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PETITIONER: UNION OF INDIA AND ANR.

       Vs.

RESPONDENT: INDIA FISHERIES (P) LTD.

DATE OF JUDGMENT: 09/04/1965

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR   35            1965 SCR  (3) 679  CITATOR INFO :  D          1972 SC 878  (3,6)

ACT:     Income  Tax Act 1922, s. 49E--Department’s power to  set off  re-fundable amount against tax  remaining  due--Whether available   in   respect  of  tax  due   from   company   in liquidation--Whether  subject  to  ss. 228 and  229  of  the Companies Act, 1913.

HEADNOTE:     The  respondent company was directed to be wound-up  and an  official  liquidator appointed by an order of  the  High Court  in October, 1950. In December, 1950,  the  respondent was  assessed  to tax amounting to Rs. 3737/- for  the  year 1948-49.  A  claim  made  for  this  tax  on  the   official liquidator was adjudged and allowed as an ordinary claim and certified as such in April, 1952. The Liquidator declared  a dividend of 91/2 annas in the Rupee in August, 1954 and paid a  sum of Rs. 5188 to the Department, leaving a  balance  of Rs. 3549.     In  June,  1954. the Department made a demand  from  the respondent and was paid Rs. 2565 as advance tax for the year 1955-56.  On a regular assessment being made for that  year, only Rs. 1126 was assessed as payable, so that a sum of  Rs. 1460,  inclusive  of  interest,  became  refundable  to  the respondent.  However, the Income Tax Officer, purporting  to exercise  the  power available to him under s.  49E  of  the Income  Tax  Act,  1922, set off  this  amount  against  the balance  of  Rs. 3549 due for the year  194849.  A  revision petition filed by respondent in respect of this set off  was rejected by the Commissioner of Income Tax.     Thereafter,  a  petition  under Art. 226  filed  by  the respondent to set aside the orders of the Income Tax Officer and  the Commissioner was allowed by the High Court,  mainly on  the  ground that the demand for Rs. 8737 in  respect  of 1948-49,  being adjudged and certified came to have all  the incidents and character of an unsecured debt payable by  the liquidator  to the Department; it was therefore governed  by the provisions of Company Law and no other remedy or  method to  obtain  satisfaction of the claim was available  to  the creditor.

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   In  the appeal to this Court it was contended on  behalf of the appellant that s. 49E gave statutory power to Income- tax  Officer to set off a refundable amount against any  tax remaining payable and that this power was not subject to any provision of any other law.     HELD:The Income Tax Officer was in error in applying  s. 49E and setting off the refund due to the respondent. [683C- D]     The  effect  of ss. 228 and 229 of  the  Companies  Act, 1913, is, inter alia, that an unsecured creditor must  prove his debts and all unsecured debts are to be paid part passu. Once  the  claim of the Department has to be proved  and  is proved in liquidation proceedings, it 680 cannot,  by exercising the right under s. 49E  get  priority over the other unsecured creditors and thus defeat the  very object of ss. 228 and 229 of the Companies Act. Furthermore, if  there  is an apparent conflict between  two  independant provisions  of  law,  the special  provision  must  prevail. Section  49E  is  a  general  provision  applicable  to  all assessees  in all circumstances; ss. 228 and 229  deal  with proof of does and their payment in liquidation. Section  49E can  be reconciled with ss. 228 and 229 by holding  that  s. 49E applies when insolpency rules do not apply. [682H-683D]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil  Appeal  No.  211 of 1964.     Appeal  from the judgment and order dated February  ,22, 1961  of the Bombay High Court in Miscellaneous  Application No. 352 of 1959.     Niren  De,  Additional Solicitor General,  R.  Ganapathy lyer and R.N. Sachthey, for the appellants.     A.V.   Viswanatha   Sastri,  T.A.   Ramachandran,   J.B. Dadachanji,  O.C.  Mathur  and  Ravinder  Narain,  for   the respondents. The Judgment of the Court was delivered by     Sikri,   J.   This   appeal   is  in  pursuant    to   a certificate   of  fitness  granted  by  the  High  Court  of Maharashtra   at   Bombay   under   Art.   133(1)(c)of   the Constitution  is directed against the judgment of  the  said High Court in a petition under Art. 226 of the  Constitution filed by the respondent.     The  India Fisheries  (P)  Ltd. hereinafter  called  the respondent was a private limited company and was directed to be  wound  up by an order of the Bombay  High  Court,  dated October  11, 1950, and a Court Liquidator was  appointed  as the Official Liquidator thereof with all powers under s. 179 of  the  Indian  Companies Act. 1913 (VII  of  1913)  to  be exercised   by  him  under  s.  180  without   sanction   or intervention  of the Court save and except in case of  sales of  immovable property belonging to the respondent. For  the assessment  year  1948-49, the respondent  was  assessed  on December 8. 1950, the tax being assessed at Rs.  8,737/15/-. On or about March 15. 1951, the Income Tax Officer lodged  a claim  in respect of this tax with the Official  Liquidator. That claim was 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 1/2 annas 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. Thus a balance  of  Rs.  3,549/12 still remained payable to the Income Tax Department from the

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assets of the respondent.     For the year 1955-56, the Department made a demand  from the respondent on June 22, 1954, for a sum of Rs.  2,565/6/- as  advance tax.  This was paid by the Official  Liquidator. On a 681 regular  assessment being made for the said year,  only  Rs. 1,1  26/12/was assessed as payable by the respondent.  After adjusting  this  sum  against the  advance  payment  of  Rs. 2,565/6/-, Rs. 1,460/1/became refundable to the  respondent, inclusive of interest. Instead    refunding the said balance to  the respondent, the Income Tax Officer set off the  said amount  against the balance of Rs. 3,549/12/which was  still outstanding in respect of the Income-tax demand for the year 1948-49.  The  respondent filed a revision petition  to  the Commissioner  of  Income-tax,  but  the  said  petition  was rejected by the Commissioner on September 21. 1959.  holding that  the  action of the Income Tax  Officer  was  perfectly justified  under the provision of s. 49E of the  Income  Tax Act.     On  November 25, 1959, the respondent filed  a  petition under  art. 226 of the Constitution and prayed for  a  writ, direction  or  order  for setting aside the  orders  of  the Income  Tax  Officer  and the Income  Tax  Commissioner.  He further  prayed  for any further writ,  direction  or  order restraining  the  Department  from setting  off  the  refund against  the  tax dues and directing them to hand  over  the balance to the Official Liquidator.     The High Court held that the demand of Rs. 8.737/12/- in respect  of the assessment year 1948-49. being adjudged  and certified,  came to have all the incidents and character  of an unsecured debt payable by the Official Liquidator to  the Department.  The  High  Court  observed  that  "this   claim thereafter was governed by the provisions of the Company law and  could be paid to the creditor only in  accordance  with the  provisions of the Company law. No other remedy nor  any other  method  of obtaining satisfaction of this  claim  was available  to the creditor thereafter. It was no longer  the amount  of  tax remaining payable by a person  to  whom  the refund  was  due within the meaning of Section  49E  of  the Income Tax Act. In our opinion, therefore. the provision  of Section 49E was not available to the Department for  setting off  the  amount of the excess towards the  balance  of  its claim  of Rs. 8,737/15/- which the department had proved  in the  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 so far 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 of the present respondent for the  refund  and pass  appropriate  orders in respect of the said  amount  of refund under the provisions of s. 48 of the Income Tax Act.     The  learned Additional Solicitor-General on  behalf  of the appellant. contends that s, 49E gives statutory power to the Income tax Officer. inter alia, to set off the amount to be  refunded  or  any part of that amount  against  the  tax remaining  payable by the person to whom the refund is  due, and this statutory power is not subject to any provision  of any other law. He says that the Companies Act 682 does  not  take  away  this power. Section  49E  is  in  the following terms:                     "Where  under any of the  provisions  of               this  Act, a refund is found to be due to  any               person,  the  Income-tax  Officer,   Appellate

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             Assistant Commissioner or Commissioner, as the               case  may be, may, in lieu of payment  of  the               refund, set off the amount to be refunded,  or                             any  part  of  that  amount  against the  tax,               interest or penalty, if any, remaining payable               by the person to whom the refund is due."     On  the face of this provision, there is no  doubt  that this  section is not subject to any other provision of  law. But it will be surprising if this power can be exercised  in such  a  way  as  to defeat the  provisions  of  the  Indian Companies  Act. It is not denied by the  learned  Additional Solicitor-General that the State has no priority in  respect of  this claim. The question then arises whether s.  49E  is subject  to the Insolvency Rules contained in the  Companies Act. Section 228 of the Companies Act, 1913, provides:               "228.   Debts  of  all  descriptions   to   be               proved.--                     In every winding up (subject in the case               of  insolvent companies to the application  in               accordance with the provisions of this Act  of               the law of insolvency) all debts payable on  a               contingency,   and  all  claims  against   the               company,   present  or  future,   certain   or               contingent,  shall  be  admissible  to   proof               against  the  company, a just  estimate  being               made, so far as possible, of the value of such               debts  or  claims  as may be  subject  to  any               contingency  or for some other reason  do  not               bear a certain value."               Section 229 provides:               "Application of insolvency rules in winding up               of insolvent companies.-                     In  the  winding  up  of  an   insolvent               company  the same rules shall prevail  and  be               observed with regard to the respective  rights               of  secured  and unsecured  creditors  and  to               debate  provable  and  to  the  valuation   of               annuities    and   future    and    contingent               liabilities as are in force for the time being               under  the law of insolvency with  respect  to               the estates of persons adjudged insolvent; and               all  persons  who in any such case,  would  be               entitled  to prove for and  receive  dividends               out  of the assets of the company may come  in               under  the  winding up, and make  such  claims               against  the company as they respectively  are               entitled to by virtue of this section."     The effect of these statutory provisions is, inter alia, that  an  unsecured creditor must prove his  debts  and  all unsecured debts 683 are to be paid pari passu. Therefore, once the claim of  the Department has to be proved and is proved in the liquidation proceedings,  the Department cannot by exercising the  right under  s.  49E of the Income Tax Act get priority  over  the other unsecured creditors. If we were to read s. 49E in  the way  suggested by the learned Additional  Solicitor-General, it would be defeating the very object underlying ss. 228 and 229  of  the Companies Act, 1913. If there  is  an  apparent conflict  between  two independant provisions  of  law,  the special  provision  must prevail. Section 49E is  a  general provision   applicable   to  all  assessees   and   in   all circumstances; ss. 228 and 229-deal with the proof of  debts and their payment in liquidation. In our opinion, s. 49E can

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be  reconciled with ss. 228 and 229 by holding that  s.  49E applies  when  insolvency rules do not  apply.  Accordingly, agreeing  with the 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  in affirming this order.     The learned Additional Solicitor-General also urged that the application under art. 226 was misconceived because  the Income Tax Officer had jurisdiction. But if we interpret  s. 49E  as  we  have  done,  it is a  clear  case  of  lack  of jurisdiction. At any rate, there is an error apparent on the face  of  the orders and the High Court was quite  right  in exercising its jurisdiction under Art. 226. The appeal is accordingly dismissed with costs. Appeal dismissed. 684