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PETITIONER: COLLECTOR OF CUSTOMS & ORS.

       Vs.

RESPONDENT: M/s.  SOORAJMULL NAGARMULL & ANR.

DATE OF JUDGMENT: 28/03/1969

BENCH: HIDAYATULLAH, M. (CJ) BENCH: HIDAYATULLAH, M. (CJ) MITTER, G.K.

CITATION:  1970 AIR  118            1970 SCR  (1) 123  1969 SCC  (1) 858

ACT: Civil Procedure Code, 1908--Order 21 Rule 2, Income Tax Act, 1922, section 46 (5A)-Decree against the Union of India  for refund  of  excess customs duty collected-Notice  issued  to Collector by the Income Tax Officer under section 46(5A)  of Income  Tax  Act,  1922-Payment by  Collector  against  tax- Whether  amounted to payment by judgment debtor which  could be adjusted under Order 21 Rule 2.

HEADNOTE: The respondent filed suits against the Collector of  Customs and  the  Union of India claiming refund of  excess  customs duty  levied on spindle oil imported into India.  The  trial court  granted  decrees against the Union of India  for  the amounts  charged  in excess.  As the  respondent  had  large outstandings of tax, the Income Tax Officer issued a  notice under  section  46(5A) of the Income Tax Act,  1922  calling upon  the  Collector  of Customs to pay the  amount  of  the decree  to  him.   The Collector paid the  amount  into  the Reserve  Bank,  who  issued receipts  crediting  the  amount against super-tax due from the respondent.  He then  applied to the High Court under O. 21 r. 2 C.P.C. for the adjustment of the decree by this amount.  This was refused by a  single Judge as well as in appeal by a division bench.  It was held that the decrees were against the Union of India and not the Collector  of Customs and that payment by the Collector  was not  a  payment  by the judgment  debtor.   Furthermore  the amounts were held by the Collector on behalf of the Union of India  and not on behalf of the Firm.  The High  Court  also found  the notice to be defective inasmuch as it  asked  for payment  towards income tax and penalty, while the  receipts which  were granted to the Firm stated that the amount  paid was against super-tax due. On appeal to this Court, HELD  :  The  Union  of  India  operates  through  different Departments and a notice to the Collector of Customs in  the circumstances  was a proper notice to issue because  it  was the  Collector  of  Customs who had in  the  first  instance recovered  the  amount  and held  it  from  the  respondent. Collector  paid the amount on behalf of the Union of  India. [126 A]

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A  notice  under section 46(5A) is -no more than a  kind  of garnishee  order issued to the person holding money and  the money is due to an assessee.  The amount which was held.  by the  Collector  of  Customs could properly be  asked  to  be deposited  with  the income tax  authorities  under  section 46(5A). [127 B-D] Super  tax is also a kind of income tax and  therefore,  the notice could issue in the form it did. There was no force in the contention that the amount,  which could be adjusted under O. 21, r. 2, is a voluntary  payment by the judgment debtor to the decree holder and the  present case was not one of voluntary payment at all.  Order No. 21, r.  2  merely  contemplates payment out of  court  and  says nothing  about  voluntary payment.  A  garnishee  order  can never  by its nature lead to a voluntary payment and  it  is not  to be thought that a garnishee order does not  lead  to the adjustment of the decree 124 sufficient  for  being certified by the Court.   Payment  by virtue of s. 46(5A) is in the nature of a garnishee  payment and must, therefore, be subject to the same rule. [127 G-128 B] In  re  Beckitt,  [1933].T.R. 1,  Bidhoo  Beebee  v.  Keshub Chunder  Baboo & Ors. 9 W.R. 462, Mahiganj Loan Office  Ltd. v. Behari Lal Chaki, I.L.R. [1937] 1 Cal. 781, A. P.  Bagchi v. Mrs. F. Morgan A.I.R. 1935, AU 513, Thomas Skinner v. Ram Rachpal I.L.R. [1938] All 294, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 429 and  430 of 1966 Appeals by special leave from the judgments and orders dated January 22, 1964 of the Calcutta High Court in Appeals  Nos. 199 and 200 of 1962 from Original Order. B.Sen  and  S.  P. Nayar, for the appellants  (in  both  the appeals). A.N.  Sinha -and D. N. Gupta, for respondent No. 1 (in  both the appeals). The Judgment of the Court was delivered by Hidayatullah,  C.J. This is an appeal against  the  judgment and  decree of the High Court of Calcutta refusing to  enter satisfaction of two decrees under O. 21 r. 2 of the Code  of Civil  Procedure  obtained by the  respondents  against  the Union of India in the following circumstances. The  respondents M/s Soorajmull Nagarmull  imported  spindle oil from Philadelphia.  The firm was required to pay Customs Duty  under Item 27(3) of the First Schedule to  the  Tariff Act,  1934  at  27% ad valorem.  The firm  filed  two  suits asking  for refund of excess duty claiming that the oil  was dutiable only under Item 27(8) at -/2/6 per imperial gallon. The  suits were filed against the Collector of Customs,  the Assistant  Collector  of Customs for  Appraisement  and  the Union of India.  The suits were successful and decrees  were passed  against the Union of India for refund of the  amount charged  in excess.  In one suit the decree was for  payment of  Rs. 43,723/- with interest at 6% per annum from 1st  day of  April, 1952 until realisation.  In the second  suit  the decree was for Rs. 75,925/- with similar interest. Since the firm had not paid a sum of Rs. 18,08,667.72 as tax the Income-Tax Officer, Circle 11, Calcutta issued a  notice under  S. 46(5a) of the Indian Income-Tax Act, 1922  calling upon  the  Collector  of Customs to pay the  amount  of  the decree to him and stating that his receipt would  constitute

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a good and sufficient discharge of the liability for  refund to the firm.  The Collector of Customs paid the amount  into the  Reserve  Bank  and the  Reserve  Bank  issued  receipts crediting the amount against Super- 125 tax  due  from  the firm.  The  Collector  of  Customs  then applied  to the High Court of Calcutta under 0. 21 r.  2  of the  Code  of  Civil Procedure for  the  adjustment  of  the decrees  by  this payment.  This was refused  by  a  learned single  Judge  who  gave no  reasons  while  dismissing  the petition.   On appeal to the Division Bench it was  held  by the  Division Bench on January 22, 1964 that the  adjustment of the decrees could not be granted.  It is against the last order that the present appeals have been filed by  -,special leave of this Court. The High Court in reaching the conclusion observed that  the decrees  were  against  the  Union  of  India  and  not  the Collector  of  Customs.  Further the sums were held  by  the Collector of Customs on behalf of the Union of India and not on  behalf of the firm.  The High Court found the notice  to be  defective  inasmuch  as it  asked  for  payment  towards Income-tax and towards penalty, while in the receipts  which were  granted  to the firm, stated that the amount  was  for Super-tax.  On these three grounds, the High Court held that the  learned  single  -Judge was  right  in  dismissing  the application  of the Collector of Customs for the  adjustment of the decrees. Order 2 1, r. 2 of the Code of Civil Procedure takes note of payments  out of court to decree-holders and  provides  that where  any money payable under a decree of any kind is  paid out  of Court, or the decree is otherwise adjusted in  whole or  in  part to the satisfaction of the  decree-holder,  the decree-holder  shall certify such payment or  adjustment  to the  Court whose duty it is to execute the decree,  and  the Court  shall  record  the  same  accordingly.   It  is  also provided that the judgment-debtor also may inform the  Court of  such  payment or adjustment, and apply to the  Court  to issue  a notice to the decree-holder to show cause why  such payment or adjustment should not be recorded as certified. The  contention of the respondents in these appeals is  that the decrees were not passed against the Collector of Customs but  against  the Union of India and that  payment  by  the, Collector  of  Customs was not a payment  by  the  judgment- debtor.  In our judgment this plea is highly technical.  The amount was recoved by the Collector of Customs from the firm and  was  being  held  by the Union  of  India  through  the Collector  of  Customs.  The Collector of Customs  paid  the money not on behalf of himself but on behalf of the Union of India  and  it must be treated as a proper  payment  of  the amount to the firm.  The objection of the respondent that it amounts to a payment by one Department of the Government  to another  does not, in our opinion, hold much substance.   It is also extremely technical.  The Union of India 126 operates  through different Departments and a notice to  the Collector  of  Customs  in the circumstances  was  a  proper notice to issue because it was the Collector of Customs  who had  in the first instance recovered this money and held  it from the firm. It  is next contended that the notice is defective  inasmuch as  it shows that the money was lying with the Collector  of Customs  whereas  it was, in fact, lying with the  Union  of India  and  that it was not money held by the  Collector  of Customs  on  behalf  of the firm.   Section  46(5A)  of  the Income-tax Act reads as follows :

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"46.  Mode and time of recovery. (5A) The Income-tax Officer may at any time or from time  to time,  by  notice  in  writing (a copy  of  which  shall  be forwarded  to the asessee at his last address known  to  the Income-tax  Officer) require any person from whom  money  is due  or  may become due to the assessee or  any  person  who holds  or may subsequently hold money for or on  account  of the  assessee  to  pay to  the  Income-tax  Officer,  either forthwith upon the money becoming due or being held or at or within  the time specified in the notice (riot being  before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the tax payer in respect of  arrears  of income-tax and penalty or the whole  of  the money when it is equall to or less than that amount. Any  person making any payment in compliance with  a  notice under  this I sub-section shall be deemed to have  made  the payment under the authority of the assessee and the  receipt of  the  income-tax  Officer shall  constitute  a  good  and sufficient discharge of the liability of such person to  the assessee  to  the extent of the amount referred  to  in  the receipt. Any  person discharging any liability to the assessee  after receipt of the notice referred to in this sub-section  shall be personally liable to the Income-tax Officer to the extent of  the  liability  discharged  or  to  the  extent  of  the liability  of the assessee for tax and penalties,  whichever is less.  127 If  the  person to whom a notice under this  sub-section  is sent  fails  to  make payment in pursuance  thereof  to  the Income-tax Officer, further proceedings may be taken by  and before  the  Collector on the footing  that  the  Income-tax Officer’s notice has the same effect as an attachment by the Collector  in  exercise of his powers under the  proviso  to sub-section (2) of section 46. Such  notices of the Income-tax Officer are no more  than  a kind of a garnishee order issued to the person holding money which money is due to an assessee.  The Collector of Customs had recovered this money and under the decrees of the  Court the  Union of India was liable to refund it to the firm.   A garnishee order is issued to a debtor not to pay to his  own creditor  but to some third party who has obtained  a  final judgment  against  the creditor.  By a parity  of  reasoning this amount, which was with the Collector of Customs,  could be  asked  to be deposited with the  Income-tax  Authorities under  S. 46(5A).  The argument is extremely  technical  for that  the  firm is entitled to get a double benefit  of  the decree,  first  by having the decretal amount  paid  to  the benefit  of the firm and then to recover it again  from  the Union of India. It  is  contended lastly that the notice of  the  Income-tax Officer  spoke  of  Income-tax and/or  penalty  whereas  the amount  was taken towards payment of Super-tax due from  the firm  It  is, however, conceded in the face  of  authorities cited  at  the  Bar that the Super-tax is  also  a  kind  of Income-tax  and,  therefore, the notice could issue  in  the form  it  did.   The leading case on the subject  is  In  re Beckitt(1)  and learned counsel for the respondents did  not controvert the proposition laid down there.  It is,  however argued  on the authority of Bidhoo Beebee v. Keshub  Chunder Baboo and Ors., (2) Mahiganj Loan Office, Ltd. v. Behari Lal Chaki,(3)  A.  P. Bagchi v. Mrs. F. Morgan(4  )  and  Thomas Skinder  v.  Ram Rachpal(5), that the payment which  can  be adjusted  under  O. 21, r. 2 is a voluntary payment  by  the judgment-debtor to the decree holder and that this iS not  a

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case of voluntary payment, at, all.  The rulings which  have ’been cited do not, in our opinion, apply here.  This  point was not considered in the High Court and seems to have  been thought of here.  Order 21, r. 2 merely contemplates payment out  of court and says nothing about voluntary  payment.   A garnishee order can never by its nature (1) [1933] 1. T. R. 1.               (2) 9 W. R. 462. (3)  1. L. R. [1937] Cal. 781.      (4) A. 1. R.  1935  All. 513. (5)  1. L.  R. 1938 All. 294. 128 lead to a voluntary payment and it is not to be thought that a  garnishee, order does not lead to the adjustment  of  the decree sufficient for being certified by the Court.  Payment by virtue of S. 46(5A), as we have stated before, is in  the nature  of  a  garnishee payment  and  must,  therefore,  be subject to the same rule. The  rulings themselves do not control the  present  matter. In  9 W.R. 462 the payment was not under a  garnishee  order but  under the process of the court issued in  execution  by arrest   of  the  judgment-debtor.   Contrasting  what   had happened in the case with the words of the second rule of 0. 21  (then  s. 206 of the Code of 1859)  the  learned  Judges observed that s. 206 covers cases of voluntary payment.  The debtor  was protected by treating the payment as being  made through the court.  The exact point we are dealing with  was not before the Court.  In I.L.R. [1937] 1 Cal. 781 there was a  scheme framed by the depositors of a banking Company  for return of their deposits in spite of opposition from decree- holders depositor of the Company.  The scheme was sanctioned by  the Court.  The scheme was binding on the  decree-holder but  it was not treated as an adjustment within O. 21, r.  2 of  the Code of Civil Procedure.  The reason given was  that the  adjustment must be to the satisfaction of  the  decree- holder  and  must be with the consent of  both  the  decree- holder  and  the judgment-debtor and not one which  is  made binding by operation of law.  It is to be noticed that  that was  a  payment to which the  judgment-debtor  had  objected although it was binding on him.  We see no reason for making a distinction between a voluntary payment out of court and a payment  out  of court which the law regards as  valid.   No -reasons  are given in the judgment why such  a  distinction should  be made.  In I.L.R. [1938] An. 294 the  payment  was made  in court and not outside court.  This’ is the  nearest case  to the present one and but for this difference, it  is reasonable to think that the learned Judges would have taken the  same view of the matter as we have taken.   The  reason given  by the learned judges brings out the real  object  of the rule :               "where a judgment-debtor makes payment outside               the  Court, the Court knows nothing about  the               payment               ’ and therefore r. 2, 0.               21 ordains that the parties should inform  the               Court about the payment." This  object in our opinion is fully achieved when there  is payment  under a garnishee order outside the Court.  In  the case  cited  the Court knew of the payment  and  could  give protection  in  other  ways.  In A.I.R. 1935  All.  513  the payment was again without the consent of the Judgment-debtor either in fact or in law.  Too much emphasis appears to have been  placed  upon mutual understanding and  too  little  on payment out of court which is the essence  129 of  the  rule.   The case turned on whether  there  was  any understanding  and too little on payment out of court  which

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is  the essence debtor on repairs would be set  off  against the decretal amount and therefore O. 21, r. 2 of the Code of Civil Procedure was held inapplicable. In  none  of the cases the point of a  garnishee  order  was considered.   In our opinion, a case of a garnishee  payment or  one made under s. 46(5A) of the Income-tax Act  of  1922 stands  on a different footing and if the payment  has  been legally made out of Court in full and final discharge of the liability  under  a  decree,  there is  no  reason  why  the judgment  debtor  cannot  move the  Court  for  getting  the adjustment or payment certified, The payment was required to be  certified  under  O.  21, r. 2  of  the  Code  of  Civil Procedure and we order that it be so certified. The appeals are accordingly allowed with costs here and in the High Court. R.K.P.S. Appeals allowed. 130