approve the payment of

higher remuneration and accordingly, the application filed by the said

company seeking approval which was pending before the Government

abated.

5. The factum of abetment of the company's application as aforesaid

was communicated to the said company by the Government by a

communication dated 9th October, 2018. Consequent thereupon, as

required in terms of Section 197(17) upon the application of the

company having abated, the company was required within one year

from the commencement of such amended provision to obtain

approval in accordance with the provisions of the said section. To

more fully appreciate, the aforesaid provision of Section 197(17) of

the Companies Act as amended by the Amending Act, 2017 which

came into effect from 12th September, 2018 the same is reproduced

hereinbelow:

"197(17) On and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this Section [as it stood before such commencement], which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended."

5 2025:CHC-OS:83

6. It would transpire from the records that the company had thereafter

upon considering the matter on the basis of the resolution taken by

the Board Members on 13th November, 2019 by letter in writing dated

2nd December, 2019 called upon the petitioner to refund the excess

remuneration paid to him for the financial years 2015-16, 2016-17

and 2017-18. Following the above, the petitioner had refunded the

excess remuneration for the financial years 2015-16, 2016-17 and

2017-18 as more fully detailed in his communication in writing dated

16th December, 2019, to the company. In the interregnum, however,

the petitioner had already filed the returns for the relevant

assessment years being 2016-17, 2017-18 and 2018-19 respectively.

7. According to the petitioner, since the amount which was refunded by

the petitioner no longer formed the part of the remuneration, the

petitioner applied for revision of his returns by filing appropriate

applications under Section 264 of the said Act. While in the case of

assessment year 2017-18, there was no delay, there was delay in

respect of applications for the assessment years 2016-17 and 2018-

19. It would transpire from the records that all the applications

under Sections 264 of the said Act were made on 13 th January, 2020

contemporaneously with the claim for refund of the excess amount of

tax already paid. Records would reveal that since admittedly, the 6 2025:CHC-OS:83

applications were barred by limitation, show-cause notice was issued

on the petitioner as to why such applications shall not be rejected.

The petitioner appears to have responded to the same and had

highlighted the power of the Principal Commissioner/the Chief

Commissioner to condone the delay if he found that the assessee was

prevented by sufficient cause from making the application within the

prescribed period and to admit the application after expiry of that

period. The respondent no.2, however, passed three several orders

all dated 29th March, 2021. In respect of assessment year 2016-17 as

also 2018-19 he was of the view that the refund applications under

Section 264 was received on 17th January, 2020 while the limitation

for filing of such petition had expired on 28th August, 2017 and 25th

January, 2020 respectively. He was further of the view that there was

no sufficient reason to condone the delay for more than two years in

the case of the application made in respect of the assessment year

2016-17 while in the case of the assessment year 2018-19 the return

filed by the petitioner was processed on 26th January, 2019 and there

was no sufficient reason to condone the delay of 8 days and the

applications being beyond the prescribed period were not entertained.

8. Notwithstanding the aforesaid, as and by way of a passing remark he

had observed by placing reliance on Section 16 and 17 of the said Act 7 2025:CHC-OS:83

that since there is no provision to allow any deduction from salary for

recovery made in the subsequent year against the salary paid in the

previous year, hence, the claim for deduction in respect of the

recovery made in the subsequent year paid in earlier year cannot be

allowed.

9. By placing reliance on the extract of the minutes of the meeting dated

30th March, 2015, Mr. Khaitan, learned senior Advocate appearing in

support of the aforesaid writ petitions would submit that pursuant to

the appointment of the petitioner as Vice-Chairman and Managing

Director of the said company for a period of three years, the payment

of salary and other allowances was subject to compliance of the

provisions contained in Sections 196 read with Schedule V and other

applicable provisions of the said Act. He would submit that the

application made before the Central Government for approval could

be granted by reasons of the amendment of Section 197 of the

Companies (Amendment) Act, 2017 w.e.f. 12th September, 2018. The

said application then pending before the Central Government abated

and the said company were required to obtain approval as required

under Section 197 of the Companies Act.

10. Admittedly, in this case the company had called upon the petitioner

to refund the excess remuneration by a communication dated 2 nd 8 2025:CHC-OS:83

December, 2019. In compliance whereof, the petitioner, having

refunded the remuneration, had applied before the Income Tax

Authority under Section 264 of the said Act for revising its

assessment order since, according to the petitioner, the amount

which was refunded did not constitute part of his salary. He would

submit that the petitioner did not pray for any deduction rather the

petitioner was all along holding the aforesaid excess amount in

trust for and on behalf of the company which was required to be

refund by him. According to him, the cause of action for the

applications for revision under Section 264 had arisen after the

company had called upon the petitioner to refund the same and on

the petitioner having actually refunded such amount. According to

him, there was sufficient explanation for the delay. The revising

authority had, however, failed to exercise jurisdiction by not

considering the proviso to Section 264 of the said Act and such fact

had already been acknowledged by the authority in its affidavit

affirmed on 11th March, 2025. In support of his contention that the

authority is required to act judiciously even while exercising its

discretion and cannot ignore the explanation for delay, he has placed

reliance on the judgment delivered by this Hon'ble Court in the case

of Nicco Corporation Limited v. Commissioner of Income Tax & 9 2025:CHC-OS:83

Ors. reported in (2001) 251 ITR 791. In the facts of the case

mentioned above, it is submitted that the orders passed under

Section 264 of the said Act for the assessments year 2016-17 and

2017-18 refusing to condone the delay cannot be sustained and the

same should be set aside.

11. In so far as the rejection order passed in respect of the assessment

year 2017-18 is concerned, he would submit that since the

respondent no.2 has proceeded to treat the refund of excess salary as

a deduction from the salary on an erroneous premise, the said

finding also cannot be sustained, the same is perverse. On the

aforesaid issue whether the salary paid in excess on being refunded

as per statutory requirement could be treated as a reduction as

salary, reliance is placed on the judgment delivered by the Hon'ble

High Court of Delhi in the case of Commissioner of Income Tax-XVI

v. Raghunath Murti reported in (2009) 178 Taxman 144 (Delhi).

By drawing attention of this Court to the affidavit affirmed by the

respondent no.2 on 11th March 2025, he would submit that the

deponent of the said affidavit being the Principal Commissioner of

Income Tax, Kolkata-2 had made a categorical statement that the

contention of the petitioner with regard to return of the salary was

not claimed as deduction and the same was held in trust, was not 10 2025:CHC-OS:83

considered. In the facts of the case as stated above, he would submit

that the order passed by the respondent no.2 for the assessment year

2017-18 also cannot be sustained and the matter be remanded to the

Revising Authority for a fresh decision on merits.

12. Per contra, Mr. Roy Chowdhury, learned advocate appearing for the

respondent authority/department, on the other hand, had taken me

through the records of the proceeding in detail. He has highlighted

that admittedly in the case of assessment years 2016-17 and 2018-

19, there was delay in filing the applications under Section 264 of the

said Act. He would submit that by the time the applications seeking

revision were filed, the assessment orders had already been passed

and there was delay for more than a year in each of the cases. The

explanation provided by the petitioner was not sufficient. He would

further submit that in the facts narrated hereinabove, this Court

should not interfere with the orders passed by the respondent no.2.

In so far as the order passed in respect of the assessment year 2017-

18 is concerned, he would submit that the order is clear and in

paragraph 4 of such order a finding has been recorded by the

respondent no.2 on merits and, as such, no interference is called for.

13. Heard the learned advocates appearing for the respective parties and

considered the materials on record. It would transpire that the only 11 2025:CHC-OS:83

issue involved in the writ petitions concerning the assessment years

2016-17, 2018-19 is whether the petitioner could maintain the

applications under Section 264 of the said Act beyond the prescribed

period of limitation. To appreciate the above, it is necessary to note

that although Sub-section 3 of Section 264 of the said Act provides

for a prescribed time limit for filing an application, the proviso after

sub-section, in my view, enables the revising authority to receive a

belated application. To morefully appreciate the same, the said

provision is extracted below:

"264. Revision of other orders.--(1) In the case of any order other than an order to which Section 263 applies passed by an authority subordinate to him, the [Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner] may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.

(2) The [Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner] shall not of his own motion revise any order under this section if the order has been made more than one year previously.

12 2025:CHC-OS:83

(3) In the case of an application for revision under this section by the assessee, the application must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier:

Provided that the [Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner] may, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period.

(4) The Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner shall not revise any order under this section in the following cases--

(a) where an appeal against the order lies to the [Deputy Commissioner (Appeals) or to [the Joint Commissioner (Appeals) or the Commissioner (Appeals)]] or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or, in the case of an appeal [to [the Joint Commissioner (Appeals) or the Commissioner (Appeals)]] or to the Appellate Tribunal, the assessee has not waived his right of appeal; or

(b) where the order is pending on an appeal before the Deputy Commissioner (Appeals); or

(c) where the order has been made the subject of an appeal to [the Joint Commissioner (Appeals) or the Commissioner (Appeals)] or to the Appellate Tribunal."

13 2025:CHC-OS:83

14. As would evident for the above, the Principal Chief Commissioner or

Chief Commissioner or Principal Commissioner or Commissioner has

the power to admit an application after expiry of period provided, he

is satisfied that the assessee was prevented by sufficient cause from

making the application within that period. In the instant case, from

the terms of the appointment of the petitioner, it would transpire that

his payment of remuneration was made subject to compliance of the

provisions of Sections 196,197, 203 read with Schedule V and other

applicable provisions of Companies Act and having regard thereto,

the company by reasons of inadequacy of profits was compelled to

make an application on 25th May, 2015 to the Central Government

under Sections 196 and 197 read with Schedule V of the said Act for

approval of higher remuneration. Although, the Central Government

sought for clarification from the company from time to time, however,

before actual approval was granted, by reasons of amendment of

Section 197 of the Companies Act which came into effect by insertion

of Section 197(17) by the Companies (Amendment) Act, 2017 w.e.f.

12th September, 2018, the pending application before the Central

Government abated and the company was required to take approval

as provided in Section 197 which has already been discussed

hereinabove.

14 2025:CHC-OS:83

15. Records revealed that the company had subsequently decided to call

upon the petitioner to refund the excess remuneration. The petitioner

had immediately complied with such direction and had refunded the

excess remuneration. In the interregnum, however, the petitioner had

already filed the returns for the assessment years 2016-17, 2017-18

and 2018-19 by treating the said excess remuneration as part of the

salary. Based on the aforesaid returns, the assessment order had

already been passed. This necessitated filing of revision applications

under Section 264 of the said Act in respect of the assessment years

2016-17, 2017-18 and 2018-19. When the applications were filed on

17th January, 2020 the said applications insofar as assessment years

2016-17 and 2018-19 are concerned the same were barred by

limitation. A show-cause in that regard was issued. The petitioner

appears to have responded to the show-cause issued by the

respondent no.2 and had clarified the reasons for delay and had also

referred to the proviso after Sub-section (3) of Section 264 of the said

Act which authorised the Principal Chief Commissioner/Chief

Commissioner/Principal Commissioner/Commissioner to condone

the delay and accept the application for revision. It was specific case

of the petitioner that he was prevented from sufficient cause from

applying within the period of limitation as the cause of action for 15 2025:CHC-OS:83

such application had only accrued upon the petitioner refunding the

amount. It appears that the respondent no.2 by treating the

applications as barred by limitation and by making an observation

that there is no sufficient ground to condone the delay had rejected

such application.

16. It may be noted here that the respondent no.2 did not appropriately

consider the application filed by the petitioner. Though, it is true that

the order passed by the respondent no.2 is a discretionary order,

however, as rightly pointed out by Mr. Khaitan, learned Senior

Advocate representing the petitioner that such discretion must be

exercised lawfully following judicious principles. Admittedly, in this

case, it would transpire from the orders impugned and as admitted in

the affidavit filed by the respondent no.2 that the respondent no.2 did

not take note of the proviso after Sub-section (3) of Section 264 of the

said Act which, in my view, constitutes failure to exercise jurisdiction.

In this context, reliance is placed on the judgment delivered in the

case of Nicco Corporation Limited (supra).

17. Although Mr. Roy Chowdhury, learned Advocate representing the

department had indicated that this Court ought not to interfere in

these matters especially when the department is not permitted to

challenge an order which may be barred by limitation, I am of the 16 2025:CHC-OS:83

view, having regard to the scheme of Section 264 of the said Act, the

opportunity to offer an explanation and seek condonation of delay is

exclusively vested with the assessee and not the department. The

right of the department to seek revision of orders prejudicial to the

revenue is governed by Section 263 of the said Act. Having regard

thereto, and taking note of the fact that the respondent no.2 had

ignored the statutory provision especially with regard to the power to

condone the delay as provided for in the proviso to Section 264 of the

said Act, and had not considered the explanation lawfully and

judicious and also noting that the cause of action for filing such

application had only arisen after the direction to refund the excess

salary and upon the petitioner actually refunding the same, I am of

the view that the aforesaid orders in respect of the assessment years

2016-17, 2018-19 cannot be sustained and the same are,

accordingly, set aside and the matters are remanded to the

respondent no.2.

18. In so far as the observation made by respondent no.2 is concerned, in

the aforesaid orders, I am of the view that the respondent no.2 could

have decided the applications on the merits after having condoned

the delay. In my view, since the delay was not condoned the

observation made on the merits of the application can at best said to 17 2025:CHC-OS:83

be passing remarks made by the respondent no.2 in respect of the

assessment years 2016-17 and 2018-19, the same are non-est and

not binding and, accordingly, quashed.

19. In so far as the assessment year 2017-18 is concerned, I find that the

said application has been rejected by the respondent no.2 on the

ground, inter alia, proceeding on the premise that income under the head

'Salaries' is chargeable to tax as per the provision of Section 15 of the

said Act. According to the respondents, since there is no provision to

allow any deduction for recovery made in the subsequent year against

the salary paid in the earlier year, the application under Section 264

had been rejected. In this context, I may note that it has never been

the petitioner's case that there had been deduction in the salary paid

in the previous year rather the petitioner was at all material time

holding the excess amount in trust on behalf of the company having

regard to the specific terms indicated in the letter of appointment

with regard to the payment of salaries which required the annual

increment within the limit of 15% of the salary last drawn to be

subject to the condition that such increase be in compliance with the

provisions of Sections 196, 197, 203 read with Schedule V and other

applicable provisions of Companies Act, 2013.

18 2025:CHC-OS:83

20. The above position becomes clear having regard to the provisions

contained in Section 197(9) of the Companies Act, which is extracted

hereinbelow:

"................

(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without approval required under this section, he shall refund such sums to the company, within two years or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.

.............."`

21. Admittedly, in this case, the petitioner was paid the remuneration

subject to the approval. Since, the approval could not be obtained

and the application pending before the Central Government abated

by operation of law, and subsequently, the petitioner was required to

refund the sum having regard to decision taken by the company, the

petitioner at best could have held the sum in trust and the same

could not be termed as deduction from salary, for previous year. In

any event, since respondent no.2 in paragraph 10 of its affidavit-in-

opposition affirmed on 11th March, 2025 has claimed that the

aforesaid aspect has not been considered as such without finally

adjudicating the same, I am of the view that the aforesaid order