# [1970] 3 S.C.R. 467

- **Citation:** [1970] 3 S.C.R. 467
- **Court:** Supreme Court of India
- **Decided:** 1970-02-02
- **Bench:** M .. HiDKYATULLAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1970-3-s-c-r-467-5043
- **Pages:** 14

## Headnote

J. C. SHAH,
K. S. HEGDE,
A. N. G,ROVER, A. N. RAY AND I. D. DuA, JJ.]
' .
Indian Income.Tax Act (ll of 1922), ss. 46 and 47-Liability agreed
to be .~id by instclments, and in
default of single
instalment entire
balanc:e. exigible-Asressment orders in terms. of
agreement-Demand
notices- issu£'d-Default in instahnent-Recovery proceeding after more
than one year of the default but before the last instalment due-Whether
claint bc·rred.
An agreement was signed between the Revenue and the assessees fix ...
ing the assessees' income-tax liability for several past years, and fixing
instalments for its payment.
The last instalment was payable on March
31, 1957. It was also stipulated that on the breach of a single instalment
the whole amount would become exigible. The Income-tax Officer made
the assessment orders in acco'rdance with the agreement.
These orders
and demand notices to pay the amount by March 31, 1953 were sent to
the assessees in September 1952 with letters stating that if there was no
default in payment of the instalment due on March 31, 1953, further extension of time for paying the balance will be granted.
The assessees
filed revisions under s. 23-A of the Income-tax Act, 1922 against
the
orders of assessment.
The Commissioner held the assessments were properly made as they were made in accordance with the settlement after
the assessees' disclosure.
Later the earlier agreement for payment
by
instalments was varied. The main variation in the second agreement was
that the penalty was reduced and smaller instalments were fixed. In March
1956 certificate's under s. 46(2) of the Act were issued and notices under
the Bengal Public Demands Recovery Act, 1913 were served.
On the
question whether the certificates were barred by limitation under s. 4 7 (I)
Indian Income-tax Act, 1922 this Court,
HELD : (Per Hidayatullah, C. J., Shah, Grover, Ray and Dua, JI.)
The certificates were not barred by time.
The assessment order reproduced the agreement as part of it and the
agreement therefore became the assessment order.
Under the
ass~ss
ment order a notice of demand was sent to pay the money of the first ms--
talment by March 31, 1953.
On
breach of it the whole, amount was
said to be exigible and the demand in ·respect of that was also made. The
assessees, therefore, became defaulters on the failure to pay the first
instalment.
S:nce instalments were 2ranted, cl. (iY) Of the proviso to S.
47(7) applied.
That clause does not mention about the exigibility of
the whole amount or exigibility of any particular instalment.
It only
says that if ·instalments are granted time of one year ending w.ith the end
of the financial year is to be calculated from .the date on wh.ich the last
instalment is payable.
The language of cl. (1v) of the proy1~0 was unfortunate in expressing this intent and has now been C<?_rrectet;I. tn th~ new
tnco1ne-tax Act but the
intention was always
obvious.
Even tn. !he
second agreement which replaced the
agreement the same
cond1llon
468
SUPREME COURT REPORlS
(1970) 3 S.C.R.
obtained.
There was a concession 3hown in the matter of penalty and
A
smaller instalments ,.vere fixed.
But the revenue had stipulated even then
that the concession mentioned
above would only be -available if the
revised scheme of payment was strictly followed.
Jn other words. p,ayment
was to be made by
instalments and this ,concession
therefore~
attracted the provisions of cl. (iv). The Government copld always ac'Cept
any instalment even if paid late without having to worry about the period
of limitation of one year from the date of den1and. since cl. (iv J of the
B
first proviso- gave them an option to wait till the last instalment
was
payable. The scherr1e of instalments took the maller out of the main p;;1rt
of sub-s. (7) and brought it within the proviso to clause (iv). [476 G477 DJ
(Per Hegde, J. dissenting)- ;--,.]f an assessee fails to comply with the
demand made in aC'.cordance with the provision in s. 45 within the time
mentioned therein

## Text

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CHAMPA KUMARI SINGm & ORS.
~·
THE MEMBER BOARD OF REVENUE, WEST BENGAi,
AND OTHERS
February 2, 1970
(M .. HiDKYATULLAH, C.J.,
J. C. SHAH,
K. S. HEGDE,
A. N. G,ROVER, A. N. RAY AND I. D. DuA, JJ.]
' .
Indian Income.Tax Act (ll of 1922), ss. 46 and 47-Liability agreed
to be .~id by instclments, and in
default of single
instalment entire
balanc:e. exigible-Asressment orders in terms. of
agreement-Demand
notices- issu£'d-Default in instahnent-Recovery proceeding after more
than one year of the default but before the last instalment due-Whether
claint bc·rred.
An agreement was signed between the Revenue and the assessees fix ...
ing the assessees' income-tax liability for several past years, and fixing
instalments for its payment.
The last instalment was payable on March
31, 1957. It was also stipulated that on the breach of a single instalment
the whole amount would become exigible. The Income-tax Officer made
the assessment orders in acco'rdance with the agreement.
These orders
and demand notices to pay the amount by March 31, 1953 were sent to
the assessees in September 1952 with letters stating that if there was no
default in payment of the instalment due on March 31, 1953, further extension of time for paying the balance will be granted.
The assessees
filed revisions under s. 23-A of the Income-tax Act, 1922 against
the
orders of assessment.
The Commissioner held the assessments were properly made as they were made in accordance with the settlement after
the assessees' disclosure.
Later the earlier agreement for payment
by
instalments was varied. The main variation in the second agreement was
that the penalty was reduced and smaller instalments were fixed. In March
1956 certificate's under s. 46(2) of the Act were issued and notices under
the Bengal Public Demands Recovery Act, 1913 were served.
On the
question whether the certificates were barred by limitation under s. 4 7 (I)
Indian Income-tax Act, 1922 this Court,
HELD : (Per Hidayatullah, C. J., Shah, Grover, Ray and Dua, JI.)
The certificates were not barred by time.
The assessment order reproduced the agreement as part of it and the
agreement therefore became the assessment order.
Under the
ass~ss
ment order a notice of demand was sent to pay the money of the first ms--
talment by March 31, 1953.
On
breach of it the whole, amount was
said to be exigible and the demand in ·respect of that was also made. The
assessees, therefore, became defaulters on the failure to pay the first
instalment.
S:nce instalments were 2ranted, cl. (iY) Of the proviso to S.
47(7) applied.
That clause does not mention about the exigibility of
the whole amount or exigibility of any particular instalment.
It only
says that if ·instalments are granted time of one year ending w.ith the end
of the financial year is to be calculated from .the date on wh.ich the last
instalment is payable.
The language of cl. (1v) of the proy1~0 was unfortunate in expressing this intent and has now been C<?_rrectet;I. tn th~ new
tnco1ne-tax Act but the
intention was always
obvious.
Even tn. !he
second agreement which replaced the
agreement the same
cond1llon
468
SUPREME COURT REPORlS
(1970) 3 S.C.R.
obtained.
There was a concession 3hown in the matter of penalty and
A
smaller instalments ,.vere fixed.
But the revenue had stipulated even then
that the concession mentioned
above would only be -available if the
revised scheme of payment was strictly followed.
Jn other words. p,ayment
was to be made by
instalments and this ,concession
therefore~
attracted the provisions of cl. (iv). The Government copld always ac'Cept
any instalment even if paid late without having to worry about the period
of limitation of one year from the date of den1and. since cl. (iv J of the
B
first proviso- gave them an option to wait till the last instalment
was
payable. The scherr1e of instalments took the maller out of the main p;;1rt
of sub-s. (7) and brought it within the proviso to clause (iv). [476 G477 DJ
(Per Hegde, J. dissenting)- ;--,.]f an assessee fails to comply with the
demand made in aC'.cordance with the provision in s. 45 within the time
mentioned therein then he is 'defaulter' within the meaning of the Act.
Unless the assessee is a defaulter, no action can be taken again.st him
C
under s. 46.
Non-fulfilment of the terms of the
agreement does not
amount to a defauh under s. 45.
Sub-section (7) of s. 46, clearly says
that no proceedings for recovery of any sum payable under the Act can
be commenced after the expiration of one year from the last day of the
financial year in "'hich any demand is made under the Act.
Under sub·
cl. (iv) of the prm·iso to s. 47(7) where the sum payable is allowed to
be paid in instalments, the one year prescribed in s. 46(7) will be comD
puted from the date;~ on which the last of such instalments was due. The
expression "was due" can only mean "is due" under the Act.
The expression does not appear to be grammatically correct; this correction has
been made in the new Act, but that correction is immaterial for the present
purpose.
For finding out "'hen the sum claimed 'was due', one must go
to s. 45. and cannot fall back on the agreement.
Chapter V of the Act
has nothing to do 'With the agreement between the asse·ssees and the re·
venue.
The expression "was due" in s. 46(7) has reference to the tax
B
which is due in acc:ordance with the provisions in ss. 45 and 46.
In view of the demand_ notices issued in September 1952 .the sum
became due when lhc assessees became dcfaultc:rs, and therefore the re·
convey proceedings under the Act should have been initiated he'fore March
1954. The same having not been initiated before that date, the proceed·
ings in question mw;t be held to have been barred. [478 A-G; 479 F-H]
CIVIL APPELJCATE JURISDICTION : Civil Appeals Nos. 564 to r
571 of 1968.
Appeals by special )eave ;from the judgments and orders dated
December 10, 1963 and November 24, 1964 of the Calcutta
High Court, in appeals from Original Orders Nos. 139 to 142 of
1~~
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M. C. Chagla, P. N. Tiwari, I. B. Dadachanji. 0. C. Mathur
and Ravinder Narain, for the appellants (in all the appeals).
Jagadish Swarup, Solicitor-General, R. Gopalakrishnan and
R. N. Sachthey, for the respondents (in all the appeals).
The Judgment of M. HIDAYATULLAH, C.J., J. c. SHAH, A. N.
GROVER, A. N. RAY and I. D. DUA, JJ. was delivered by HIDAYATULLAH, C.J., K. S. HEGDE, J. gave a dissenting opinion.
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CHAMPA v. RE'IFNUE BOARD (Hidaya1ullah, CJ.)
469
Hidayalullah, C.J.-This judgment shall
dis~ of Civil
Appeals 564-571 of ! 968. Of these, four are against the common
judgmem and order of a Division llench of the Calcutta High
Court, December 10, 1963, dismissing 4 appeals (139-142 of
1959) from the order of a lc.1rned single Jud11e, April 23, 1959
in Writ Petitions 159-162 of 1958. The remaining four appeals
are against the order, November 24, 1964, refusing to certify
the case as Iii for appeal to this Court under Art. 133(1) of the
Constitution.
The facts are as follows : One Dalchand Singhi held a prospecting license in the erstwhile Koree State (now in Madhya
Pradesh).
His son Bahadur Singh Singhi took a mining lease
and started a colliery known as Jhagrakhand Colliery. In 1942
a private limited Company called the Jhagrakhand Collieries Ltd.
was started with an authorised capital of Rs.
24 lakhs (2400
shares of Rs. 1.000 each).
Bahadur Singh divided equaily the
2400 shares bdwecn himself and his 3 sons Rajendra Singh
Sin)!,hi, Nafl~n.lrn Singh Sing.hi ana Birendra Singh Singhi.
In
1943 the colliery business and its asseN were transferred by the
joint family to the Company. In 1944 the father and his 3 sons
separated and partitioned the property.
Bahadur Singh
Singhi
died on July 7, 1944 leaving a will-Letters of Administration
with the will annexed were granted in 1945.
The register of
Jhagrakhand Collieries Ltd. was reetified and showed thereafter
900 shares in the name of Narendra Singh Singhi and Rajendra
Singh Singhi and 6600 shares in the mime of Birendra Singh
Singhi. Birendra Singh Singhi died on December 12, 1950 leaving a widow Smt. Champa Kumari and two minor sons Ashok
Kumar Singhi, Chandn1 Kumar Singhi and also a minor daughter.
These minors have now attained majority.
Under what is known as the 'Tyagi Scheme' announced on
May 19, 1951 a voluntary disclosure was made by the Jhagrakhand Collieries Ltd. and the shareholders. The time limit for
such disclosure was August J I, 1951.
Before this the Incometax Officer had filed a complaint for certain offences and under -
a search warrant seized the books of account of the company
from 1945 to 1950.
This was on July 3, 1951.
The shareholders and the company then disclosed on July 31, 1951 a concealed income ol Rs. 42.52.50 I during the years 1945 to 1948.
On November 28, 1951 the Commissioner of Income-tax
offered to withdraw prosecutions if the Company and the shareholders agreed to pay taxes due on a total income of Rs. 90,00,000
to be distributed over the years 1945-1950 (both inclusive) together with a penalty of 20% and interest at 3% p.a. on unpaid tax.
There were certain other cotnditions with which we
need not concern ourselves. Certain representations followed and
L 7 S:1p. Cl (NP)/70-ll
470
SUPREME COURT REPORTS
(1970)3 S.C.R.
finally on Decc111ber 26, 1951 it was agreed that
the
parties
A
jointly and severally pay Rs. 67,48,841/11. It was also agreed
that a sum of Rs. 55,.99,832/6 would be accepted in full satisfaction upon the parties paying the amount in
the
following
instalments :
(a) By December 31, 1951 ..
lb) By March JI, 1952
(c) By March 3L 1953
(r/) By March 31, 1954
(e) By March 31, 1955
(() Bv March ·31, 1956
Rs. 7,50,000
Rs. 5,00,000
Rs. 9,50,000
. .
Rs. 9,50,000
. . Rs. 9,50,000
. . Rs. 9,50,000
(g) Bv March 3J, 1951
. . the hala11ce
On the faill!re of any of the instalments the whole sum of Rs.
67,48,34l/l l tog.ether with interest would become due. A deed
of Agreement, Guarantee and Equiiable Mortgage showing the
total income and total net tax liability of each share holder were
shown.
They were · · -
1947/48 t•> 1951/52
Smt. Champa Kumarj's hu~t-and ..
Rajendra Singh Singhi
Narendra Singh Singhi
Jhagrakhand Collieries Ltd.
f"olt1/ lax
Rs. 5,28,817-11
Rs. 9,30,498-03
Rs. 9,93,816-15
Rs. 43,99,712-11
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The Company paid th.e followmg sums by way of tax :
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Fe~ruary I, Jq,52
Aprill, 1952 ..
April 2'.!, 1952
Rs. 1.50,000
Rs. 90,000
Rs. 1,22,000
Narendra Singh Singhi paid the following sums by way of tax :
February I, 1952
April I, 1952
. .
Rs.
1,50,000
. .
Rs.
60.000
April 22, 1952
. .
Rs.
48,000
Smt. Champa Kumari paid the following sums by way of tax :
April 1, 1952 . .
Rs.
1,00,000
April I, 1952 . .
. .
Rs.
40,000
April 22, 1952
Rs.
32,000
Rajendra Singh Singhi paid the following sums by way of tax :
April 1, 1952
April I, 1952
Rs.
f,5J,000
Rs.
60,000
April 22, 1951
Rs.
48,000
On April 22, 1952 they signeJ the agreement. By that date the
position in the payment of instalments had reached item ( c) above
showing Rs. 9,50,000 lll> due on March 31, 1953.
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CHAMPA V. REVE1'UE BOAiD (Hidaya1:,;;,./1, C.J.)
471
On August 29, 1952 the Income-Tax Officer made several
assessment orders in respect of the asscssrnen• yean; 1947-48 to
1951-52. Each.such order included the following:
"In accordance with <he tcnns of the Agreement
dated 22nd April 1952, executed in connection with the
petitions dated 18th July, 1951 filed by the assessce
and others under .:onccssional scheme for the settlement
of disclosures am,ounced by the Government of India,
the assessment is made as under ; "
and then follows the computation of total income, the computation of tax and the total amount demanded.
On September 22, 1952 the Income-tax Officer (Companies
District I), Calcutta sent the following Jetter to each asses see.
The one sent to Smt Champa Kumari Singhi may alone be quoted
here as an example :
"'From:
To
Sri V. Satyamurti, M.A., B.L..
Income Tax Officer,
Companies District L Calcutta.
Smt. Champa Kumari Singhi,
49 Garishat Road, Calcutta.
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Madam,
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"
I am sendin~ today by separate post ( Regd. with
AID) copies of Assessment orders.
Penalty Orders
Demand notices and challans etc. in regard
to the
amount of taxes. and penalties payable by you in accordance with the tenns of the Agreement dated 22nd
April, 1952 between you and the Government drawn
up in connection with the disposal of the disclosure
petition filed by you under the concessional scheme.
In the Demand notices and cha1la11S, demands have
been shown to be payable on or before the 31st March
1953 when the next instalment of payment under this
Agreement falls due.
Needless to say, if there is no
default in the matter of payment of that instalment
(viz., Rs. 9,50,000 with all in~rest due thereon by 31st
March, 1953) further extension of time for payment of
the balance will be granted by me.
Yours faithfully,
Sd/- Illegible
Income Tax Officer."
Dt. 22-9-52.
l 7SupCl(NP)7G-6
472
SUPREME COURT REPORTS
[1970] 3 S.C.R.
With this Jetter were forwarded the assessment orders and notices
of demand under s. 29 of the Income-tax Act,
1922. These
notices of demand reached the several appellants on 24 September
1952. Similar notices of demand for excess Profits Act and
Business Profits Tax were also served calling upon the assessee
to pay the dues on or before March 31, 1953.
On March 25, 1953 the appellants filed
applications
for
revision under s. 33-A of the Income Tax Act against the orders
of assessment and application of s. 23-A of the Income-tax Act.
The Commissioner held the assessments to be proper as they
were made in accordance with the settlement after the appellants'
disclosures.
The appellants next a:sked that Rs. 1,00,000 be
accepted instead of Rs. 9,50,000 payable on March 31, 1953
and they be not treated as defaulters. The amount was appropriat·
ed towards the current liability for the current financial year.
In February 1954, the Commissioner after hearing the appel·
!ants, promised reference to the Board of Revenue for a variation
of the agreemenit of April 22, 1952. The main variation was to
be that the penalty would be reduced to half and the appellants
would have to pay Rs. 5,60,000 on March 31, 1954, and similar
instalments each year for six years. The· aJ!reement was revised
on December 27. 1954. The company sent a cheque for Rs.
5.60,000 on March 31. 1954 earmarking it as the said payment
but it was appropriated towards the demand on the company for
1947-48.
On March 14. 1956 certificates
under s.
46(2) o( the
Indiain Income-tax Act. 1922 were issued and notices· under s. 7
of the Bengal Public Demands Recovery Act, 1913 were served
on the appellants in May. 1956. Jn June 1956 the appellants
filed several petitions under s. 9 of the Recovery Act contending
inter a/ia that the proceedings were barred by limitation. This
obj,~ction was overruled on January 5, 1957.
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The appellants appealed to the Commissioner under s.
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of the Recovery Act and the ob.iection that the certificates were
barred by limitation under s. 46(7) of the Indian Income-tax
Act, 1922 was accepted and the certificates were cancelled. The
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Union of India thereupon filed several revisions before ·the Board
of Revenue under s. 53 of the Public Demands Recovery Act.
against the order of the Commissioner. They were allowed lzy a
common order dated June 27. 1958. The appellants were again
called upon to pay the amount on pain of distress warrants.
The above facts were necessary to understand the background of the dispute from which the petitions under Art. 226
of the Constitution arose.
The appellants filed Writ Petitions
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CHAMPA v. REVENUE BOARD (Hidayatullah, CJ.)
473
159-162 of 1958 asking for a writ of certiorari to
quash the
orders of the Board of Revenue and prohibiting the certificate
Officer from enforcing
the
recovery certificates.
The writ
petitions were beard by Sinha J, and were dismissed on April
23, 1959. The recovery proceedings were held not barred by
limitation.
The awellants then filed
appeals in
the
High
Court against the judgment and order of Sinha, J. (Nos. 139-142
of 1959). These appeals were heard by Mookerji and Sen, JJ
who, by the common judgment now under appeal in four of tbes.:
appeals, dismissed them.
The applications for certificate under
Art. 133(1) of the Constitution were also rejected and have given
rise to the other four appeals before us:
Mr. Cbagla who argued these appeals submitted the question
of Iimitatiltn at the forefront and then attempted to argue the
merits such as the interpretation of the agreements and the re·
liance placed on them in the High Court and distribution pro
rata of the amounts paid on March 31, 1954. These points were
not allowed to be raised by us. These questions· were not raised
before Sinha, J.
The Divisional Bench also did not allow these
poinJs to be raised.
The short question, therefore, in one of limitation applicable
in this case. We are concerned in answering this question with
s. 46 of the Indian Income Tax Act, 1922. We are not re·
quired to consider the entire section but only sub-ss. 1 and 7
which are reh:vant. They read :
"46. Mode and time of recovery.-
( 1) When an a~sessee is in default in making a
payment of income-ta~. the Income-tax
Officer niay in his discretion direct that
in addition to the amount of the arrears,
a sum not exceeding that amount shall be
recovered from the assessee
by way of
penalty."
"(7) Save in accordaru:e with the provisions of
sub-section ( 1) of section 42, or to the proviso to section 45, no proceedings for the
recovery of any sum payable under this Aci
shall be commenced after the expiration of
one year from the last day of the financial
year in which any demand is made under
this Act:
474
SIJPREME COURT REPORTS
[1970) 3 S.C.R.
Provided that the period of one year herein referred to shallA
(iv) where the sum payable is allowed to be
8
paid by instalments, from the date on
which the last of such instalments was
due:
Provided further that nothing in the foregoing proviso shall have the effect of reducing the period within
which proc:<:edings for recovery can be commenced,
namely, aftt:r the expiration of one year from tile last
day of the financial year in which the demand is made.
Exp/anation.-A preceding for the recovery of
any sum shall be deemed to have commenced within.
the meaning of this section, if some action is taken to
to recover the whole or any part of the sum within the
period hercinbefore referred to, apd for
the
removal
of doubts fr is hereby declared that the several modes
of recovery specified in this section are neither mutually
exclusive, nor affect in any way any other law for the
time being in force relating to the recovery of debts due
10 Government. and it shall ·be lawful for the Incometax Officer, if for any special reasons to be recorded
he so thinks fit, to have recourse to· any such mode of
recovery notwithstanding that the tax due is being re-.
~ovcred from an assessee by any other mode."
The contention of the appellants is that we have to find out when
1hey could be treated as defaulters within the first sub-section and
whether under the main part of sub-s. (7) the proceedings for
1he recovery of the tax with penalty could be commenced. after
the expiration of one year from the last day of the
financial
year in which the demand was made.
The argument of the
Department is 1hat the matter is covered by clause (iv) of the
first proviso which allows limitation of one year to be calculated
from the date on which the last instalment was due in the present
case.
To be~ with there is an error in the fourth clause of
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the first proviso inasmuch as the words "be reckoned" have been
inadvertently left out in that clause.
The intention to use these
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words is obvious from the way in which the first three clauses
are worded.
Supplying those words because they were inadverrnntly omitted it is clear that one of two limitations is applicable
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CHAMPA v. REVENUE BOARD (Hidayatullah, C.J.)
475
to the present case, according to the circumstances of the case
If it is to be considered under the main clause of sub-s. ( 7),
then we have to find out wherther the whole of the 'amount was
payable by a particular date on which the assessee can be said
to have become a defaulter.
If, however, the fourth clause of
the proviso applies then we have to see whether by reason of the
grant of instalments, limitation would only commence· to run
from the date c,n which the last of the instalments was payable.
In this connection reference has been made by the High Court and
the Board of Revenue to the agreements and the letters written
sending the assessment orders and the notices of demand. The
agreements set out a scheme of payments by instalments and the
entire sum payable was Rs. 67,48,841/11/-. This was payable
in different instalments, from 1952 to 31st March, 1957.
It was, however, provided as follows :
" ...... provided however that in the event of due
and punctual payment of all instalments Government
will give up the sum of Rs. 11,49,019/-5/- with interest
thereon, from the last instalment and accept the sum of
Rs. 55,99,822/6/- with interest thereon in full settlement of the balance due provided further that in the
event of any default in payment of any sum on due
date therefrom or in the event of it being found that the
guarantee hereby given or any part thereof is not enforceable for any reason whatsoever there will be no
abatement and the parties of the first and second part
will pay the full sum of Rs. 67,48,841/-11/-.
The monies payable on 31st March,
1953, 31st
March, 1954, 31st March 1955, 31st March 1956 and
31st March 1957 shall be applied pro rata towards the
tax liability of the party of the first part and the parties
of the second part mentioned in Schedule "Y" hereto.
The said parties shall however be at liberty to make
any part payment at any time towards the said instalments not less than Rs. 10,000/- (Rupees ten thousand) at a time.
4. In the event of any instalment not being paid
within the time ,mentioned above
(such time being
deemed to be of the essence of the. arrangement) or
in the event of it being found that the guarantee hereby
given or any part thereof is not enforceable for any
reason whatsoever the whole of the balance of the said
sum of Rs. 67,48,841/11/- will at once become doc
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SUPREME COURT REPORTS
( 1970] 3 s.C.R.
and payable with interest at the rate aforesaid and Government w:ill (in· addition to all rights for enforcement
oi this· document) be entitled to take ail steps to enlorce
payment induding issue of certificate
under Section
46(2) of tl1e Income Tax Act and proceedings under
the West B1:ngal Public Demands Recovery Act and
Revenue Recovery Act."
The .contention of the appellants is that the letters of the 22nd
September, 1952 (one of which has been reproduced above as
a sample) were accompanied by the notices of demand and on
the breach of the payment of the instalment of Rs. 9,50,000/-
on 31st March, 1953, the appellants became defaulters within
the meaning of the Act in respect of the whole amount of tax.
Therefore recovery proceedings could only commence within the
end of a financial year commencing from 31st March, 1953 since
the payment of the instalment was co-terminus with the end of
the financial year. This, according to them, was provided in the
agreement itself in the extract just reproduced from the agreements
above.
The other side contends that cl. (iv) of the proviso to
s. 46, sub-s. ( 7) takes no account of the exigibility of the whole
amount under a scheme of payment by instalments. Whenever
instalments are granted the period of limitation counts from the
last instalment and here it would be one year from March 31,
1957. The ddault could be taken note of earlier also because
the whole amount remained exigible the moment the first default
was made. In the present case the certificate was issued on
March 14, 1956 and, therefore, it was well within the period of
limita<ion.
The learned single Judge in the case
(Sinha J.) very rightly
pointed out that under the agreements two things were done. Firstly, the total liability of the parties was calculated and each party
became jointly and severally liable for the whole
sum. Then
instalments were fixed and on the breach of a single instalment
the whole of the amount became exigible. The assessment order
reproduced the agreement as part of it and the agreement therefore became tl1e assessment order.
Under the assessment order
a notice of demand was sent t<J pay the money oftbe first instalment of Rs. 9,.50,000/- by March 31, 1953. On breach of it the
whole amount was said to be exigible and the demand in respect of
that was also made. The appellants therefore, rightly concluded the
Judge, became defaulters on the failure to pay the first instalment.
Since instalments were granted, cl. (iv) of the proviso to sub-s.
(7) of s. 46 applied to the case. This conclusion is correct. That
clause does noi: mention about the exigibility of the whole amount
or exigibility of any particular instalment. It only says that if
A
B
c
D
E
F
G
H
A
B
c
0
E
F
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CHAMPA v. REVENUE BOARD (Hegde, J.)
477
instalments are granted time of one year ending with the end
ot the tmancial years is to be calculated from the date on winch
the last instalment is payable.
The language of cl. (iv) of the
proviso was untortunate in expressing this intent and has now
been corrected in the new Act but the intention was always obvious. Even in the second agreement which replaced the first
agreement the same condition obtained. There was a concession
snown in the matter of penalty and smaller instalments were fixed.
But the Central Board of Revenue had stipulated even then that
the concession mentioned above would only be available if the
revised scheme of payment was strictly followed. In other words,
payment was to be made by
instalments an.d
this concession
therefore attracted the provisions of cl. (iv). The Government
could always accept any instalment even if paid late without having to worry about the period of limitation of one year from the
date of demand, since cl. (iv) of the first proviso gave them an
option to wait till the last instalment was payable.
The scheme
of the instalments took the matter out of the main part of su\>.s.
(7) and brought it within the proviso to clause (iv).
We are,
therefore, satisfied that the High Court was right in holding that
the certificates were issued within the period of limitation prescribed by law and were not barred by time. The first four appeals
therefore fail and are dismissed with costs.
The other appeals
need not be considered since special leave was granted · against
the main order and those appeals themselves have failed.
The
remaining four appeals against order refusing certificate are
accordingly dismissed as infructuous with no separate order as to
costs.
Hegde, J.-These appeals should be allowed, as in my opinion the impugned certificate is barred under sub-s. (1) of s. 46
of the Indian Income Tax Act, 1922 (in short 'the Act').
The facts of the case are fully set out in the judgment of my
Lord, the Chief Justice.
Hence there is no need to state them
over again.
Under the agreement entered into between the assessees and
the department, if the asse~sees fail to pay any one or more of
the instalments fixed, the entire tax became recoverable forthw!th.
Ad!Uittedly the assessees failed to pay the instalments as
stipulated m the agreement and therefore it was open to the department to recover the entire arrears of tax.
It is true that the
default clause in the agreement was intended for the benefit of
the department and therefore under the law of contract, ·it was
open to the department to waive that Clause and sue for the recovery of the various instalments as and when they fell due. But
that aspect of the que~tiQII is not relevant for ·considering the true
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SUPREME COURT REPORTS
[1970) 3 S.C.R.
scope of sub-s. (7) of s. 46.
Section 46 creates a special machinery for the recovery of arrears of tax.
Section 46 is found in
Ch. IV of the Act which deals with recovey of tax and penalties.
Section 45 prescribes, when an assessee becomes a defaulter.
The
main part of that section says :
"Any mnount specified as payable in a notice of
demand under sub-section (3) of section 23A or under
section ~9 or an order under section 31 or section 33,
shall be paid within the time, at the place and to the
person men1ioned in the notice. or order or if a time is
not so mentioned, then on or before the first day of
the second month following the date of the service of the
notice or order, and any assessee failing so to pay shall
be deemed to be in default, provided that, when an
assessee has presented an appeal undef section 30, the
Income-tax Officer. may in his discretion treat the
assessee as not being in default as long as such appeal
is undisposed of."
(The proviso to that section and the explanation are
not relevant for our present purpGse).
For finding out whether an assessee is a defaulter or not, all
that we have to see is whether he has failed to comply with the
provi~ions of s. 45. If he has.Uil~d to comply with the demand
made in accordance with the provisions in s. 45 within the time
mentioned therein then he is 'defaulter' within the meaning of 'the
Act'. Unless the assessee is a defaulier, no action can be taken
against him under s. 46.
Non-fulfLment of the terms of the
agreement does not amount to a default under s. 45. Therefore
the first thing we have to see is when the assessees became defaulters.
For deciding that question reference to the agreement is
irrelevant. Admittedly demand notices under s. 29 had bee!Drissued
to the assessees on September 22, 1952 in respect of the entire
tax due from them.
Therefore they became defaulters as soon
as they failed to comply with those demands.
This takes .. us to s. 46.
Sub-s. (1) of s. 46 says :
. "When an assessee is in default in making a payment
of income-tax, the Income-tax Officer may in his discretion dimct that, in addition to the amount of the
arrears,
a sum not exceeding that amount shall be
recovered f:rom the assessee by way of penalty."
The default referred fo · in this sub-section is necessarily a
default under s. 45.
That much is obvious froin the scheme of
Ch. VI.
Now let us read sub-s. (7) of s. 46. It is as follows :
A
B
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F
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A
B
c
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CHAMPA v. REVENUE BOARD (Hegde, J.)
479
"Save in accordance with the provisions of sub-section (1) of section 42 or to the proviso to section 45,
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 financial year in
which any demand is made under this Act :
Provided that the period of one year herein referred
to shall ~
(iv) where the sum payable is allowed to be paid
by instalments, from the date on which the last of such
instalments was due".
If we read the impugned sub-s. (7) of s. 46, it is clear that no
proceedings for the recovery of any sum payable under the Act
can be commenced after the expiration of one year froI!l the last
day of the financial year in which any demand is made under the
Act. In the instant case, the demands in question were made on
September 22, 1952. Therefore the recovery proceeding's should
have been commenced before 31st March 1953 but actually. they
were commenced on March 14, 1956.
Hence they are prime.
facie barred.
This talces us to sub-cl. (iv) of the proviso to sub-s. (7) of s. 46.
Under that proviso where the sum payable is allowed to be paid
by instalments, the one year prescribed in sub-s. (7) of s. 46 will
be. computed from the date on which the last of such )nstalments
was due.
The expression "was due" does not appear. to be grammaticalfy correct. It should have been "is due".
This correction has been made in the corresponding provision of the 1961
Indian Income• Tax Act; but that error is immaterial for our
present purpose.
The words "was due" can only mean "is due"
even under the Act. For finding out when the sum claimed 'was
due', we must again go back to s. 45.
In view of the demand
notices issued in September 1952 and sum became due when the
assessees became defaulters and therefore the recovery proceedings
under the Act should have been initiated before March, 1954.
The same having not been initiated before that date, the proceedings .in question must be held to have been barred.
In my opinion for finding out the date on which the last instalment was
due, we cannot fall back on the agreement between the assessees
and the revenue.
Chapter V of the Act has nothing to do with
the agreement between the assessees and the revenue.
The expression "was due'~ in s. 46(7) has reference to the tax which is
due in accordance with the provisions in ss. 45 and 46,
480
SUPREME COURT REPORTS
[ 1970] 3 S.C.R.
For the reasons mentioned above I allow these appeals. ·
A
ORDER
In accordance with the opinion of the majority, Civil Appeals
Nos. 564, 566, 568 and 570 of 1966 (arising from the common
judgment and orde:r of the Division Bench of the Calcutta High a
Court, December 10, 1963) are dismissed with costs.
The other
appeals are also dismissed as infructuous with no separate order
as to costs.
Y.P.