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income-tax Officer, Ward C, Sangli and anr. Vs. Chandanbai Balaram Doshi and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberCivil Revn. Appln. Nos. 364 and 366 of 1955
Judge
Reported inAIR1957Bom91; (1956)58BOMLR564; ILR1956Bom743
ActsCode of Civil Procedure (CPC), 1908 - Sections 73, 73(1), 73(2) and 73(3); Bombay Sales Tax Act, 1953 - Sections 3, 17, 17(1) and 44
Appellantincome-tax Officer, Ward C, Sangli and anr.
RespondentChandanbai Balaram Doshi and ors.
Appellant AdvocateV.S. Desai, Addl. Asst. Govt. Pleader
Respondent AdvocateP.T. Patil and ;G.R. Madbhavi, Advs.
Excerpt:
.....by court -- whether such proceeds held by court in trust for judgment-creditor -- application by sales tax officer, to executing court, for order that proceeds be paid to him in respect of judgment-debtor's liability to pay sales tax due -- court whether competent after such application to direct appropriation of proceeds to claims of judgment-creditors.;decrees for money were passed against the judgment-debtor in two suits. in one suit the decree-holder by a darkhast attached and sold on november 29, 1954, moveable property belonging to the judgment-debtor. the decree-holder in. the other suit attached and sold on october 22, 1954, some immoveable property of the judgment-debtor. this sale was confirmed on november 27, 1954. on november 8, 1954, the sales tax officer applied under..........judgment-creditors is clear. when a judgment-creditor applies for execution of a money decree by sale of property moveable or immoveable of the judgment-debtor, the court in the first instance orders attachment of the property. alter investigation of claims, if any, of third parties the court orders sale of the property and the property is then sold by the appropriate procedure. a sale of moveables is complete as soon as the final bid is accepted, but the sale of immoveable property is required, after investigation of objections if any to the legality thereof, to be confirmed by the court. after the sale is complete the court directs that the proceeds received in court be paid over to the creditor or creditors who are entitled to satisfy their decrees unless by special order the.....
Judgment:
ORDER

1. These two Revision Applications raise common questions. Decrees for money were passed against one Bharamappa Jinappa Shirguppe in two suits. The decree-holder in one suit was Sushilabai wife of Annappa Mithare and the decree-holder in the other was Chandanbai wife of Balaram Doshi. Chandanbai filed Darkhast No. 201/54 for execution of her decree and Sushilabai filed Darkhast No 100/54 for execution of her decree. In Darkhast No. 201/54 filed by Chandanbai moveable property belonging to Bharamappa was attached. The property was sold on 29th November 1954. Sushilabai in her Darkhast No. 100/54 got attached and sold some immovable property of Bharamappa. The immoveable property was sold on 22nd October 1954, and the sale was confirmed on 27th November 1954. The total amount realised by sale of the moveable and immoveable property in the two Darkhasts exceeded Rs. 3,000. Bharamappa was liable to pay to the income-tax department an aggregate amount of Rs. 26,586-5-0 as tax and penalty due by him. He' was also liable to pay to the sales tax department Rs. 5,471-10-0 as sales tax. On 8th November 1954, the Sales Tax Officer, Sangli, applied under Section 17 of the Bales Tax Act, 1953, to the Court of the Second Joint Civil Judge, Junior Division, Sangli, for recovery Of Rs. 5,392-15-0 due by Bharamappa as sales tax. The Sales Tax Officer also applied on 3rd December 1954, for recovery of Rs. 81-11-0. The Sales Tax Officer moved the learned Judge 1 for an order that the amounts received in execution be paid over to him. The Income-tax Officer applied on 11th December 1954, for payment to him of the amount lying in Court in part satisfaction of a claim for Rs. 22,686-6-0. He again applied on 29th December for payment of the amount in satisfaction of a further claim for Rs. 3,900. The Sales Tax Officer and the Income-tax Officer claimed priority for the amounts due to their respective departments over the ordinary creditors. The learned Judge of the executing Court rejected the applications filed by the Sales Tax Officer and the Income-tax Officer. In the view of the learned trial Judge, the applications filed by the Sales Tax Officer, were not maintain, able because the Sales Tax Officer was incompetent to make a demand under Section 17 of the Bombay Sales Tax Act, 1953 from the Civil Court. He also held that auction sale of immoveable property having been held before the date on which the applications were submitted by the Sales Tax Officer the proceeds of the sale of immoveable property received by the Court must be deemed to belong to the execution creditors and not to the debtor Bharamappa, and the Sales Tax Officer had no right to recover the proceeds of the sale. He then held that even though the sale of moveables took place after the first application was submitted by the Sales Tax Officer, at the date when the application was submitted, the Court did not hold 'money' on account of judgment-debtor and after the moveables were sold the proceeds belonged to the creditors and not to the judgment-debtor. In the view of the learned trial Judge, when property belonging to a judgment-debtor is sold in execution of a money decree, the proceeds received by the Court are held by the Court In trust for the creditors and the judgment-debtor has no interest therein. In arriving at that conclusion, the learned trial Judge followed a judgment of the Lahore High Court, Oudh Commercial Bank Ltd. v. Secretary of State AIR 1935 Lah 319 (2) (A). The learned Judge preferred the View taken by the Lahore High Court to the view taken by the Madras High Court in the Deputy Commissioner of Police, Madras v. Vendatam, ILR 59 Mad 428: (AIR 1936 Mad 132) (B). The learned trial Judge did not consider the claim made by the Income-tax Officer, because, in his view, if the claim of the Sales Tax Officer succeeded, it being for an amount in excess of the amount realised in execution proceedings, the entire amount must be paid over to the Sales Tax Officer. He also appears to have been of the view that as the application was filed by the Income-tax Officer after the 2nd of December 1954 on which date the Court had ordered distribution of the amount received in execution, the Income-tax Officer was not entitled to receive the same.

2. Now there can be no doubt that on a competition between private unsecured creditors and the State, the claim of the state to payment of a debt due to it prevails. 'Therefore, the amount in dispute having been realised in execution proceedings by sale of the property moveable and immoveable belonging to the Judgment-debtor, if the proceeds were held by the Court on behalf of the judgment-debtor, the State must have priority for its claim over unsecured creditors. That income-tax and sales tax dues are debts due to the State is not disputed. But two contentions have been advanced on behalf of the judgment-creditors: (i) that the Sales Tax Officer had no authority to apply for payment of the sales tax dues out of the sale proceeds of property belonging to the judgment-debtor lying in Court and (ii) that the sale-proceeds of property of the judgment-debtor when received by the Court were held in trust for the judgment-creditors, and the Judgment-debtor had no interest therein.

3. The State Government by Section 3 of the Sales Tax Act is entitled 'to appoint any person to be a Collector of Sales Tax, and such other persons to assist him'. By Section 44 of the Act, the Collector is entitled 'by order in writing to delegate any of his powers and duties under the Act to any persons appointed under S 3 to assist him'. Section 17 of the Sales Tax Act, in so far as it is material provides:

'Notwithstanding anything contained in any Jaw or contract to the contrary, the Collector may, at any time or from time to time, require........(b) any person who holds or may subsequently hold money for or on account of such dealer, to pay to the Collector so much of the money as is sufficient to pay the amount due by the dealer in respect of arrears of the tax and penalty under this Act or the whole of the money when it is equal to or less than that amount.'

By notification No. 423A, dated 29th May 1953 issued by the Collector of Sales Tax, Bombay State, powers under Section 17 (1) of the Sales Tax Act have been conferred upon all Sales Tax Officers in the State of Bombay. It appears that to the notification the attention of the learned trial Judge was not invited and he held that the Sales Tax Officer was incompetent to submit an application under Section 17. In view of the notification, the decision of the learned trial Judge that the Sales Tax Officer was incompetent to apply under Section 17 cannot be sustained.

4. The scheme of the Civil Procedure Code for recovery of dues under money decrees by judgment-creditors is clear. When a judgment-creditor applies for execution of a money decree by sale of property moveable or immoveable of the judgment-debtor, the Court in the first instance orders attachment of the property. Alter investigation of claims, if any, of third parties the Court orders sale of the property and the property is then sold by the appropriate procedure. A sale of moveables is complete as soon as the final bid is accepted, but the sale of immoveable property is required, after investigation of objections if any to the legality thereof, to be confirmed by the Court. After the sale is complete the Court directs that the proceeds received in Court be paid over to the creditor or creditors who are entitled to satisfy their decrees unless by special order the creditor has been permitted to set-off his claim against the purchase made by him at the Court auction with leave of the Court. The scheme clearly indicates that until the Court has directed appropriation of the amount to the claim made by the decree-holder or of creditors entitled to rateable distribution, the amount received in Court continues to remain as of the judgments debtor and is not held by the Court for and on behalf of or as a trustee for the creditor. Under the Civil Procedure Code by levying attachment in execution of a money decree, the judgment-creditor does not obtain a charge on the property attached or its proceeds, nor does he become a secured creditor. Section 73 of the Code of Civil Procedure, which deals with the procedure for rateable distribution among decree-holders, also supports that view. Even if the property has been sold in execution of a decree by one of the creditors, if other decree-holders have before the receipt of assets applied for execution of money decrees, the assets are rateably distributed among alt the creditors who have applied for execution.

5. The learned Judge of the Court below was, in my judgment, in error in holding that when property belonging to the judgment-debtor is sold and the proceeds are received in Court, the proceeds are held in Mist for the decree-holder. In AIR 1935 Lah 319 (2) (A), a Division Bench of the Lahore High Court held that

'Section 73(3) of the Civil Procedure Code does not confer any jurisdiction on the executing Court to entertain a claim on behalf of the Government in the absence of any decree in support of it. The sub-section only saves the rights of the Government, independent of the section, such as they might be, and merely appears to have reference to the right of priority which can be ordinarily claimed in respect of debts due to the Crown. Hence where the Government has not obtained any decree in respect of the premium and arrears of rent claimed by it, the executing Court has no jurisdiction to go into the merits of that claim.'

The Lahore High Court appears to have taken the view that the State can intervene in execution proceedings filed at the instance of a private party only if it has obtained a decree and Section 73(3) of the Code of Civil Procedure saves rights of the States 'independent of the section'. The assumption made by the Court in Oudh Commercial Bank's case that the right of the State to have recourse to proceeds of sale of property belonging to a judgment-debtor, sold in execution of a money decree, must notwithstanding Sub-section (3) of Section 73 be conditioned by the terms of Sub-sections (1) and (2) thereof, isdiffi-cult of acceptance. It was also observed by Mr. Justice Bhide in delivering the judgment of the Court in that case:

'After the sale, the proceeds of the sale did not belong to the Judgment-debtor, but were held by the Court in trust for the benefit of the creditor executing the decree and such other creditors as had applied for rateable distribution under Section 73, Civil Procedure Code.'

With great respect to the learned Judge, I am unable to accept that as a complete statement of the law. In my view, the proceeds at a Court sale of unencumbered property of the judgment-debtor continue to belong to him, subject to the restrictions imposed by the order of attachment until appropriated by order of the Court to the claim of the creditor or creditors.

6. In Manickam Chettiar v. Income-tax Officer Madura : AIR1933Mad360 a Full Bench of the Madras High Court held that an Income-tax Officer was entitled to apply for an order directing payment to him out of the sale proceeds of property belonging to the judgment-debtor sold in execution of a money decree when the judgment-debtor was liable to pay income-tax. It was held:

'If the Crown is entitled to prior payment over all unsecured creditors, there is no reason why 'the Crown should not be entitled to apply to the Court for an order directing its debts to be paid out of monies in Court belonging to the debtor without having to file a suit. It must no doubt be a debt which is not disputed or is Indisputable. The Crown is entitled to priority !n respect of arrears of income-tax due to it and the demand of the Income-tax Officer is not open to question.'

7. This view of the Madras High Court was approved in a judgment of this Court, Governor-General in Council v. Chotalal Shivdas : [1939]7ITR411(Bom) . It was held in that case:

'Arrears of unpaid income-tax due by an assesses is a debt due to the Crown, and as such the debt must have precedence over all other debts. Consequently, in the competition between the Crown and the subject in respect of payment of their respective debts of equal degree Crown's right must prevail. The Court can order payment of a Crown debt due by the debtor, on the application of the Crown without a formal attachment being issued where there are funds in Court belonging to the debtor.'

8. Evidently, the Sales Tax Officer had submitted an application on 8th November 1954, for payment of Rs 5,392-15-0 due as sales tax. There-after it was not open to the learned Judge by order, dated 2nd December 1954, to direct appropriation of the amount to the claims of ordinary creditors. The Court below was, therefore. In error in rejecting the application filed by the SalesTax Officer. It is unnecessary in this application,to consider whether the Income-tax Officer is alsoentitled to make the claim for recovery of theamount due as income-tax from the debtor. Ruleis made absolute with costs in this Court in thetwo Revision Applications and it is directed thatthe amount lying in Court be paid over to thepetitioners.

9. Rule made absolute.


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