The judgment of the court was delivered by
R. S. PATHAK J. - The appellant carried on business as a commission agent. By a notice dated July 15, 1957 he was required by the Income-tax Officer to make payment of a sum of Rs. 36,611.88 due as arrears of tax from a partnership firm which had discontinued its business and of which the appellant was a partner. It is admitted between the parties that the arrears included income-tax as well as excess profits tax. As no payment was made by the appellant, the Income-tax Officer served a notice dated July 29, 1957, purporting to be under section 46(5A) of the Income-tax Act, 1922, upon the Allahabad Bank Ltd., Kanpur, informing the bank that a sum of Rs. 36,611.88 was due from the appellant and that any money held by it, or which may be so held in future, to the credit of the appellant in his bank account, should be paid over to the Income-tax Officer to the extent of that liability. The bank informed the Income-tax Officer on August 9, 1957, that the account of the appellant showed a credit balance of Rs. 33,119.48 and that this amount had been set apart by it pending further instructions from the Income-tax Officer. The amount of Rs. 33,119.48 included a sum of Rs. 15,000 which the appellant claims to have received from one of his constituents as money advanced for the purchase of cloth. On August 30, 1957, the bank deposited Rs. 18,119.48 in the Government treasury from the appellants account pursuant to the notice from the Income-tax Officer.
The appellant then filed a petition under article 226 of the Constitution on September 3, 1957, in this court, and assailed the validity of the notice dated July 15, 1957, and of the proceedings under section 46(5A). While praying for certiorari to quash the notice and the proceedings, he also sought an order for the refund of Rs. 18,119.48 from the Income-tax Officer and a further order restraining the bank from making over the balance amount of Rs. 15,000 to him. On September 5, 1957, on an application for interim relief, the court declined to issue an interim injunction restraining the bank from paying the balance of Rs. 15,000 to the Income-tax Officer. The order, however, contained the provision that 'if the bank does make payment during the pendency of the writ petition, and if the petitioner succeeds in this petition, he would be entitled to an order for refund of the amount by the Income-tax Officer to the bank.' Meanwhile, on September 4, 1957, the bank had deposited a further sum of Rs. 15,000 in the Government treasury from the appellants account.
At the final hearing of the petition a number of contentions were raised. It was argued that the provisions of section 46(5A) of the Income-tax Act could not be employed for realising excess profits tax, that the partnership firm having discontinued the business, section 44 of the Act did not apply, that the sum of Rs. 15,000 deposited by a constituent for purchasing cloth was not liable to be paid over to the Income-tax Officer, and that in any event no proceedings for recovery of the tax could be taken against the appellant alone who was only one of the partners of the firm. The petition was dismissed by Gupta J. and the appellant has now preferred this special appeal.
Mr. Gopal Behari, for the appellant, contends that the provisions of section 46(5A) of the Income-tax Act could not be invoked by the Income-tax Officer in the instant case for the purpose of recovering the excess profits tax due. Section 21 of the Excess Profits Tax Act applies certain provisions of the Income-tax Act, 1922, as if those provisions were provisions of the Excess Profits Tax Act and referred to excess profits tax instead of to income-tax. Among the several provisions of the Income-tax Act so enumerated is section 46. Mr. Gopal Behari points out that at the time when the Excess Profits Tax Act was enacted in 1940, section 46 did not include sub-section (5A), that sub-section having been, inserted subsequently in 1948, and he urges that, therefore, when reference was made by section 21 of the Excess Profits Tax Act to section 46 no reference could have been intended to sub-section (5A). Accordingly he contends that the provisions of sub-sections (5A) of section 46 of the Income-tax Act never became incorporated in the Excess Profits Tax Act.
On behalf of the Income-tax Officer, it is submitted by Mr. S. K. Dhawan that when section 46 was mentioned by the legislature in section 21 of the Excess Profits Tax Act, it was intended to incorporate not only the provisions of section 46 then existing, but also those which may be added later, and that it was wholly immaterial that sub-section (5A) did not exist in 1940.
After hearing learned counsel for the parties, we are of opinion that the contention for the appellant must prevail. The point was considered by the Bombay High Court in Jethalal Nagji Shah v. Municipal Corporation of Greater Bombay, and it was held that when the Income-tax Act was amended in 1948, by adding sub-section (5A) to section 46, that new sub-section did not apply to the Excess Profits Tax Act. Chagla C.J., who delivered the judgment of the court, examined the principles on which the point fell to be decided, and we have no hesitation in expressing our respectful agreement with his conclusions. It cannot be doubted, we think, that when a provision of one statute is incorporated by reference in another, it becomes as much a part of the latter as if it had been actually written in it. And, without anything to the contrary, a repeal of such provision in the former enactment will not result in the deletion of that provision in the latter, where it now continues to have effect in proprio vigore. Once the provisions of section 46 were incorporated in the Excess Profits Tax Act in 1940, they took effect according as they stood in that year, and continued in force accordingly. And, therefore, sub-section (5A), which was not in existence at all 1940, but was after-born, never became incorporated in the Excess Profits Tax Act.
We are then referred by Mr. Dhawan to the provisions of section 21A of the Excess Profits Tax Act in support of his contention that the provisions subsequently enacted in section 46 have been made applicable under the Excess Profits Tax Act and that, therefore, sub-section (5A) must be read into that Act. It seems to us that the provisions of section 21A can be of no assistance to Mr. Dhawan. We are not satisfied that section 21A was intended to apply to recovery proceedings, but, without expressing any opinion on the point, we are of the view that reference to section 21A does not carry the case any further in favour of Mr. Dhawan. When section 21 of the Excess Profits Tax Act was enacted in 1940, section 46 of the Income-tax Act did not contain sub-sections (8), (9) and (10). It was apparent that these sub-sections could not be read as part of the Excess Profits Tax Act merely because section 46 had been mentioned in section 21, and, therefore, when the legislature inserted section 21A in 1947 in that Act, it included a proviso in that section declaring that any references in the Excess Profits Tax Act to section 46 of the Income-tax Act shall be deemed to include references to sub-sections (8), (9) and (10) of that section. It is significant that when subsequently in 1948, sub-section (5A) was added to section 46 of the Income-tax Act, there was no corresponding change in section 21 or section 21A of the Excess Profits Tax Act.
We are, therefore, clearly of the view that sub-section (5A) of section 46 of the Income-tax Act never became incorporated in the Excess Profits Tax Act, and that, consequently, the Income-tax Officer had no authority to proceed under that provision for the realisation of excess profits tax and all the proceedings taken by him in that regard were wholly without jurisdiction.
Gupta J., while dismissing the petition, observed that even if section 46(5A) was not applicable, the modes of recovery provided in section 46 were not exhaustive, and held that it was open to the Income-tax Officer to recover the tax due by serving a notice upon the bank, which was a debtor to the appellant, to pay over the money which it held in the appellants account. He has relied upon Governor-General v. Chotalal Shivdas, Manickam Chettiar v. Income-tax Officer, Madura, Inderchand v. Secretary of State for India, Builders Supply Corporation v. Union of India and Chaganti Raghava Reddy v. Income-tax Officer.
There can be no dispute that the Income-tax Officer is not confined to the modes of recovery specified in section 46. But that does not mean that he can adopt any procedure for recovering the tax due. The procedure open to him is only that which can be contemplated in law. In Governor-General in Council v. Chotalal Shivdas, Manickam Chettiar v. Income-tax Officer and Chaganti Raghava Reddy v. Income-tax Officer, it was held that an Income-tax Officer was entitled to apply to a court executing a decree against the assessee for recovering the tax due from money belonging to the assessee which was in the custody of that court. In Inderchand v. Secretary of State for India, the Income-tax Officer was held entitled to adjust the tax due for one year against the refund of tax relating to another year. Builders Supply Corporation v. Union of India was a case where the court found the Certificate Officer was entitled, pursuant to a certificate under section 46(2), to apply to an executing court for recovering the tax from moneys belonging to the judgment-debtor-assessee.
Now whether the Income-tax Officer seeks to recover the tax by applying to an executing court holding money belonging to the assessee or by adjusting it against a refund due to the assessee, there are both procedures contemplated by the statutory law. Justification can be found in the one case in the provisions of the Code of Civil Procedure which contemplate the filing of claims of different decree-holders in an executing court for satisfaction of their decrees from moneys held by it which belong to the judgment-debtor. Where a tax is due under a notice of demand under the Income-tax Act, no decree is necessary as was observed by Leach C.J. in Governor-General in Council v. Chotalal Shivdas, 'the right to payment being indisputable'. In the other case, where the tax due from an assessee is adjusted against refund payable to him, provisions is to be found in section 49E of the Income-tax Act.
It is well settled that the relationship between a banker and his customer in this country is that of a debtor and his creditor where the banker holds the fund of the customer under a current account or fixed deposit. We are not aware of any principle of general law which entitles the State to recover an amount due to if from an assessee by proceeding to realise the money from his debtor. Unless such person, form whom the sum is due to the State, authorises the State to recover it from his debtor or instructs the debtor to pay to the State an amount equivalent to the liability, there is no right in the State to have recourse to this procedure. That right can belong to the State by statute, and it was apparently to enable the State to recover the tax due from an assessee by recourse to this procedure that the legislature enacted section 46(5A). In a case where section 46(5A) cannot be invoked, and where no similar statutory provision can be referred to, the Income-tax Officer is not entitled to recover tax due from an assessee by realising it from the assessees debtor.
Mr. Dhawan then urged that even if section 46(5A) of the Income-tax Act 1922, could not be read as incorporated in the Excess Profits Tax Act, justification for the procedure adopted by the Income-tax Officer was to be found in the provision of section 226(3) of the Income-tax Act, 1961, which, he contends, by virtue of section 8 of the General Clauses Act, must be deemed to have become incorporated in the Excess Profits Tax Act upon the repeal of the Act of 1922 by the Act of 1961. The contention seems to be that the effect of section 8 of the General Clauses Act is that when you read section 21 of the Excess Profits Tax Act, 1940, then where it refers to section 46 of the Income-tax Act, 1922, you must read it now as if reference is made instead to section 226 of the Income-tax Act, 1961, and that, says Mr. Dhawan, will bring in reference to sub-section (3) of that section. Section 8(1) of the General Clauses Act is in these term :
'Where..... any Central Act.... made after the commencement of this Act, repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment... to the provision so repealed shall, unless a different intention appears, be construed as references to the provision so re-enacted.'
It is not in dispute that the Income-tax Act, 1961, has repealed the Income-tax Act, 1922, and that its provisions represent a substantial re-enactment of those of the latter statute. But it seems to us that as the impugned proceeding took place before the Income-tax Act, 1961, came into force, the validity of that proceeding must be judged by reference to the provisions of the Income-tax Act, 1922, as incorporated in the Excess Profits Tax Act. The Income-tax Act, 1922, was repealed on April 1, 1962, and for the purpose of determining the validity of what was done before the repeal we must refer to the Excess Profits Tax Act as it stood when section 21 thereof incorporated the provisions of the Income-tax Act, 1922. As to transactions past and closed, it is to that state of the law to which we must refer.
But assuming that the effect of section 8 of the General Clauses Act is that even as regards the proceedings challenged before us it is necessary to read section 21 of the Excess Profits Tax Act as if it contained reference to the provisions of the Income-tax Act, 1961, we are unable to accept the contention that the effect of applying section 8 of the General Clauses Act is that you must read section 21 of the Excess Profits Tax Act as if it incorporates section 226(3) of the Income-tax Act, 1961, in the Excess Profits Tax Act. The contention of learned counsel would be justified if a provision of the Income-tax Act, 1922, corresponding to section 226(3) of the Income-tax Act, 1961, had been incorporated in the Excess Profits Tax Act. The contention cannot be accepted if no such corresponding provision of the Income-tax Act, 1922, had been incorporated in the Excess Profits Tax Act. Section 8 of the General Clauses Act comes into play if a provision of an earlier Act has been repealed and re-enacted by a subsequent Act. Now, section 46 of the Income-tax Act, 1922, cannot be said to have contained only one provision. That section contained a number of provisions. There was a provision which empowered the Income-tax Officer to impose a penalty upon an assessee who had defaulted in payment of income-tax. Then followed provisions providing for different modes of recovering tax due from an assessee. There was a provision empowering the Income-tax Officer to forward to the Collector a certificate for recovery of arrears to tax due from an assessee. There was another provision conferring upon the Income-tax Officer authority to require a person paying salary to the assessee to deduct from any payment subsequent to the date of the requisition the arrears due from the assessee. This was followed by a provision entitling the Income-tax Officer to direct a person from whom money is due or a person who holds money for or on account of the assessee to pay to him the amount of tax from such money. All these were separate and distinct provisions, each complete in itself, and though they had a common object, namely, the recovery of income-tax dues, they were nevertheless not one provision but a number of distinct provisions for the purpose of achieving that object. They were only several roads converging towards the same objective. Sub-section (5A) of section 46 was a provision in itself, separate, distinct and independent of the other provisions of section 46 providing for alternative modes of recovering tax. When the Excess Profits Tax Act was enacted, sub-section (5A) was not contained in section 46, and we have expressed the view above that it cannot be said that when reference was made to section 46 in section 21 of the Excess Profits Tax Act such reference was intended to sub-section (5A) also of section 46. When the Income-tax Act, 1922, was repealed and replaced by the Income-tax Act, 1961, it could be said that section 21 should now be deemed to incorporate in the Excess Profits Tax Act those provisions of the Act of 1961 to the extent that corresponding provisions of the Act of 1922 had been incorporated in the Excess Profits Tax Act. Section 226(3) is not a provision corresponding to any provision in section 46 as it existed when the Excess Profits Tax Act was enacted. It is a provision in addition to and distinct from those provisions. It corresponds to sub-section (5A) of section 46, and that sub-section was, as we have held, not incorporated in the Excess Profits Tax Act by section 21. Consequently, we are of the view that section 226(3) of the Income-tax Act, 1961, read with section 8 of the General Clauses Act can be of no assistance to the Income-tax Officer. Mr. Dhawan relied upon State of U. P. v. M. P. Singh in support of his contention that section 226(3) should now be read in section 21 of the Excess Profits Tax Act. That was a case where the definition of a 'commercial establishment' in the U. P. Shops and Commercial Establishments Act, which had been enacted by reference to the definition of that expression in the Factories Act, 1934, was construed as being altered subsequently in terms of the definition contained in the Factories Act, 1948, which had repealed an earlier Act and re-enacted it. It was a case where the definition of a 'commercial establishment' was merely modified; it was not a case where a distinct provision, which did not exist in the earlier enactment, had been included in the subsequent enactment. Similarly, the cases in Mohan Chowdhury v. Chief Commissioner, Tripura, State of Bihar v. G. N. Ojha, Moosa Kazimi v. K. M. Sheriff and Raj Kishan Jain v. Tulsi Dass, to which Mr. Dhawan has referred us, are not cases comparable to the case before us. They are clearly distinguishable. In some of them, the question which arose was whether the extension of the definition of an expression by the subsequent Act to cover persons or items in addition to those included within the definition in the repealed Act would amount to a modification within the meaning of section 8 of the General Clauses Act. They are not cases where a new provision was inserted in a subsequent Act which was not present in the repealed Act. It was not held that a new provision would fall within the meaning of 'modification' as used in section 8.
Mr. Dhawan then contends that in any event the appellant was not entitled to a direction requiring the Income-tax Officer to refund the amount realised from the bank. He points out that the provisions of section 48 of the Income-tax Act, though made applicable to amounts realised as excess profits tax by section 21 of the Excess Profits Tax Act, did not apply. It is urged that apart from section 48, there is no power to direct a refund of the amount to the appellant, and that the jurisdiction under article 226 directing a refund can be exercised only if there is a statutory provision entitling the assessee to a refund. We have no hesitation in rejecting this contention. The powers of the court under article 226 of the Constitution are very wide and whatever limitations exist for the exercise of those powers are those which flow from the nature of the orders contemplated by article 226 and those which the courts have further imposed upon themselves. There is no reason why in certain cases if the court finds that a sum has been wrongfully realised from the petitioner it cannot issue a direction to the authority concerned to return that money. If authority be necessary, we may refer to the recent decision of the Supreme Court in State of Madhya Pradesh v. Bhailal Bai. The decision in Burma Construction Co. v. State of Orissa relied upon by Mr. Dhawan is not a decision to the contrary.
Then Mr. Dhawan contends that the appellant was not entitled to maintain the petition, and, therefore, the appeal before us. He urges that the appellant had his remedy against the bank which could be said to have wrongfully paid over money belonging to the appellant to the Income-tax Officer, that it was analogous to a case where the debtor pays money owed to a creditor on his behalf to some other person without any direction to this effect from, or with the consent of, the creditor. This contention has no force. There can be no doubt that the interests of the appellant are affected by the proceedings taken by the Income-tax Officer, and it has been consistently held that the existence of an alternative remedy is not an absolute bar to the courts entertaining a petition under article 226 of the Constitution.
The last contention of Mr. Dhawan is that the equities of the case are against the appellant and that the court in its discretion should not grant relief to the appellant because he has not paid any amount towards the excess profits tax liability assessed against him ever since 1949. This contention must also be rejected. The mere fact that a party who comes to a court challenging the validity of proceedings for recovery of tax owed by him has not paid the tax cannot disentitle him to relief under article 226 of the Constitution. If it were held that the court is entitled to decline relief to such a petitioner on the ground that he had not paid the tax due, it would amount to holding that a party challenging the validity of recovery proceedings must deposit the amount due with the taxing authority before he is entitled to maintain a petition under article 226. That would be to impose a condition upon a party not contemplated by the provisions of article 226 or of any rules of this court made in respect of such petitions. Moreover, the acceptance of the contention would also mean that no order can be sought by a petitioner restraining the recovery authorities from recovering the tax, because obviously if the petitioner had to deposit the amount sought to be recovered before filing his petition, no occasion would arise for seeking such order. We cannot agree with the view taken by the learned single judge that there was no manifest injustice and, therefore, certiorari should not issue. There being no authority of law under which the Income-tax Officer could require the bank to pay the money from the account of the appellant, the appellant was deprived of property belonging to him without authority of law. Indeed, article 265 of the Constitution expressly prohibits the collection of tax without authority of law. It is also immaterial that it was open to the Income-tax Officer to proceed to recover the tax due by adopting another mode of recovery. The mere circumstance that it is open to him to adopt some other mode cannot, in our opinion, necessarily render futile a direction or writ issued by this court.
As we are of the view that the Income-tax Officer was not entitled to recover the tax due by recourse to the proceeding adopted by him, it is not necessary to consider the remaining submissions by the appellant.
Accordingly this appeal must succeed. The appeal is allowed and the order of the learned single judge is set aside. We quash the notice issued by the Income-tax Officer to the Allahabad Bank Ltd. under section 46(5A) of the Income-tax Act, 1922, and restrain him from taking proceedings pursuant to that notice. Consequently, we also direct the Income-tax Officer to refund to the appellant the entire amount realised by him on account of excess profits tax from the bank out of the appellants account with it. The appellant shall be entitled to his costs throughout from the Income-tax Officer.