Full Judgment Text
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PETITIONER:
HINDUSTAN CONSTRUCTION CO. LTD.
Vs.
RESPONDENT:
INCOME TAX OFFICER (COMPANIES CIRCLE) BOMBAY& ANR.
DATE OF JUDGMENT:
10/12/1964
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
GAJENDRAGADKAR, P.B. (CJ)
HIDAYATULLAH, M.
SHAH, J.C.
BACHAWAT, R.S.
CITATION:
1965 AIR 1316 1965 SCR (2) 414
ACT:
Indian Income-tax, 1922 (11 of 1922), s. 49E-Claim of Set-
off-Prior adjudication of amount of refund due whether
necessary-"found to be due", meaning of-"In lieu of
payment", meaning of-Set-off can he given only when there is
subsisting obligation to make refund.
HEADNOTE:
The appellant company made a claim under s. 5 of the Income-
tax (Double Taxation Relief) (Indian States) Rules, 1939,
for refund of the income-tax paid by it in an Indian State.
The claim was rejected by the Income-tax Officer as time-
barred. The Commissioner of Income-tax and the Central
Board of Revenue refused to interfere and the appellant
sought no further legal remedy against their orders.
Subsequently on certain tax demands being made by the
Income-tax Officer, the appellant made representation that
the amounts in respect of which application had earlier been
made under r. 5 should be set off against the demand as
provided by s. 49E of the Indian Income-tax Act, 1922. The
Income-tax authorities having rejected this claim also, the
appellant went to the High Court under Art. 226 of the
Constitution. The High Court held that the expression found
to be due" in s. 49E clearly meant that there must be, prior
to the claim of set off, an adjudication whereunder an
amount is found due by way of refund to the person claiming
set off. Since there was no such adjudication in the
appellant’s favour, the writ petition was dismissed.
However a certificate of fitness under Art. 133(1) (c) was
granted to the appellant.
HELD : (i) It is not necessary that there should be a prior
adjudication before a claim can be allowed under s. 49E.
There is nothing to debar the Income-tax Officer from
determining the question whether a refund is due or not when
an application is made to him under s. 49E. The words "is
found" do not necessarily lead to the conclusion that there
must be a prior adjudication. [419 D-E]
(ii) The set-off under s. 49E must however be "in lieu of
payment’ which expression connotes that payment is
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outstanding i.e. there is a subsisting obligation on the
Income-tax Officer to pay. If a claim to refund is barred
by a final order, it cannot be said that there is a
subsisting obligation to make the payment. [419 F-G]
Stubbs v. Director of Public Prosecutions 24 Q.B.D. 577,
relied on.
(iii) In the present case the orders of the Commissioner
and the Central Board of Revenue rejecting the appellant’s
claim under r. 5 of the Indian State Rules had become final.
They were not challenged even in the petition under Art.
226. There was thus no subsisting obligation on the part of
the Income-tax Officer to make payment to the appellant, and
the claim of the appellant under s. 49E must therefore,
fail. [419 G-H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 136 of 1964.
415
Appeal from the judgment and order dated February 24, 1961
of the Bombay High Court in Misc. Application No. 333 of
1960.
A. V. Viswanatha Sastri, T. A. Ramachandra, J. B.
Dadachanji, 0. C. Mathur and Ravinder Narain, for the
appellant.
R. Ganapathy lyer, R. H. Dheber and R. S. Sachthey, for
the respondent.
The Judgment of the Court was delivered by
Sikri, J. This is an appeal on a certificate granted by the
High Court of Bombay against its judgment dated February 24,
1961, dismissing the petition filed by the appellant under
Art. 226 of the Constitution of India. This appeal raises a
short question as to the construction of S. 49E of the
Indian IncomeTax Act, 1922, hereinafter referred to as the
Act. Before we deal with this question, it is necessary to
set out the relevant facts.
The appellant, at the material time, carried on business not
only in India but also outside India, i.e. Ceylon, the
former States of Kolhapur and Kapurthala and other places.
It is not necessary to give the facts relating to the income
in Ceylon and Kolhapur because if the facts relating to the
income made in Kapurthala are stated, these will bring out
the real controversy between the appellant and the Revenue.
We may mention that it is common ground that the facts
relating to Ceylon income and Kolhapur income are
substantially similar.
On July 9, 1954, the appellant wrote a letter to the Income
Tax Officer, Companies Circle, Bombay, stating that for the
assessment year 1949-50, it was entitled to refund on the
income taxed in Kapurthala State. It attached an original
certificate for tax showing payment of Rs. 37,828/11/-, and
requested that a refund order be passed at an early date.
On June 27, 1956, the Income Tax Officer rejected the claim
on the ground that the claim filed by the appellant was not
within the time limit of four years laid down in r. 5 of
Income-Tax (Double Taxation Relief) (Indian States) Rules
1939-hereinafter called the Indian States Rules. On
December 18, 1956, the appellant filed a revision, under s.
33A of the Act, against the said order, before the Com-
missioner of Income-Tax, Bombay. The appellant stated in
the petition that "unfortunately the Company’s assessment
for the year in question was completed by the Income-Tax
Officer on
416
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the last day of the financial year 1953-54, i.e., 31-3-1954
being the last date on which their claim for double income-
tax relief should have been lodged. In absence of the
assessment order being received by the Company it was not
physically practicable for the assessee to lodge its claim
for double income-tax relief and as such the time prescribed
under Section 50 had already expired when the assessment
order was received by the company." The Commissioner made
some enquiries. The appellant, in its letter dated June 30,
1958, replied that no provisional claim for double income-
tax relief was made by the appellant within the time
prescribed. The appellant reiterated its own plea that it
was not "physically practicable" for the assessee to lodge
its claim for double-tax relief within the time prescribed.
The Commissioner, however, rejected the petition. He
observed that "the assessment in the Kapurthala State was
made on 20-3-1950, i.e., much before the assessment was
completed by the Bombay Income-tax Officer. Nothing
prevented the petitioner, therefore, from filing a
provisional claim before the period of limitation was over.
At least, it should have made such a claim before the Income
Tax Officer at the time of assessment. I regret I cannot
condone the delay in filing the claim as there is no
provision under Section 50 for such condonation." The
appellant then approached the Central Board of Revenue. The
Central Board of Revenue, by its letter dated December 31,
1958, declined to interfere in the matter. The appellant
did not take any steps to apply to the High Court under Art.
226 for quashing the above orders of the Commissioner of
Income-Tax or the Central Board of Revenue.
On August 28, 1959, the Income-Tax Officer issued three
notices of demand under s. 29 of the Act in respect of the
Assessment years 1949-50, 1950-51 and 1951-52. The
appellant then wrote a letter dated September 4, 1959,
requesting the IncomeTax Officer to set off the refunds to
which the appellant was entitled pursuant to the Provisions
of Income-Tax (Double Taxation Relief) (Ceylon) Rules, 1942,
and read with the provisions of ss. 49A and 48 of the
Income-Tax Act, in respect of the assessment years 1942-43,
1943-44 and 1944-45, relating to Ceylon, and the assessment
year 1947-48 and 1949-50 relating to Kolhapur and
Kapurthala, against the said demands. In this letter the
appellant gave arguments in support of its request. In
short, the argument was that although the applications
claiming those refunds were submitted beyond the prescribed
time limit, nevertheless the appellant had a right still,
pursuant to the the provisions of s. 49E, to call upon the
Income-Tax Officer to
417
set off the refunds found to be due to the appellant against
the tax demands raised by the Income-Tax Officer on the
appellant. The appellant also approached the Central Board
of Revenue,. urging similar points. The Central Board of
Revenue, however, by its letter dated June 24, 1960,
declined to interfere in the matter.
The appellant then on October 7, 1960, filed a petition
under Art. 226 of the Constitution. After giving the
relevant facts and submissions, the appellant prayed that
the High Court be pleased to issue a writ in the nature of
Mandamits or a writ, direction or order under Art. 226 of
the Constitution, directing the respondents to set off the
refunds due to the petitioner under the aforesaid double
taxation relief rules against the tax payable by it for the
assessment year 1955-56. It appears that in the meantime
the petitioner had paid tax for the assessment years 1949-50
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and 1950-51, and the demand for Rs. 89,000.58 for the
assessment year 1951-52 was kept in abeyance, and later when
the assessment for 1955-56 was completed, the Income-Tax
Officers had agreed to keep in abeyance Rs. 79,430.19 out of
the total demand relating to the assessment year 1955-56,
till the decision of the Central Board of Revenue. The
second prayer was that the High Court be pleased to issue
writs in the nature of Prohibition or other direction or
order under Art. 226 of the Constitution prohibiting the
respondents, their officers, servants and agents from
demanding or recovering from the petitioner the tax payable
by it for the assessment year 195556 without first setting
off against that tax the refunds due to the petitioner under
the aforesaid double tax relief rules. It will be noticed
that no prayer was made for quashing the order of the
Commissioner, dated August 23, 1958, and the order of the
Central Board of Revenue dated December 31, 1958. It was
indeed contended by Mr. S. P. Mehta, the learned counsel for
the appellant before the High Court that the appellant was
not challenging the orders of the Income-Tax Officer
rejecting his application for refund, but was only
challenging the orders made by them rejecting its
application for grant of set off.
Mr. Viswanatha Sastri, the learned counsel for the appellant
first urged that as compliance with r. 5 of the Indian
States Rules, 1939 was physically impossible, r. 5 did not
apply, and consequently the refund due to the appellant
notwithstanding r. 5. But we cannot go into the question
whether r. 5 was rightly or wrongly applied by the Income-
Tax authorities. The
418
orders dated August 23, 1958 and December 31, 1958, cannot
be attacked in these proceedings. Therefore, we must
proceed on the basis that those orders were validly passed.
We-express no opinion whether the view of the Income-Tax
authorities that r. 5 was applicable in the circumstances of
the case was correct or not.
This takes us to the construction of s. 49E. Section 49E
reads thus :
"49E. Power to set off amount of refunds
against tax remaining payable.Where under any
of the provisions of this Act, a refund is
found to be due to any person, the Income-tax
Officer, Appellant 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."
The High Court held that s. 49E of the Act did not give :any
assistance to the appellant because, according to it, there
,must be prior adjudication in favour of the appellant. The
High Court observed that "the expression found to be due"
clearly means that there must, prior to the date set off is
claimed, be an adjudication whereunder an amount is found
due by way of refund to the person claiming set off."
Mr. Sastri contends that it is not necessary that there
should be a prior adjudication to enable a person to claim
set off. He says that the Income-Tax Officer can decide the
question whether refund is due or not when an application
for refund is made to him. On the facts, he says that it is
clear that the appellant is entitled to refund under r. 3 of
Indian States Rules, 1939, and the Income-Tax Officer has
only to calculate the relief due and then set it off. The
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learned counsel for the respondent, Mr. Ganapath lyer, on
the other hand, contends that the orders of the Commissioner
and the Central Board of Revenue having become final, there
was no obligation on the Income-Tax Officer to make any
payment of refund, and he says that it is a condition
precedent to the applicability of s. 49E that the Income-
Tax Officer must be under an obligation to make a payment.
He points out that the expression "in lieu of payment of the
refund’ clearly indicates that the Income-Tax Officer must
be under an obligation to make a payment of refund. He
further contends
419
that the refund is not due under the Act but under the said
Rules, and therefore, s. 49E does not apply.
There is no difficulty in refuting the contention of the
learned counsel for the Revenue that the refund, if due, was
due under the provisions of the Act. Section 59(5) provides
that the rules made under this section shall have effect as
if enacted under this Act. This provision thus makes the
Indian State Rules, 1939, part of the Act, and consequently
if a refund is due under the Rules, it would be refund due
under the Act within the meaning, of s. 49E.
The question then arises as to whether there should be a
prior adjudication existing before a set off can be allowed
under 49E, and whether there is any other condition which is
necessary to be fulfilled before the section becomes
applicable. We are of the opinion that it is not necessary
that there should be a prior adjudication before a claim can
be allowed under s. 49E.There is nothing to debar the
Income-Tax Officer from determining the question whether a
refund is due or not when an application is made to him
under S. 49E. The words "is found" do not necessarily lead
to the conclusion that there must be a prior adjudication.
But this is not enough to sustain the claim of the,
appellant. It must ,till show that a refund is due to it.
The words "found to be due" in s. 49E may possibly cover a
case where the claim to refund has been held barred under r.
5 of the Indian State Rules but that this is not the correct
meaning is made clear by the expression "in lieu of
payment". This expression, according to us, connotes that
payment is outstanding, i.e. that there is subsisting
obligation on the Income-Tax Officer to pay. If a claim to
refund is barred by a final order, it cannot be said that
there. is a subsisting obligation to make a payment. The
expression "in lieu of" was construed in Stubbs v. Director
of Public Prosecutions(1). It was held there that where a
liability has to be discharged by, A in lieu of B, there
must he a binding obligation on B to do it before A can be
charged with it. In our opinion, there must be a subsisting
obligation to make the payment of refund before a person is
entitled to claim a set off under s. 49E. In this case in
view of the orders of the Commissioner and the Central Board
of Revenue mentioned above there was no subsisting obli-
gation to pay, and therefore, the claim of the appellant
must
(1) 24 Q. B. D. 577
420
Therefore, agreeing with the High Court, we hold that S. 49E
of the Act is of no assistance to the appellant and that the
petition was rightly dismissed by the High Court. The
appeal accordingly fails and is dismissed, but in the
circumstances of the case there will be no order as to
costs.
Appeal dismissed.
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