INDIAN FISHERIES PRIVATE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THE short question that arises for consideration in this petition under article 226 of the constitution is whether the income -tax authorities were entitled to set off the refund of Rs. 1,460 -1 -0 against the tax dues of Rs. 3,549 -12 -0, which had remained payable under the provisions of section 49E of the Income -tax Act. The petitioner is a private limited company was directed to the wound up by an order passed by this court on October 11, 1950, and a court liquidator was appointed as the official liquidator thereof with all powers under section 179 of the Indian Companies Act, 1913, to be exercised by him under section 180 without sanction or intervention of the court save and except in case of sales of immovable property belonging to the petitioner. The petitioner's assessment for the year 1948 -49 was completed on December 8, 1950, and the petitioner was assessed to pay a tax of Rs. 8,737 -15 -0. Since, before this date the petitioner had gone into liquidation, the Income -tax Officer lodged a claim with the official liquidator on or about March 15, 1951. 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 the rupee and paid to the Income -tax Department a sum of Rs. 5,188 -3 -0 against the claim made by it as an ordinary creditor. Thus, out of the amount of Rs. 8,737 -15 -0, which was proved by the Income -tax Department as a claim of an ordinary creditor, a balance of Rs. 3,549 -12 -0 remained payable to the Income -tax Department from the assets of the petitioner. For the advance tax for the year 1955 -56, a demand of Rs. 2,565 -6 -0 was made by the Department from the petitioner on June 22, 1954, and the said amount was paid by the official liquidator. When the regular assessment for the said year was made by the Income -tax Officer, Rs. 1,126 -12 -0 was determined as payable by the petitioner. After the said amount was adjusted against the advance payment, a balance of Rs. 1,460 -1 -0 became refundable to the petitioner inclusive of interest. Instead of refunding the said balance to the petitioner, the Income -tax Officer set off the said amount against the balance which had remained payable in respect of the income -tax demands for the year 1948 -49. In the demand notice, which was issued by the Income -tax officer for the assessment year 1955 -56, endorsements to the said effect were made, and the Income -tax Officer did not pay the amount of the said refund to the official liquidator. Against the said decision of the Income -tax Officer, the petitioner filed an application in revision to the Commissioner of Income -tax. On September 21, 1959, the said application was rejected by the Commissioner, holding that the action of the third respondent was perfectly justified under the provisions of section 49E of the Income -tax Act. Thereafter, on November 25, 1959, the petitioner has filed the present application under article 226 of the Constitution, and has prayed for a writ, direction or order for setting aside the order of the second respondent confirming the action of the third respondent, and also for a further writ, direction or order restraining the Department from setting off the refund against the tax dues, and directing them to hand over the refund to the official liquidator.

(2.) THE petitioner's case is that the Income -tax Department had no priority in respect of the demand of Rs. 8,737 -15 -0, and was only an ordinary creditor, having no higher rights than other ordinary creditors in respect of the said claim. In setting off the amount of Rs. 1,460 -1 -0 towards its balance from the said claim, which was the claim of an ordinary creditor, the Department was obtaining a preferential payment in respect of its claim contrary to and in breach of the provisions of the company law. Provisions of section 49E of the Income -tax Act had no application to the present case, since by reason of the provisions of the company law the Income -tax Department was not entitled to the full amount of the refund of Rs. 1,460 -1 -0 but was statutorily bound to share it with the other creditors of the petitioner. The Department was also not entitled to the full amount of the balance of tax payable for the year 1948 -49, and could get it proportionately along with the other ordinary creditors of the petitioner. The contention of the Department is that in setting off the amount of the refund towards the tax payable, it was only exercising its statutory right to set off and not obtaining a preferential payment. It was contended by the Department that an assessee's right to refund was subject to the provisions of the Income -tax Act, and one of such provisions was the provision of section 49E of the said Act. The provisions of this section applied to every person which included even a company in liquidation like the petitioner. According to the Department, therefore, the action taken by the Department was perfectly legal and proper and was not either in breach of or contrary to the provisions of the company law.

(3.) MR . Joshi, learned counsel for the Department, has, however, contended that there is an essential difference between a case where the Income -tax Department wants to recover its dues by enforcing its claim, and the case where it is only exercising its statutory right to make a set -off. The advance payment which was made by the petitioner company was a payment of tax under section 18A of the Income -tax Act. After the regular assessment was made, the excess of the advance payment over the tax that was properly due from the assessee would undoubtedly be refundable. But before it can be so refunded to the assessee, the provisions of section 49E intervene, and enable the Department not to refund the said amount, but made it available fort the purpose of payment towards the tax which had remained payable and has not been paid. The payment which was made as tax only becomes refundable as an excess provided there is no other amount of tax still payable to the Department from the assessee. Where such other payment of tax is payable to the Department this advance payment of tax made by the assessee goes towards the satisfaction of that balance of tax and does not become an excess refundable to the assessee. According to Mr. Joshi, therefore, the provision of section 49E was available to the Department in the present case to set off the payment of the advance tax to the tax which has remained payable.