The Order of the Court was pronounced by
RAJAGOPALAN, J. - In the course of the assessment proceedings for the assessment year 1949-50 the mount of refund of income-tax to which the assessee was entitled was ascertained as Rs. 27,892-11-0. about a month later, on July 23, 1953, the assessee applied to the Income-tax Officer for the issue of a refund order. On August 12, 1953, the Income tax Officer informed the assessee that the refundable amount of Rs. 27,892-11-0 had been adjusted towards three items of arrears of income-tax : (1) Rs. 12,835-15-0, arrears due for 1940-41; (2) Rs. 7,800 arrears due for 1941-42; and (3) Rs. 7,256-12-0 part of the arrears due for 1947-48. The assessee pointed out that the first two items represented the proportionate tax on foreign income, the income from Kanthoe, for the relevant account periods corresponding to the assessment year 1940-41 and 1941-42, and that as the currency restrictions on remittances from Kanthoe continued, he was entitled to the relief under the proviso to section 45 of the Act. On November 12, 1953, the Income-tax Officer finally informed the assessee that the refundable amount would be adjusted towards the arrears of tax. The Inspecting Assistant Commissioner, in effect, confirmed that order on December 7, 1953.
The assessee applied under article 226 of the Constitution for the issue of a writ of mandamus or any other appropriate writ to direct the Income-tax Officer to refund Rs. 20,635-15-0. That sum represented the total of items 1 and 2 mentioned above, the arrears of tax due on the foreign income from Kanthoe, for which the petitioner had been assessed in 1940-41 and 1941-42.
It was on section 49E of the Act that the respondent relied to justify the adjustment effected by the Income-tax Officer and confirmed by the Inspecting Assistant Commissioner.
Section 49E runs :
'Where under any of the provisions of this Act, a refund is found to be due to any person, the Income-tax Officer,........ may, in lieu of payment of the refund, set off the amount to be refunded, or any part of that amount, against the tax, if any, remaining payable by the person to whom the refund is due.'
The petitioner all along admitted that Rs. 12,835-15-0 and Rs. 7,800 were due from him out of the tax to which he had been assessed in 1940-41 and 1941-42 respectively. It was common ground that this represented the tax on the foreign income from Kanthoe, and that the requirements of the proviso to section 45 having been satisfied, the petitioner could not be treated as an assessee in default in respect of these two sums.
The learned counsel for the respondent contended that, though the petitioner could not be treated as an assessee in default, the arrears of tax remained 'payable' by the assessee within the meaning of section 49E of the Act. Section 45 of the Act specifies the day before which any amount payable under a notice of demand issued under section 29 of the Act should be paid. It further directs that any assessee failing o to pay shall be deemed to be in default. We are not now concerned with the first proviso to the section, which provides for the period during which an appeal preferred against the order of assessment in pending. The second proviso runs :
'Provided further that where an assessee has been assessed in respect of income arising outside the taxable territories in a country the laws of which prohibit or restrict the remittance of money to the taxable territories the Income-tax Officer shall not treat the assessee ass in default in respect of the part of the tax which is due in respect of that amount of his income which by reason of such prohibition or restriction cannot be brought into the taxable territory and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed.'
The learned counsel for the petitioner-assessee urged that, if the petitioner could not be deemed to be an assessee in default in respect of the arrears due for the assessment years 1940-41 and 1941-42, those arrears did not remain payable by the assessee within the meaning of section 49E. We are unable to accept this contention. Section 45 of the Act defines when an assessee shall be deemed to be in default. Section 46(1) provides for the imposition of a penalty on an assessee in default. Section 46(2) is a specific provision for the realisation of the amount of arrears due from an assessee by the Collector on the issue of the prescribed certificate from the Income-tax Officer. Sub-sections (3) and (5) of section 45 are other provisions for the recovery of arrears. It is not necessary for us to decide in these proceedings whether the procedural law outlined in section 46 of the Act makes a real difference between an assessee in default and an assessee from whom arrears are due. The limited question we have to answer is, whether an assessee, the tax or a portion thereof lawfully demanded from whom still remains unpaid, is a person liable to pay that amount within the meaning of section 49E, though he cannot be treated as an assessee in default in respect of that sum under section 45 of the Act.
In our opinion the tax becomes payable on the service of the notice for which section 29 of the Act provides, on or before the expiry of the date fixed in accordance with the first part of section 45. During that period even though the tax has been payable all along, the assessee cannot be deemed to be in default within the meaning of section 45. On the expiry of that period, if the tax still remains unpaid, and if neither of the provisos is applicable, the assessee shall be deemed to be in default. Some of the consequences of that default have been provided for by section 46 of the Act. That the provisions of section 46 were not or could not be applied to the assessee would not affect the question - was the assessee liable to pay the amount lawfully demanded of him by the prescribed notice issued under section 29 of the Act. Thus the successive stages are : a person liable to be assessed; a person assessed; the assessee or person liable to pay the tax; an assessee in default. The existence of a liability is distinct from the enforcement of that liability by any of the means from which section 46 provides. Even though the petitioner could not be deemed to be an assessee in default within the meaning of section 45, he continued to be a person liable to pay the tax. The liability to pay the tax should suffice to bring the assessees case within the scope of section 49E of the Act. Section 49E does not either in express terms or by necessary implication require that the assessee should be in default, either within the ordinary meaning of that expression or as that expression has been defined by section 45 of the Act. We are unable to read the provisions of the latter part of section 45 and the provisions to that into section 49E of the Act to define the scope of the expression in section 49E 'that amount .....if any, remaining payable by the person to whom the refund is due.'
The Income-tax Officer acted well within his jurisdiction when he exercised the discretion vested in him by section 49E of the Act to adjust Rs. 20,635-15-0 out of the amount refundable to the petitioner towards the arrears payable by the petitioner out of the tax to which he had been assessed in 1940-41 and 1941-42. As the respondent has not failed to discharge any statutory duty imposed upon him, the writ of prohibition asked for by the petitioner cannot issue.
The rule is discharged. This petition is dismissed with costs.