Full Judgment Text
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PETITIONER:
KALYAN MILLS LTD.
Vs.
RESPONDENT:
UNION OF INDIA & ORS.
DATE OF JUDGMENT21/11/1986
BENCH:
OZA, G.L. (J)
BENCH:
OZA, G.L. (J)
REDDY, O. CHINNAPPA (J)
CITATION:
1987 AIR 371 1987 SCR (1) 362
1987 SCC (1) 27 JT 1986 905
1986 SCALE (2)862
ACT:
INCOME TAX ACT, 1961--Section 46(2) & 46(5A)--Tax dues
recoverable from assessee company--Assessee company inform-
ing that amount can be recovered by Union of India from the
amount owed by Appellant Company--Suit for recovery of tax
dues by Union of India against appellant company--Validity
of such claim.
HEADNOTE:
The Union of India-- Respondent No. 1, had to recover
certain arrears of taxes from the assessee-company--Respond-
ent No. 2. The assessee--company informed the Union of India
that the tax dues recoverable from it be recovered from the
amount which was owed by the appellant-company to it. The
debt due by the appellant-company to the assessee-company
was shown to the credit of assessee--company in the accounts
of the appellant--company. The appellant--company acknowl-
edged and admitted its liability to the assesseecompany and
promised the Union of India to pay the amount of tax dues
against the debt due by it to the assessee-company.
Notices under s. 46(2) and s. 46(5A) of the Income Tax
Act were issued to the appellant--company for the recovery
of the said amount.
The Union of India filed a suit seeking a decree against
the appellant-company and four other defendants. The appel-
lant--company set up a false theory that the
assessee--company itself was liable to pay the appellantcom-
pany and, therefore, it was not liable to pay tax dues of
the assessee-company.
The trial court decreed the suit holding that the Union
of India was entitled to a money decree against the appel-
lant--company.
The appeal preferred by the appellant--company was
dismissed by the High Court.
In the appeal to this Court on behalf of the
appellant--company it was contended that a suit as filed by
the respondent and the decree granted by the trial court was
not permissible in law because proceedings for appointment
of
363
receiver can only be contemplated in execution proceedings
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of a decree against the original debtor.
Dismissing the appeal the Court,
HELD: 1. The High Court has rightly maintained the
decree by coming to the conclusion that the amount of com-
mission earned by the assesseecompany was admittedly with
the appellant. It was withheld by the appellant under the
pretext that it had a counter-claim against the assessee
Under s. 46(2) of the Income Tax Act, a prohibitory order
attaching the said money of the assessee--company was issued
and the machinery under S.46(5A) of the Act was no longer
effective as the appellant set up a counter-claim against
the assessee and there was no option for the Union of India
but to obtain adjudication from the civil court. [365H --
366B]
2. No money decree could be passed against the appel-
lant--company except for the money lying in the deposits
with them for the assessee-company and it is for that pur-
pose that the decree for appointment of receiver was made so
that the amount be recovered and paid to the plaintiff-Union
of India. [366C-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 447(N) of
1973.
From the Judgment and Decree dated 18/19.4.1972 of the
Gujarat High Court in First Appeal No. 184 of 1964.
V.A. Bobde and A.G. Ratnaparkhi for the Appellant.
S.C. Manchanda, Ms. A. Subhashini and K.C. Dua for the
Respondents.
The Judgment of the Court was delivered by
OZA. J. This appeal arises out of a certificate granted
by this Court. The facts necessary for the disposal of this
appeal are that the respondent No. 1 Union of India fried a
suit against the petitioner. The petitioner is a public
limited company. Respondent No. 2 which is also a public
limited company was the assessee company and the Union of
India, respondent No. 1 had to recover a sum of Rs
1,32,400.87 p. from the said assessee company on account of
arrears of income tax, excess profit tax, business profit
tax. To recover this amount a suit was filed on 15.2.58
impleading therein besides the present appellant said asses-
see company and others as defendants. It was alleged that
the assessee company by its letter dated 4.10.48 informed
the plaintiff Union of
364
India that the arrears due from it be recovered from the
petitioner on account of its commission. It was alleged that
for recovery of the said amount notice under Section 46(2)
of the Income Tax Act was issued on two occasions, 9.11.48
and 30.3.51 and thereafter a notice under Section 46(5A) of
the Act was issued against the appellant-defendant No. 1
Kalyan Mills Ltd. on July 22, 1949. It is alleged that the
defendant No. 1 assessee-company had informed the plaintiff
Union of India by a letter dated October 11, 1948 that the
tax dues recoverable from the assessee-company be recovered
from the amount which was owed by the appellant-company to
the assessee-company. It was inter-alia asserted in the
plaint that the debt due by the appellant-company to the
assessee-company was shown to the credit of the assessee-
company in the accounts of the appellantcompany. It is said
that by two letters addressed by the appellant-company on
November 18, 1948 and December 3, 1948, it acknowledged and
admitted its liability to the assessee-company and had
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further more promised the plaintiff to pay the amount of tax
dues against the debt due by the appellant-company, to the
assessee-company. The plaintiff proceeded to assert in view
of the admissions made by the appellant company and the
promise made by it to pay the tax dues from the debt due by
it to the assessee-company and having regard to the recovery
proceedings undertaken by the competent authority under
Sections 46(2) and 46(5A) of the Act, the plaintiff had
priority over all other unsecured dues and that the appel-
lant company was under an obligation to pay the amount of Rs
1,32,400.87 p. under these circumstances. It was also al-
leged by the plaintiff-respondent (Union of India) that
notwithstanding the fact that the debt due by the
appellant-company to the assessee-company was shown to the
credit of the assessee-company in the books of accounts of
the appellant company. The appellant company had subsequent-
ly set up a false theory that the assessee company itself
was liable to the appellant company and that the appellant
company was not liable to pay dues of the assessee. It. was
in terms asserted that the version set up by the appellant
company that it had a claim against the assessee company was
a got up version and that it had been created merely with a
view to defeat or delay the dues of the plaintiff. It was
contended that the appellant company had made a false coun-
ter claim against the assessee company with this end in view
viz. to defeat and delay the claim of the plaintiff though
it had taken no action in regard to the alleged counter
claim. A reference was made to a resolution passed by the
appellant company on December 9, 1949 to transfer the debt
due to the assessee company to the Managing Agents’ commis-
sion and suspense account. No action was ever taken by the
appellant company against the assessee company for the
alleged claim arising in the context of damages in connec-
tion with the alleged malfeasance and misfeasance of the
assessee company in the course of discharge of their func-
tions as the Managing Agents of the appellant company. As
admittedly the assessee-company was functioning as the
Managing Agents of the appellant-company, it was contended
that no action was taken for more
365
than three years and that no steps have been taken in this
connection because the counter claim was a sham one.
It was further contended by the plaintiff-respondent
(Union of India) that the appellant company and the assessee
company were colluding with each other with the object of
defeating or delaying the payment to the plaintiff and that
the adjustment entries made by the appellant company in its
books of accounts were a step in this direction. Such en-
tries or adjustments were illegal and they were not binding
on the plaintiff in as much as the recovery proceedings had
already been initiated against the assessee company and that
the adjustments and entries were false as was evident from
the admissions made by the appellant-company in its letter
to the plaintiff. A charge of fraud and collusion has been
levelled against the. appellant company, the assessee compa-
ny and the other defendants. With these facts the respondent
Union of India instituted the present suit seeking a decree
against defendants 1 to 5 i.e. the present appellant and
other defendants for an amount of Rs 1,32,400.87 p. with
interest and a prayer also was made for appointment of
receiver for recovery of the amount due from defendant No. 5
and its nominees other defendants. Various defences were
raised. The suit was decreed by the trial court and the
trial court held that the plaintiff respondent was not
entitled to a money decree against the appellant company. It
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also recorded a finding that the contention of the appellant
company that it had a genuine and valid counter claim
against the assessee company and that it had been adjusted
was unfounded. In the opinion of the learned trial court it
was a unilateral act of the appellant company of adjusting
the sum due to the assessee company against the alleged
claim in respect of damages for malfeasance and misfeasance
against the assessee company was invalid and was not binding
on the plaintiff-respondent. It also held that the sum in’
excess of the tax claimed by the plaintiff from the assessee
company was due to the assessee company against the appel-
lant and it held that the plaintiff was entitled to a decree
for appointment of receiver to realise the dues of the
plaintiff from the appellant company having regard to the
fact that appellant company was indebted to the assessee
company for a sum in excess of tax dues claimed by the
plaintiff, and to that extent the suit was decreed.
The appellant preferred an appeal and a Division Bench of
the Gujarat High Court by their judgment dated April 19,
1972 dismissed the appeal and maintained the decree passed
by the trial court and on certificate against that judgment
that the present appeal is filed in this Court. The main
contention advanced on behalf of the appellant was that a
suit was filed by the respondent and the decree granted by
the trial court was not permissible in law as it was con-
tended that such proceedings for appointment of receiver can
only be contemplated in execution proceedings of a decree
against the original debtor. Facts are not in dispute. The
learned Judges of the High Court maintained the
366
decree by coming to the conclusion that the amount of com-
mission earned by the assessee company was admittedly with
the appellant. It was withheld by the appellant under the
pretext that it had a counter claim against the assessee. It
is also not in dispute that under Sec. 46(2) a-prohibitory
order attaching the said money of the assessee company was
issued. It is also not in dispute that the machinery under
Sec. 46(5A) of the Income Tax Act was no longer effective as
the appellant set up a counter-claim against the assessee
company and there was no option for the Union of India but
to obtain adjudication from the civil court and in this view
of the matter the learned Judges of the Gujarat High Court
maintained the decree passed by the trial court.
An objection was also taken about the form of the decree
passed by the trial court which only was for the appointment
of a receiver. Admittedly no money decree could be passed
against the appellant company except for the money lying in
the deposits with them of the assessee company and it is for
that purpose that the decree for appointment of receiver was
made so that the amount be recovered and paid to the plain-
tiff--Union of India.
Having considered the question and heard the learned
counsel for the appellant, we see no error in the judgment
passed by the learned High Court of Gujarat. The appeal is
therefore dismissed with costs.
A.P.J. Appeal
dismissed.
367