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Union of India (Uoi) Vs. N.K.S.H. Marudappa Pandian and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberS.T. Appeal Nos. 4 and 5 of 1967
Judge
Reported in[1969]73ITR147(Mad)
ActsMadras Estates Abolition and Conversion to Ryotwari Act, 1948 - Sections 42, 44(1) and 50
AppellantUnion of India (Uoi)
RespondentN.K.S.H. Marudappa Pandian and ors.
Cases ReferredBuilders Supply Corporation v. Union of India
Excerpt:
- - in proceedings under section 42 of the act, the union figured as a creditor in respect of arrears of income-tax due for the assessment years 1947-48 to 1951-52 as well as penalties levied in respect of those years except 1951-52. the tribunal disallowed the claim of the union as against interim payments. commissioner of wealth-tax, [1966]59itr767(sc) has clearly laid down that a liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data, and there is a perfect debt at any rate on the last day of the accounting year and not a contingent liability......earlier. in proceedings under section 42 of the act, the union figured as a creditor in respect of arrears of income-tax due for the assessment years 1947-48 to 1951-52 as well as penalties levied in respect of those years except 1951-52. the tribunal disallowed the claim of the union as against interim payments. against this order in o.p. no. 41 of 1965 the union has filed s.t.a. no. 4 of 1967. in the other appeal arising from o.p. no. 42 of 1965, the tribunal held that demands for payment of arrears of income-tax made subsequent to january 3, 1951, could not be regarded as debts payable out of the compensation. on that view it allowed only a portion of the union's claim but not the rest both in respect of income-tax arrears and of penalty. 2. a reading of the provisions of section 50.....
Judgment:

Veeraswami, J.

1. The appellant in the appeals is the Union of India, represented by the Second Income-tax Officer, Tirunelveli. The Uthamalai Zamin was notified and taken over with effect from January 3, 1951, under the provision?: of the Madras Act XXVI of 1948. The State Government deposited the last instalment of final compensation and also certain interim payments earlier. In proceedings under Section 42 of the Act, the Union figured as a creditor in respect of arrears of income-tax due for the assessment years 1947-48 to 1951-52 as well as penalties levied in respect of those years except 1951-52. The Tribunal disallowed the claim of the Union as against interim payments. Against this order in O.P. No. 41 of 1965 the Union has filed S.T.A. No. 4 of 1967. In the other appeal arising from O.P. No. 42 of 1965, the Tribunal held that demands for payment of arrears of income-tax made subsequent to January 3, 1951, could not be regarded as debts payable out of the compensation. On that view it allowed only a portion of the Union's claim but not the rest both in respect of income-tax arrears and of penalty.

2. A reading of the provisions of Section 50 in the light of Section 44(1) of the Act would lead to the legal position that creditors are excluded from making claims against interim payments. This view receives support from Lakshminarayana v. Lakskmi Venkayamma, A.I.R. 1957 A.P. 207 and Jaya Shri Devi Rajkumari of Vizianagaram v. Lalita Kumari Devi, [1965] 1 A.W.R. 377. It follows, therefore, the Union's claim in this regard was rightly disallowed by the Tribunal. The result is that S.T.A. No. 4 of 1967 will stand dismissed.

3. Chidambaram Chettiar v. Venkatesa Iyengar, : (1957)2MLJ341 ruled that it is only debts which accrued before the notified date that could be considered as eligible claims under Section 42. The Tribunal was, therefore, right in taking the notified date as drawing a line and taking only the debts which accrued prior to the notified date as being eligible for payment by apportionment of the compensation. But the error the Tribunal committed was in its assumption that the income-tax liability arose only on the dates of demands. Kesoram Industries & Cotton Mills Ltd. v. Commissioner of Wealth-tax, : [1966]59ITR767(SC) has clearly laid down that a liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data, and there is a perfect debt at any rate on the last day of the accounting year and not a contingent liability. That concludes the point in favour of the Union except for 1951-52. The Tribunal should, therefore, consider the Union's claim out of the last instalment of final compensation on that basis.

4. So far as the penalty is concerned, the source of liability is the order levying penalty. We find that out of the claim of the Union on this account two at least related to orders of penalty passed subsequent to the notified date, that is to say, on September 10, 1956, and August 9, 1951, the rest of the penalty orders having been passed prior to the notified date. The Union is entitled to make claims out of the compensation in regard to the penalty demanded on the basis of orders prior to the notified date.

5. It is argued for some of the maintenance holders that the income-tax liability and the penalty in part came into existence as a result of reassessments. But that cannot make any difference to the principle that the liability to pay income-tax arose, as has been held by the Supreme Court, at least on the last day of the accounting year.

6. There remains the question of priority. Here again, the Union is supported by authority : Builders Supply Corporation v. Union of India, : [1965]56ITR91(SC) . In that case, the Supreme Court held that the Government of India is entitled to claim priority for arrears of income-tax due to it from a citizen over debts from him to unsecured creditors. That common law principle the Tribunal was bound to apply. Mr. Habibullah for one of the creditors says that the Tribunal having been entrusted with the power of distribution of the compensation under Section 42, it can use its discretion in the light of the facts in adjusting priority. We do not think that this is permissible when the Tribunal is bound to follow the common law principle unless it is superseded by legislation.

7. Lastly, it has been said for some of the creditors that the income-tax arrears pertaining to 1947-48 were not a debt owed by the estate as such but owed personally by the quondam landholder. It is admitted that in respect of the rest of the years under consideration, the income-tax arrears constituted a debt binding on and owing from the estate. The Tribunal does not appear to express any specific opinion in respect of the arrears pertaining to 1947-48. The Tribunal will have to consider this question and decide.

8. S.T.A. No. 5 of 1967 is allowed and O.P. No. 42 of 1965 is directed to be disposed of afresh by the Tribunal in the light of the observations contained in this judgment and according to law. There will be no order as to costs in either of the appeals.


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