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Union of India (Uoi) and anr. Vs. India Fisheries (P) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation;Company
CourtSupreme Court of India
Decided On
Reported inAIR1966SC35; (1965)67BOMLR944; [1965]35CompCas669(SC); [1965]57ITR331(SC); 1965MhLJ861(SC); [1965]3SCR679
ActsIndian Companies Act, 1913 - Sections 179, 180, 228 and 229; Income Tax Act - Sections 48 and 49E; Insolvency Rules; Constitution of India - Articles 133(1) and 226; Company Law
AppellantUnion of India (Uoi) and anr.
RespondentIndia Fisheries (P) Ltd.
.....private company directed to be wound up by order of high court - balance of certain amount payable to income tax department from assets of respondent - certain amount to be refunded to respondent - income tax officer set off amount against outstanding balance - revision petition rejected by commissioner of income tax - high court holding that provision of section 49e not available to department for setting off amount of excess towards balance of claim - on appeal apex court holding that special provision to prevail in event of conflict between two independent provision of law - section 49e is general provision and hence applicable to all assesses and in all circumstances - section 49e to be reconciled with sections 228 and 229 by holding section 49e applies only when insolvency..........on december 8, 1950, the tax beingassessed at rs. 8,737/15/-. on or about march 15, 1951, the income tax officerlodged a claim in respect of this tax with the official liquidator. that claimwas adjudged and allowed as an ordinary claim and certified as such on april 2,1952. in august, 1954, the official liquidator declared a dividend of 9 1/2annas in a rupee and paid to the income tax department a sum of rs. 5,188/3/-against the claim made by the income tax officer as an ordinary creditor. thusa balance of rs. 3,549/12/- still remained payable to the income tax departmentfrom the assets of the respondent. 3. for the year 1955-56, the department made a demand from the respondent onjune 22, 1954, for a sum of rs. 2,565/6/- as advance tax. this was paid by theofficial liquidator. on a.....

Sikri, J.

1. This appeal is in pursuant to a certificate of fitness granted by theHigh Court of Maharashtra at Bombay under Art. 133(1)(c) of the Constitution isdirected against the judgment of the said High Court in a petition under Art.226 of the Constitution filed by the respondent.

2. The India Fisheries (P) Ltd. hereinafter called the respondent was aprivate limited company and was directed to be wound-up by an order of theBombay High Court, dated October 11, 1950, and a Court Liquidator was appointedas the Official Liquidator thereof with all powers under s. 179 of the IndianCompanies Act, 1913 (VII of 1913) to be exercised by him under s. 180 withoutsanction or intervention of the Court save and except in case of sales ofimmovable property belonging to the respondent. For the assessment year1948-49, the respondent was assessed on December 8, 1950, the tax beingassessed at Rs. 8,737/15/-. On or about March 15, 1951, the Income Tax Officerlodged a claim in respect of this tax with the Official Liquidator. That claimwas adjudged and allowed as an ordinary claim and certified as such on April 2,1952. In August, 1954, the Official Liquidator declared a dividend of 9 1/2annas in a rupee and paid to the Income Tax Department a sum of Rs. 5,188/3/-against the claim made by the Income Tax Officer as an ordinary creditor. Thusa balance of Rs. 3,549/12/- still remained payable to the Income Tax Departmentfrom the assets of the respondent.

3. For the year 1955-56, the Department made a demand from the respondent onJune 22, 1954, for a sum of Rs. 2,565/6/- as advance tax. This was paid by theOfficial Liquidator. On a regular assessment being made for the said year, onlyRs. 1,126/12/- was assessed as payable by the respondent. After adjusting thissum against the advance payment of Rs. 2,565/6/-, Rs. 1,460/1/- becamerefundable to the respondent, inclusive of interest. Instead of refunding thesaid balance to the respondent, the Income Tax Officer set off the said amountagainst the balance of Rs. 3,549/12/- which was still outstanding in respect ofthe Income-tax demand for the year 1948-49. The respondent filed a revisionpetition to the Commissioner of Income-tax, but the said petition was rejectedby the Commissioner on September 21, 1959, holding that the action of theIncome Tax Officer was perfectly justified under the provision of s. 49E of theIncome Tax Act.

4. On November 25, 1959, the respondent filed a petition under art. 226 ofthe Constitution and prayed for a writ, direction or order for setting asidethe orders of the Income Tax Officer and the Income Tax Commissioner. Hefurther prayed for any further writ, direction or order restraining theDepartment from setting off the refund against the tax dues and directing themto hand over the balance to the Official Liquidator.

5. The High Court held that the demand of Rs. 8,737/12/- in respect of theassessment year 1948-49, being adjudged and certified, came to have all theincidents and character of an unsecured debt payable by the Official Liquidatorof the Department. The High Court observed that 'this claim thereafter wasgoverned by the provisions of the Company law and could be paid to the creditoronly in accordance with the provisions of the Company law. No other remedy norany other method of obtaining satisfaction of this claim was available to thecreditor thereafter. It was no longer the amount of tax remaining payable by aperson to whom the refund was due within the meaning of Section 49E of theIncome Tax Act. In our opinion, therefore, the provision of Section 49E was notavailable to the Department for setting off the amount of the excess towardsthe balance of its claim of Rs. 8,737/15/- which the department had proved inthe insolvency of the company and was being dealt with in the Insolvency.'The High Court accordingly set aside the orders passed by the Department in sofar as they set off the amount of the refund towards the tax remaining payable,and directed the Income Tax Officer to deal with and dispose of the claim ofthe present respondent for the refund and pass appropriate orders in respect ofthe said amount of refund under the provisions of s. 48 of the Income Tax Act.

6. The learned Additional Solicitor-General, on behalf of the appellant,contends that s. 49E gives statutory power to the Income Tax Officer, interalia, to set off the amount to be refunded or any part of that amount againstthe tax remaining payable by the person to whom the refund is due, and thisstatutory power is not subject to any provision of any other law. He says thatthe companies Act does not take away this power. Section 49E is in thefollowing terms :

'Where under any of the provisions of this Act, arefund is found to be due to any person, the Income-tax Officer, AppellateAssistant Commissioner or Commissioner, as the case may be, may, in lieu ofpayment of the refund, set off the amount to be refunded, or any part of thatamount against the tax, interest or penalty, if any, remaining payable by theperson to whom the refund is due.'

7. On the face of this provision, there is no doubt that this section is notsubject to any other provision of law. But it will be surprising if this powercan be exercised in such a way as to defeat the provisions of the IndianCompanies Act. It is not denied by the learned Additional Solicitor-Generalthat the State has no priority in respect of this claim. The question thenarises whether s. 49E is subject to the Insolvency Rules contained in theCompanies Act. Section 228 of the Companies Act. 1913, provides :

'228. Debts of alldescriptions to be proved. -

In every winding up (subject inthe case of insolvent companies to the application in accordance with theprovisions of this Act of the law of insolvency) all debts payable on acontingency, and all claims against the company present or future, certain orcontingent, shall be admissible to proof against the company, a just estimatebeing made, so far as possible, of the value of such debts or claims as may besubject to any contingency or for some other reason do not bear a certainvalue.'

8. Section 229 provides :

'Application of insolvencyrules in winding up of insolvent companies. -

In the winding up of an insolventcompany the same rules shall prevail and be observed with regard to the respectiverights of secured and unsecured creditors and to debate provable and to thevaluation of annuities and future and contingent liabilities as are in forcefor the time being under the law of insolvency with respect to the estates ofpersons adjudged insolvent; and all persons who in any such case, would beentitled to prove for and receive dividends out of the assets of the companymay come in under the winding up, and make such claims against the company asthey respectively are entitled to by virtue of this section.'

9. The effect of these statutory provisions is, inter alia, that anunsecured creditor must prove his debts and all unsecured debts are to be paidpari passu. Therefore, once the claim of the Department has to be proved and isproved in the liquidation proceedings, the Department cannot, by exercising theright under s. 49E of the Income Tax Act get priority over the other unsecuredcreditors. It we were to read s. 49E in the way suggested by the learnedAdditional Solicitor-General, it would be defeating the very object underlyingSections 228 and 229 of the Companies Act, 1913. If there is an apparent conflictbetween two independent provisions of law, the special provision must prevail.Section 49E is a general provision applicable to all assessees and in all circumstances;Sections 228 and 229 deal with the proof of debts and their payment in liquidation.In our opinion, s. 49E can be reconciled with Sections 228 and 229 by holding thats. 49E applies when insolvency rules do not apply. Accordingly, agreeing withthe High Court, we hold that the Income Tax Officer was in error in applying s.49E and setting off the refund due. The Commissioner was equally in error inaffirming this order.

10. The learned Additional Solicitor-General also urged that the applicationunder art. 226 was misconceived because the Income Tax Officer hadjurisdiction. But if we interpret s. 49E as we have done, it is a clear case oflack of jurisdiction. At any rate, there is an error apparent on the face ofthe orders and the High Court was quite right in exercising its jurisdictionunder Art. 226.

11. The appeal is accordingly dismissed with costs.

12. Appeal dismissed.

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