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Venigalla Ramakrishnaiah Vs. Pillutla Sitaramasastry. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberSecond Appeal No. 510 of 1956
Reported in[1960]40ITR708(AP)
AppellantVenigalla Ramakrishnaiah
RespondentPillutla Sitaramasastry.
Excerpt:
.....to the date of the sale. so the course of conduct of the parties would clearly establish that the arrangement was that the taxes for the period prior to the sale were to be paid by the persons who was in possession of the buses......each person who is liable to pay the tax on the income derived by him would be regarded as a person bound by law to pay within the meaning of section 69 of the contract act. the fiction of an implied request from the defendant in this case to the plaintiff to make the payment may be properly imported into the case so as to bring it within the section and thus a right to reimbursement is created. one dominant feature, namely, that the company was not to receive the income is conclusive of the fact that the tax was payable by the person in whose possession the bus was. in my opinion, the view taken by the learned subordinate judge is not correct and the judgment must, therefore, be set aside.this appeal is allowed. the judgment of the court below is set aside and the decree of the.....
Judgment:

SRINIVASACHARI, J. - The plaintiff is the Appellant and this appeal arises out of a suit filed by him for the recovery of a sum of Rs. 28,258,-8-0 by way of reimbursement on the ground that he paid income-tax on the income derived from motor bus M.D.G. 95 which he purchased from the defendant. The plaintiffs allegation is that the defendant was liability to pay the amount of income-tax and inasmuch as he paid the amount in order to save the property from being sold by restraint and other process that might be adopted by the Income-tax authorities he was entitled to be reimbursed The defendant was a shareholder along with others in company called sri. Seetharam Motor Transport Company. In 1945 or about the composite State of Madras issued a G.O. to the effect that permits for plying of buses would be issued only to persons who were owners of a fleet of buses, that is to say, who owner 20 buses and more. As it was not possible for individuals to own 20 buses, a number of owners of buses joined together and formed into a private limited company called 'Sri Seetharam Motor Transport Company'. It may be stated that although in so far as the permit was concerned the permit was granted to this company as the owner of the buses, in the actual working the buses were allotted to the shareholders and the shareholders received the income of the buses at the disposal of the company. In the actual working the buses used to be run by the individuals, the income derived therefrom was utilised by them, but in so far as the Government was concerned it looked to the company for all purposes.

On January 1, 1948, the defendant sold vehicle No. M.D.G. 95 to the plaintiff under exhibit 1. After the sale was effected, it would appear that the assessment for income-tax for the anterior period 1946-47 was finalised. This was in 1951, and a demand notice was issued to the company for payment of the income-tax. The case of the plaintiffs that on March 26, 1951, all the shareholders met together and it was agreed that each individual was to pay the proportionate amount of income-tax having regard to the number of vehicles in his possession. The plaintiff paid the amount as the purchased and in possession of the vehicle M.D.G. 95 as according to him there was the apprehension of the bus being sold. The plaintiff claims this amount both under the terms of the contract of sale as well as under the terms of the contract of sale as well as under the law. The defence was that there was no undertakings by the defendant to pay anterior taxes; secondly, that the plaintiff could have only recourse to the company if he had paid the amount of income-tax, In any event the plaintiff was not bound to pay the amount of income-tax and if he piad he could not make the defendant liable for the same. On the evidence placed before the court, the trial court held that the defendant vendor was liable to pay the amount of income-tax paid by the plaintiff and decreed the suit. It also applied the provisions of sections 69 and 70 of the Indian Contract Act. On appeal the lower appellate court differed from the trial court and held that under the law the plaintiff could not recover the amount from the defendant. It also came to the conclusion that the terms of the contract did not envisage the payment of anterior charges by the vendor which the vendee was entitled to get from him.

The plaintiff has now come up in appeal. It is argued by the learned Advocate-General that the judgment of the learned Subordinate Judge is wholly erroneous for the reason that he has ignored the evidence in the case altogether. The submission is that both under the terms of the contract as well as under the principles of the Contract Act governed by section 69 and 70, the plaintiff was entitled to be reimbursed for amounts paid by him. It was urged that under the arrangements come to by the shareholders of this company, the amount of income-tax was to be paid individually although the Income-tax Department looks to the company as such for the payment of the income- tax. In so far as the Government was concerned, the assessee was the company, but as between the shareholders it was agreed by mutual understanding that the tax payable on the income derived was to be contributed by the individuals, who owned the buses and who derived the income therefrom.

It is, therefore, necessary to consider as to whether the plaintiff would be entitled to a decree as against the defendant on the basis of the contract of sale or whether de hors the contract he would be entitled in law to be reimbursed for the amounts paid by him way of income-tax. It may be noted that the defendant stated in his written statement that the Plaintiff undertook the liability, but this plea was given up in the appellate court as would be evident from what has been stated by the appellate judge. The remark in paragraph 6 of the judgment of the Subordinate Judge with regard to the concession made by the defendants counsel is to the effect that 'the defendant raised the question that according to exhibit A-1, the plaintiff had undertaken to pay the income-tax due in respect of the suit bus for the period prior to exhibit A-1. It is now conceded by Sri V. Lakshminarayana on behalf of the appellant that he does not press that point.' It was sought to be made out by the learned Advocate-General that in view of this concessions it must be taken to be that the plaintiff did not undertake to discharge the liability in respect of the income-tax prior to the date of exhibit A-1. The question as to whether the liability was undertaken by the plaintiff or the defendant is a matter that has got to be deduced from the terms of the document, exhibit A-1. The relevant portion of the document in this regard reads as follows :

'It has been settled that subject to the aforesaid terms the collections of the said two buses have to be taken by you from today. It has been settled that all the expenses to be incurred in respect of these two buses from today onwards, that is, salaries (to workers), provincial taxation (taxes), spare parts, etc., all running expenses shall have to be borne by you. If there are any outstanding cases (prior to this day) I shall bear them myself.'

Interpreting these terms of the document, the trial court construed this as an undertaking by the defendant to discharge all liabilities prior to exhibit A-1 and that the plaintiff was to incur all expenses subsequent to that date, He held that from the circumstances and from the evidence the words 'all cases' included the payment of income-tax prior to the date of the sale. The learned subordinate judge, however was not inclined to take that view and he interpreted the word orsulu as cases pending before the police relating to these buses. He was of the opinion that it could never be held to include taxes much less income-tax. The point urged by the learned Advocate-General before me is that under the arrangements come to by the parties the income from the buses in the possession of each shareholder was to be appropriated by himself and where, therefore, the income of a particular bus was being utilised by one shareholder, the liability to pay the tax thereon would also fall on that shareholder. While on behalf of the respondent, Sri Chandrasekhara Sastri argued that in so far as the income-tax was concerned the assessee was only a company and there was no liability on either the plaintiff or the defendant to pay the income-tax and by the defendant, such a stipulation would have been incorporated in the sale deed, exhibit A-1. On a consideration of all the circumstances in the case and the evidence on record, I am inclined to hold that the income-tax in respect of each bus was to be borne by the individual shareholder who was in possession of the bus, for it is but natural and reasonable that that person should pay the income-tax who receives the income. It is not as though the income derived from each bus was made over to the company and a general account was taken of the expenses and after deduction of all expenditure and payment of taxes, the net amount was divided among the shareholders. There is not record to show that such was the arrangement.

Quite apart from this as to whether the defendant was liable to pay under the terms of the contract of sale the question still has to be considered as to whether the plaintiff is entitled to be reimbursed from the defendant the amount of income-tax that he paid under the provisions of section 69 of the Indian Contract Act. Section 69 of the Indian Contract Act reads as follows :

'A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.'

The two essential ingredients for the operation of this section are that the person who seeks reimbursement must be person 'interested in the payment of money' and further the other party must be a person who was 'bound by law to pay'. The words 'interested in the payment' do not necessarily mean that the person should have a proprietary interest. Under the law, it is sufficient if the person who made the payment honestly believed that his interest required that such payment be made, although such belief on the part of the person may not be sound in law. In order to bring the case within the section, it is sufficient that at the time the plaintiff honestly believed that he had an interest. The question whether a person has an interest must be decided with reference to the circumstances when the payment was made. In a case which came before the Privy Council reported in Govindram Gordhandas Seksaria v. State of Gondal the facts were that A contracted to sell certain property to B. C sub-purchased it from B. A repudiated his obligation under section 55, Transfer of Property Act, to pay off the outstanding municipal taxes. To prevent a forced sale of the purchased property by the Municipality, C made the payment. B and C together brought a suit against A for reimbursement. Under these circumstances their Lordships of the Privy Council observed that section 69 applied to the payment made by C, that C was interested in the payment. They negative the contention that he was no interested. They held that the payment was not a voluntary payment. They observed as follows :

'Money had to be found for the taxes if the mills have were to be saved. Neither the Maharajah nor the trustees showed any sign of paying the Municipality. So the appellant company paid. But to describe it in those circumstances as having made a voluntary payment appears to their Lordships to involve some misuse of language. Nor do they appreciate why it should not properly be described as interested in the payment.'

They made it clear that it is not necessary that the person interested in a payment should at the same time have a legal proprietary interest in the property in respect of which the payment is made. Therefore, it must be taken to be well settled that the existence of the proprietary interest in the person making the payment is not a sine qua non for the application of section 69 of the Indian Contract Act. The words 'interested in the payment of money' which another is 'bound by law to pay' has been held to include a person who pays the amount to avoid loss or detriment to the property in his possession.

The other essential under this section is that the other person for whom the plaintiff paid the amount should have been 'bound by law to pay'. Straightaway it may be said that 'bound by law' would also include a contractual liability incurred. It does not necessarily mean statutorily bound to pay. A contractual liability would entitle mean statutorily bound to pay. A contractual liability would entitle a person to reimburse himself when he has paid the amount to protect his interest. I might herein refer to a decision of the Calcutta High Court in the case of Biraj Krishna Mukherjee v. Purna Chandra Trivedy. This position is further strengthened by the remarks of their Lordships of the Privy Council in the case referred to above. They say : 'there is authority in the courts of India for the proposition that bound by law covers obligations of contract or tort. Accepting this interpretation, as their Lordship do, they hold that the act of payment by the appellant company gave to it a right of action against the Maharajah to obtain reimbursement of the sum so paid'. In this connection, the lower appellate court relied upon a decision of the Madras High Court reported in Reghavan v. Alamelu Ammal 2. Relying upon this decision, the learned subordinate Judge said that in that case where the defendants were not bound to pay the tax and the plaintiff paid the amount, the latter was not held to be entitled to reimbursement. The facts of the case were that the income-tax authorities assessed the plaintiffs who were the widows of one Kalyanarama Sastrigal for income-tax for 1905-6 in respect of certain outstandings which formed part of the estate of the deceased at the time of his death. The plaintiff contended that the outstandings in question had not come to them but had been bequeathed under a will to the defendants. Nevertheless, the income-tax authorities persisted and levied tax from the plaintiffs and when the plaintiffs sought to recover the tax paid by them it was resisted. In that case the learned judges held that the Collector had not determined that the defendants were chargeable nor did he assess them for any amount amd, therefore, the defendants were not legally bound to pay and if the defendants were not legally bound to pay, section 69 of the Contract Act, did not come into operation to enable the plaintiffs to reimburse themselves. It was stated there that the demand was made from the plaintiffs alone and if under those circumstances the plaintiffs made the payment they could not recover it from the defendants. This case is clearly distinguished from the case now under discussion. Strictly speaking the assessee is the company and the income-tax authorities would only look to the company for the payment of the income-tax in respect of the income derived from the buses. But as has already been shown the buses were in the possession of the individual shareholders, the income therefrom was being appropriated by themselves, it was open to the income-tax authorities to attach and bring to sale the buses in the possession of any of the shareholders and under those circumstances in order to save the bus from being sold for arrears of income-tax the plaintiff paid the income-tax. In the case before the Madras High Court, the plaintiff was assessed by the income-tax authority and he was the person made liable to pay. The circumstances in this case are entirely different. The respondents have not been able to show that the arrangements was that the tax in respect of the income derived by each individual shareholder was being made over to the company for being paid to the income-tax authorities. At least if there was evidence to that effect it might be said that under that arrangements the plaintiff was not bound to pay the income-tax to the authorities. Further, in the Madras case the Collector had to determine who it was that was chargeable. Here, there is no question as to who is pay the tax.

Another aspect of the case is if a person does not make a payment gratuitously but makes the payment bona fide to save the property from being sold, then section 70 of the Contract Act would apply, which reads as under :

'Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, of to restore, the thing so done or delivered.'

The words 'where a person lawfully does anything for another person...... not intending to do so gratuitously', have to be noted. 'Lawfully' does not mean 'bound by law to do'. It is merely means a person does it bona fide. That 'lawfully' only means 'bona fide' has been settled by the Madras High Court in the case of Muthayya Chetti v. Narayanan Chetti. It can very well be said that this was done bona fide by the plaintiff from the act of the defendant filed suits against his own vendor for taxes paid by him for the period anterior to the date of the sale. Exhibit A-2 is a letter written by one Venigalla Ramakrishnaiah to the Income-tax Officer, Bapatla. This Ramakrishnaiah was in possession of of a number of buses and in this letter he says that he was paying a sum, of Rs. 7,000 to the credit of the company in order to meet the income-tax demand, to avoid the risk of any distress warrant being issued on the buses in his possession and, thirdly, to accommodate certain persons who are legally liable to pay their part of the demand and one of the persons mentioned whom the writer is accommodating is the defendant himself. So the course of conduct of the parties would clearly establish that the arrangement was that the taxes for the period prior to the sale were to be paid by the persons who was in possession of the buses. The plaintiff may or may not be compellable to make the payment, it is enough if it its shown that he made it in order to protect his interest to avert loss of money or detriment to property. So long as it cannot be characterised as an officious payment but one made bona fide by the plaintiff, in my opinion, he is entitled to recover the amount. I might refer to the observations of Bhashyam Ayyangar, J., in the case of Chinnasamy Ayyar v. Rathnasabapathy Pillay. In this case the payment of cist made by the petitioner plaintiff was in respect of lands decreed to him but withheld from him by the respondents pending an appeal. The payment of the cist under these circumstances was held by the distinguished learned judge as not an officious payment but a payment made by one interested in such payment which the respondents were bound by law to pay.

The learned counsel for the respondent argued that the case was not one of a partnership but of a limited company and in this case the shareholders had nothing to do with the payment of the income-tax. It was submitted that it made a difference between the position of partners inter se and the shareholder in a private limited company and further argued that section 69 of the Contract Act was not attracted in this case for the reason that the defendant was not bound by law to pay and reliance was placed upon Raghavan v. Alamelu Ammal. Technically, no doubt, it was a private limited company. In order to satisfy the requirements of the G. O. which stipulated that for the grant of a permit the applicant should have a fleet of 20 buses and more, the individual bus owners joined together and founded a company. The company was formed primarily with a view to getting a permit but for all intents and purposes the buses were in the possession of the individual shareholders; they derived the income from the buses. It was not as though the shareholders paid over the income to the managing director of the company and the company distributed dividends to the individual shareholders after deducation of all items of expenditure as would be done in the case of a company. It is not by a fiction of law that it could be said that the assessee was the company and not the individual shareholders. The person who derived the income from the buses was liable to pay the income-tax. I do not think that the argument of the learned counsel for the respondent in this regards could be accepted. It may be also be said that the words 'bound by law to pay' occurring in section 69 of the Contract Act are not exhaustive in that they mean only 'one enjoined by statute to pay'. No doubt, it is the company that would eventually pay the tax to the income-tax authorities, but the arrangement was that each of the bus owners would pay the tax payable in respect of the bus in his possession to the company and the aggregate amount would be paid to the income-tax authorities by the company. Under these circumstances each person who is liable to pay the tax on the income derived by him would be regarded as a person bound by law to pay within the meaning of section 69 of the Contract Act. The fiction of an implied request from the defendant in this case to the plaintiff to make the payment may be properly imported into the case so as to bring it within the section and thus a right to reimbursement is created. One dominant feature, namely, that the company was not to receive the income is conclusive of the fact that the tax was payable by the person in whose possession the bus was. In my opinion, the view taken by the learned Subordinate Judge is not correct and the judgment must, therefore, be set aside.

This appeal is allowed. The judgment of the court below is set aside and the decree of the trial court restored. The appellant will be entitled to his costs throughout. (Leave granted.)

Appeal dismissed.


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