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Inderchand v. Secretary Of State For India In

Patna High Court

Mar 29, 1941

Judgment

Subsequent
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Factual and Procedural Background

The plaintiff, a trader and assessee under Section 23(4) of the Income-tax Act, paid income-tax of Rs. 36,924-5-0 for the year 1932-33 on March 29, 1933. The Commissioner cancelled that assessment on February 18, 1935 and directed reassessment; on March 31, 1935 the Income-tax Officer assessed the tax at Rs. 5,733, making the plaintiff entitled to a refund of Rs. 31,191-5-0. The plaintiff had also deposited Rs. 100 when asking the Commissioner to refer the matter to the High Court.

Meanwhile, on March 26, 1935 the plaintiff was assessed Rs. 13,715-5-0 for 1934-35. The Income-tax Officer deducted that amount from the refundable Rs. 31,191-5-0, leaving Rs. 17,476 actually refundable. On April 9, 1935 the Income-tax Officer intimated the plaintiff was entitled to a refund of Rs. 7,364-13-0 (income-tax) and Rs. 10,111-1-0 (super-tax). On April 18, 1935 the plaintiff received and accepted a super-tax refund voucher for Rs. 10,111-13-0 but received only Rs. 3,939-13-0 instead of Rs. 7,364-13-0 for income-tax; he returned the latter voucher and sought correction.

The Income-tax Officer replied (May 28, 1935) that Rs. 3,425 had been adjusted towards outstanding dues for 1930-31. The plaintiff then petitioned (June 5, 1935) requesting a refund voucher for Rs. 3,939-13-0 subject to his right to seek the balance, and also sought refund of his Rs. 100 deposit; the Income-tax Officer did not respond materially. The plaintiff served a registered notice under Section 80 CPC (Feb 7, 1936) claiming Rs. 7,364-13-0 and Rs. 100 with interest. A refund voucher for Rs. 3,939-13-0 was issued and accepted under protest on Feb 10, 1936.

The plaintiff filed suit on May 21, 1936 claiming the balance Rs. 3,425 (income-tax arrears for 1930-31) and Rs. 100 deposit with interest (total Rs. 5,162-4-0). He pleaded ignorance of any outstanding arrears and contended that, even if Rs. 3,425 were due, it was not legally recoverable and its deduction was illegal and without jurisdiction.

The defendant contested jurisdiction and maintained that Rs. 3,425 remained due for 1930-31 and was rightly deducted. The Subordinate Judge found (and that finding was not disputed on appeal) that due to mistakes in entries a sum of Rs. 3,425 remained unrealised out of Rs. 13,862-14-0 assessed for 1930-31. The Subordinate Judge dismissed the suit, holding the Income-tax Officer had the right to deduct the Rs. 3,425 and that the Civil Court lacked jurisdiction. The plaintiff appealed.

Legal Issues Presented

Whether the Income-tax Officer had the right under Section 49-A of the Indian Income-tax Act to deduct Rs. 3,425 (an unrealised arrear for 1930-31) from the refund due for 1932-33, given the one-year limitation in Section 46(7).
Whether the Civil Court had jurisdiction to entertain the plaintiff's suit challenging the adjustment/deduction of the refundable amount.
Whether the Rs. 100 deposited by the plaintiff with the Commissioner was refundable.

Arguments of the Parties

Appellant's (Plaintiff's) Arguments

The appellant (through Mr. P. R. Das) argued that the Income-tax Officer could not deduct the Rs. 3,425 arrear for 1930-31 in 1935 because Section 46(7) provides that no proceedings for recovery under the Act shall be commenced after one year from the last day of the year in which a demand is made, so any claim for recovery became barred after 1932.
Relying on Section 46(7) (and Article 42(1) referenced), the appellant contended that once the time to proceed under Section 46 expired the tax was no longer payable and thus could not be set off under Section 49-A.
The appellant argued the phrase "remaining payable by the person" in Section 49-A should be read as meaning "legally recoverable from the person," and since recovery proceedings under Section 46 could not be commenced after 1932, the arrear was not legally recoverable in 1935.

Respondent's (Defendant's / Income-tax Department's) Arguments

The defendant pleaded that the Civil Court lacked jurisdiction and that the sum of Rs. 3,425 remained due for 1930-31 and was rightly deducted by the Income-tax Department from the refundable amount for 1932-33.
In written statement the defendant explained that due to a mistake in entries in the demand and collection register, Rs. 3,425 remained unrealised from the plaintiff out of the total assessed for 1930-31; that amount was therefore appropriately adjusted.
The Subordinate Judge's factual finding that the arrear remained unrealised because of departmental mistake was not disputed before the appellate court.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Manickam Chettiyar v. Income-tax Officer, Madura (Full Bench, Madras High Court)	Holds that Section 46 is not exhaustive of the remedies available to the Crown to recover arrears of income-tax.	The court relied on this authority to support its conclusion that Section 46 is not the sole method of recovery; therefore arrears remained legally recoverable (or at least remained "payable") and could be set off under Section 49-A.

Court's Reasoning and Analysis

The court framed the central statutory question as the meaning of the phrase "remaining payable by the person" in Section 49-A of the Indian Income-tax Act and whether Section 46(7)'s one-year limitation precluded the Income-tax Officer from setting off an arrear assessed for 1930-31 against a refund due in 1935.

The court proceeded step-by-step as follows:

The court observed that Section 46 prescribes a "mode, and time of recovery" of income-tax and contains summary remedies such as forwarding a certificate to the Collector (Section 46(2)) to proceed as an arrear of land revenue. However, the court emphasized that nothing in Section 46 or other provisions indicates that Section 46 exhausts all remedies for recovery of tax.
The court relied on the language "may forward to the Collector" in Section 46(2) and the authority of Manickam Chettiyar v. Income-tax Officer (Full Bench, Madras) to conclude Section 46 is not exhaustive; consequently, when tax is assessed it becomes a debt due to the Crown and the Crown retains common-law creditor remedies, including suit in civil courts under Section 9 CPC.
Applying that understanding, the court held that even if proceedings under Section 46 could not be commenced in 1935 because of the limitation in Section 46(7), the arrears of income-tax for 1930-31 still "remained payable" within the meaning of Section 49-A and so were subject to set-off against refunds.
The court rejected the appellant's proposed interpretation that "remaining payable" should be limited to amounts "legally recoverable" under Section 46. It reasoned that if the Legislature intended to restrict set-off to only such amounts it would have expressly done so, and therefore the broader reading (which permits set-off of arrears that remain payable as a debt of the Crown) is correct.
The court also noted that arrears not recoverable under Section 46 might still be recoverable by ordinary civil remedies and governed by limitation provisions (Article 120 or Article 149 of the Limitation Act were referenced as applicable), reinforcing that the existence of a one-year limit in Section 46(7) does not render the tax non-payable for the purposes of Section 49-A.
On the procedural point of jurisdiction, the court observed that the question of Civil Court jurisdiction does not arise in light of its substantive conclusion that the deduction was lawful. The court additionally observed that the suit did not seek to set aside or modify an assessment within Section 67 of the Act and therefore was not barred by that section.

The court accepted the subordinate court's factual finding (not disputed on appeal) that Rs. 3,425 remained unrealised due to departmental mistake; that factual finding underpinned the conclusion that the Income-tax Officer legitimately adjusted the amount.

Holding and Implications

Holding: The appeal was dismissed. The court concluded that the Income-tax Officer was entitled under Section 49-A of the Income-tax Act to deduct Rs. 3,425 (arrears for 1930-31) from the refund of Rs. 7,364-13-0 due for 1932-33. The subordinate judge's decision was affirmed, and the appeal was dismissed with costs.

DISPOSITION: Appeal dismissed.

Implications:

Direct effect on the parties: The Income-tax Department's adjustment of Rs. 3,425 against the refund was validated, and the plaintiff's claim for that amount (and the Rs. 100 deposit) failed in the appeal. The subordinate judge's decision that the Rs. 100 deposit was not refundable was not challenged and therefore stands.
On broader law: The court applied existing principle (including the cited Full Bench decision) that Section 46 is not exhaustive and that amounts assessed as income-tax may remain payable for the purposes of set-off under Section 49-A even where summary recovery under Section 46(7) may be time-barred; the opinion does not announce a novel precedent beyond its application of those principles.

Show all summary ...

- This appeal arises out of suit brought by the plaintiff against the Secretary of State for Indian in Council for recovery of Rs. 5,163-4-0 on account of income-tax said to be refundable to the plaintiff together with interest.

The plaintiff who is a trader, was assessee under Section 23(4) of the Income-tax Act with income-tax amounting to Rs. 36,924-5-0 for the year 1932-33. This amount was realised from him on March 29, 1933. On application to the Commissioner of Income-tax the assessment was cancelled by his order dated February 18, 1935, and he directed the Income-tax Officer to make a fresh assessment. Eventually on March 31, 1935, the Income-tax Officer assessed the income-tax at Rs. 5,733 only. The plaintiff was accordingly entitled to a refund of Rs. 31,191-5-0. He had also deposited Rs. 100 when he moved the Commissioner of Income-tax for referring the matter to the High Court.

In the meantime on March 26, 1935, the plaintiff was assesseed with income-tax of Rs. 13,715-5-0 for the year 1934-35. The Income-tax Officer deducted this amount from the sum of Rs. 31,191-5-0 which was refundable to the plaintiff for the year 1932-33 so that the balance actually refundable was Rs. 17,476. On April 9, 1935, a notice was issued by the Income-tax Officer to the plaintiff intimating that he was entitled to a refund of Rs. 7,364-13-0 on account of income-tax and Rs. 10,111-1-0 on account of super-tax. But on April 18, 1935, the plaintiff received from the Income-tax Officer a refund voucher for Rs. 10,111-13-0 on account of super-tax and a refund voucher for Rs. 3,939-13-0 only instead of Rs. 7,364-13-0 on account of income-tax. He accepted the refund voucher for Rs. 10,111-13-0 and obtained refund of this amount. But he returned the refund voucher for Rs. 3,939-13-0 and submitted a petition to the Income-tax Officer stating that this refund voucher was issued by mistake for Rs. 3,939-13-0 instead of Rs. 7,364-13-0 and he requested the Income-tax Officer to rectify the mistake and issue a refund voucher for Rs. 7,364-13-0. In reply to this the Income-tax Officer by his letter dated May 28, 1935, informed the plaintiff that the sum of Rs. 3,425 had been adjusted towards the dues for 1930-31 which had remained outstanding.

This plaintiff then filed a petition before the Income-tax Officer on June 5, 1935, requesting him to issue a refund voucher for Rs. 3,939-13-0 subject to his right to move the higher authorities for the balance. He also prayed for a refund of the sum of Rs. 100 which he had deposited with the Commissioner. But the Income-tax Officer paid no heed to his request.

The plaintiff sent a registered notice on February 7, 1936, under Section 80 of the Civil Procedure Code to the Secretary of State for India in Council claiming refund of Rs. 7,364-13-0 on account of income-tax and of Rs. 100 which had been deposited by him together with interest. The notice was served on the Collector of Shahabad on February 8, 1936. Thereafter the Income-tax Officer issued a refund voucher for Rs. 3,939-13-0 which the plaintiff accepted under protest on February 10, 1936.

The plaintiff filed the present suit on May 21, 1936, claiming refund of the balance of Rs. 3,425 on account of income-tax and of Rs. 100 which had been deposited by him with the Commissioner together with interest, the total claim being Rs. 5,162-4-0.

In the plaint it was asserted that the plaintiff had no knowledge of any outstanding arrears of income-tax for 1930-31 and that even if Rs. 3,425 was due for such arrears the amount was not legally recoverable from him and therefore the action of the Income-tax Officer in deducting this amount was illegal, arbitrary and without jurisdiction.

The defendant contested the suit alleging, inter alia, that the Civil Court had no jurisdiction to entertain the suit and that the sum of Rs. 3,425 remained due from the plaintiff on account of income-tax for the year 1930-31 and this amount was rightly deducted by the Income-tax Department from the sum of Rs. 7,364-13-0 which was refundable to the plaintiff on account of income-tax for the year 1932-33. In written statement an account is given of how by mistake the sum of Rs. 3,425 remained unrealised from the plaintiff on account of income-tax for the year 1930-31. The details of this account need not be stated, because it has been found by the learned Subordinate Judge, and it has not been disputed before us, that on account of some mistake in the entries in the demand and collection register of the Income-tax Department a sum of Rs. 3,425 remained unrealesed out of Rs. 13,862-14-0 which had been assessed as income-tax on the plaintiff for the year 1930-31.

The learned Subordinate Judge has dismissed the suit holding that the Income-tax Office had a right to deduct the sum of Rs. 3,435 which remained outstanding on account of income-tax payable by the plaintiff for the year 1930-31 and that the Civil Court has no juridiction to try the suit. Hence this appeal by the plaintiff.

The first contention raised by Mr. P. R. Das for the appellant is that the Income-tax Officer had no right to deduct the sum of Rs. 3,425, which remained unrealised from the plaintiff on account of income-tax for the year 1930-31. The deduction was made by the Income-tax Officer under Section 49-A of the Indian Income-tax Act, 1922, as it stood in 1935. The section ran as follows :-

"Where under any of the provisions of this Act, a refund is found to be due to any person, the Income-tax Officer, 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, if any, remaining payable by the person to whom the refund is due."

Mr. Das relies on Section 46, sub-section 7, of the same Act which provides -

"Save in accordance withe the provisions of sub-section (1) of Section 42, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the year in which any demand is made under this Act"

He contends that under the provisions of this sub-section any claim for recovery of income-tax for the year 1930-31 became barred after the expiration of one year from the last day of the year 1930-31, that is to say after 1932, and, therefore the Income-tax Officer had no right to realise in 1935 any sum that was due on account of income-tax for the year 1930-31.

The question really turns on the meaning of the expression "remaining payable by the person" in Section 49-A of the Act. Section 46 of the Act prescribes "Mode, and time of recovery" of income-tax. Sub-section 2 of that section provides :-

"The Income-tax Officer may forward to the Collector a certificate under his signature specifying the amount of arrears due from an assessee, and the Collector, on receipt of such certificate, shall proceed to recover from such assessee the amount specified therein as if it were an arrear of land revenue"

Mr. Dass contention is that the only method by which income-tax may be recovered is that laid down in Section 46. If therefore, the tax is not realised within the time limit prescribed by sub-section 7 of the section, the tax is no longer payable by the assessee. This argument, to my mind, is wholly untenable. In the first place, Section 46 of the Act prescribes only a summary remedy and there is nothing in that section or in the other provisions of the Act to indicate that that is the only remedy by which income-tax is recoverable. The time limit prescribed in Section 46(7) of the Act obviously applies to proceedings under that section. When income-tax is assessed, it becomes a debt due by the assessee to the Crown. The Crown as a creditor has the ordinary right of suit against the assessee. This is a right under the common law and there is nothing in the Indian Income-tax Act to take away this right. A suit for recovery of arrears of income-tax would undoubtedly be a suit of civil nature and such a suit would clearly be maintainable under the provisions of Section 9 of the Civil Procedure Code. The expression "may forward to the Collector" in Section 46(2) of the Act clearly suggests that the section is not exhaustive. In Manickam Chettiyar v. Income-tax Officer, Madura, it was held by a Full Bench of the Madras High Court that Section 46 is not exhaustive of the remedies of the Crown to recover arrears of income-tax.

It Section 46 of the Act is not exhaustive, it cannot be seriously disputed that the arrears of income-tax for the year 1930-31 remaining due from the plaintiff were legally recoverable in 1935. A suit for recovery of those arrears would lie and would be governed by Article 120, if not by Article 149, of the Limitation Act. In my view, therefore, the sum of Rs. 3,425 on account of the arrears of income-tax for 1930-31 still remained payable by the plaintiff in 1935, and the Income-tax Officer was perfectly entitled under Section 49-A of the Income-tax Act to deduct that amount from the sum of Rs. 7,364-13-0 which was refundable to the plaintiff on account of income-tax for the year 1932-33.

In the second place, if Mr. Dass contention were to be accepted, the expression "remaining payable by the person" in Section 49-A of the Act would have to be read as meaning "legally recoverable from the person." If the Legislature had really intended that under Section 49-A the right of set-off was to be limited to an amount of tax legally recoverable, they could have expressly said so.

I have no doubt in my mind that though no proceedings under Section 46 of the Indian Income-tax Act could be taken in 1935 for recovery of the unrealised arrears of tax for the year 1930-31 those arrears still remained payable within the meaning of Section 49-A of the Act.

In my opinion, therefore, the learned Subordinate Judge was right in holding that the Income-tax Officer was entitled under Section 49-A of the Income-tax Act to deduct the sum of Rs. 3,425 due from the plaintiff on account of arrears of income-tax for the year 1930-31 from the sum of Rs. 7,364-13-0 which was refundable to him on account of income-tax for the year 1932-33.

As regards the sum of Rs. 100 deposited by the plaintiff with the Commissioner, the learned Subordinate Judges decision that this deposit is not refundable has not been assailed before us.

The only other contention raised by Mr. P. R. Das relates to the question whether the Civil Court has jurisdiction to try this suit. In the view I have expressed above this question does not arise. I may, however, observe that this suit does not fall within the terms of Section 67 of the Indian Income-tax Act and therefore, not barred. The section runs as follows :-

"No suit shall be brought in any Civil Court to set aside or modify any assessment made under this Act, and no prosecution, suit or other proceeding shall lie against any Officer of the Crown for anything in good faith done or intended to be done under this Act."

Here the plaintiff does not seek to set aside or modify any assessment within the meaning of this section. Admittedly the plaintiff was entitled to a refund of Rs. 7,364-13-0, and the only question is whether his claim for this refund was validly discharged by the Income-tax Department. No question of setting aside or modifying any assessment made under the Act arises.

In the result the appeal fails and I would dismiss it with costs.

HARRIES, C.J. - I entirely agree.

Appeal dismissed.