UNION OF INDIA AND ANR.
INDIA FISHERIES (P) LTD.
DATE OF JUDGMENT:
1966 AIR 35 1965 SCR (3) 679
CITATOR INFO :
D 1972 SC 878 (3,6)
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.
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
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
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-
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
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]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 211 of
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
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
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.
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
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
does not take away this power. Section 49E is in the
“Where under any of the provisions of
this Act, a refund is found to be due to any
person, the Income-tax Officer, Appellate
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
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
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
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
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.