# BUILDERS SUPPLY CORPORATION v. TIIE UNION OF INDIA REPRESENTED BY IBE COMMIS·

- **Citation:** [1965] 2 S.C.R. 289
- **Court:** Supreme Court of India
- **Decided:** 1964-11-30
- **Bench:** P. B. Gajendragadkar, M. Hidayatullah, J. C. Shah, S. M. Sikri, R. S. Bachawat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/builders-supply-corporation-v-tiie-union-of-india-represented-by-ibe-commis-3407
- **Pages:** 21

## Headnote

DOC(rine of priority of Crown Debts under Common Law-WheJher
applicable to India.
Income-tax arrears due to Union Government-Recovery thereof-Whether has priority above claims of unsecured creditors of common debtorsDoctrine of priority af Crown Debts in relation to tax dues-Whether a
'law in force' in India at cotnn1encen1ent of Constitution--Constitution of
India Art. 372(1).
Indian Income Tax Act 1922, s. 46, and provision of Public Demand.<
Recove~y Act whether displace doctrine of priority of Government Debts.
The appellant filed a suit against Respondent No. 2 and secured a decree
against him for Rs. 12,275-9-0.
The Judgment-debtor had a sum of
Rs. 50,000 in deposit with the Superintending Engineer, Calcutta, by way
of security for the due execution of a contract. The Executing Court at
the instance of the appellant attached a sum equivalent to the decretal
amount from the aboYe security deposit, and the Superintending Engineer
transmitted the attached amount to the court. At this stage the Union of
India through the Commissioner of Income-tax represented to the court
that inoome tax arrears of more than Rs. 5,000 were due from the Judgment-debtor for which a certificate under s. 46(2) of the Income-tax Act,
1922 had been issued to the Collector and proceedings under the Public
Demands Recovery Act had been commenced. The Union of India claimed
that the tax amount due to it from the Judgment-debtor bad priority over
the judgment-debt due to the appellant from the same debtor and so it
was entitled to the whole amount under attachment in partial satisfaction
of the Income-tax dues.
The Executing Court accepted this plea.
'!be
appellant filed a revision before the High Court but failed to get relief.
Thereupon he appealed to the Supreme Court with a certificate of fitness.
It was contended on behalf of the appellant :
(I) The High Court had wrongly held that the Common Law doctrine
of the priority of Crown debts on which the case of the Union of India
was based, applied in the present case: (2) Even if the doctrine was
applicable it was not a 'law in force' at the commencement of the Consti·
tution within the terms of Art. 3 72 ( 1), and there was no scope for continuing its Operation after the Constitution came into force : (3) The doctrine
of the pnonty of Crown debts could not also be enforced because it was
specifically provided for and covered· by the provisions of s. i6 of the
Indian Income-tax Act, 1922, and by the relevant provisions of the Recovery Act.
HELD : (i) The Common Law doctrine of the priority o[ Crown debts
had a wide sweep but the question in the present appeal was the narrow
ooe whether the Union of India was entitled to claim that the reco\ery
of the amount of tax due to it from a citizen must take precedence and
priority over unsecured debts due from the said citizen to bis other private
290
SUPREME COURT REPORTS
1965] 2 S.C. R.
creditors. 'fhe weight of authority in- India was strongly in support ot \he
priority o.f tax dues. [300 DJ
· ·
·
The Secrt:tary c>/ Stat~ in Council for India v. 1'he Bon:bay Landing &
Shipping Co. (Limited), (1868-69) 5 Born. H.Oi>R. p. 23; Man.ickam Chettiar.
r. Income-tax Officer. J\IJdura, (1938), 6 I.T.R. 180, Raoiacharuira v.
Pitchaikam1i, ( 1884) 1.L.R. 7 Mad. 434; Bank of India v. John Bowman
and Ors., A.LR. 1955 Born. 305, Beil v. The Municipal Com1nissioners for
the City of Ma:lra.r, (1902) l.L.R. 25 Mad. 457 .... discussed.
Kaka fl(uhan11nad Ghouse Sahib & Co. v. United Co1nn2ercial Syudicat(.'
Md Others, ( 1963) 49 l.T.R. 824, disapproved.
(ii) The Common Law doctrine on which the Union of India based it&
·claim in the present proceedings had been applied and upheh.J in lhat par11
·of India \\''hich v1as know·n as '.British lndia' prior to the Con1ti'tut.ion.
1·nc
rules of Common Law relating to suhstantive rights \Vhich had been :idopt1..~l
by this country and enforced by judicial decisions, amount to "!n;,:v in
force' in the territory of India at the relevant

## Text

_Characters 0–39,526 of 57,770. This is a partial read: ask again with offset=39526 for what follows._

B
c
D
G
H
BUILDERS SUPPLY CORPORATION
v.
TIIE UNION OF INDIA REPRESENTED BY IBE COMMIS·
SIONER OF INCOME-TAX, WEST BENGAL AND OTHERS.
November 30, 1964
[P. B. GAJENDRAGADKAR, C.J., M. HIDAYATULLAH,
J. C. SHAH, S. M. SIKRI AND R. S. BACHAWAT, JJ.]
DOC(rine of priority of Crown Debts under Common Law-WheJher
applicable to India.
Income-tax arrears due to Union Government-Recovery thereof-Whether has priority above claims of unsecured creditors of common debtorsDoctrine of priority af Crown Debts in relation to tax dues-Whether a
'law in force' in India at cotnn1encen1ent of Constitution--Constitution of
India Art. 372(1).
Indian Income Tax Act 1922, s. 46, and provision of Public Demand.<
Recove~y Act whether displace doctrine of priority of Government Debts.
The appellant filed a suit against Respondent No. 2 and secured a decree
against him for Rs. 12,275-9-0.
The Judgment-debtor had a sum of
Rs. 50,000 in deposit with the Superintending Engineer, Calcutta, by way
of security for the due execution of a contract. The Executing Court at
the instance of the appellant attached a sum equivalent to the decretal
amount from the aboYe security deposit, and the Superintending Engineer
transmitted the attached amount to the court. At this stage the Union of
India through the Commissioner of Income-tax represented to the court
that inoome tax arrears of more than Rs. 5,000 were due from the Judgment-debtor for which a certificate under s. 46(2) of the Income-tax Act,
1922 had been issued to the Collector and proceedings under the Public
Demands Recovery Act had been commenced. The Union of India claimed
that the tax amount due to it from the Judgment-debtor bad priority over
the judgment-debt due to the appellant from the same debtor and so it
was entitled to the whole amount under attachment in partial satisfaction
of the Income-tax dues.
The Executing Court accepted this plea.
'!be
appellant filed a revision before the High Court but failed to get relief.
Thereupon he appealed to the Supreme Court with a certificate of fitness.
It was contended on behalf of the appellant :
(I) The High Court had wrongly held that the Common Law doctrine
of the priority of Crown debts on which the case of the Union of India
was based, applied in the present case: (2) Even if the doctrine was
applicable it was not a 'law in force' at the commencement of the Consti·
tution within the terms of Art. 3 72 ( 1), and there was no scope for continuing its Operation after the Constitution came into force : (3) The doctrine
of the pnonty of Crown debts could not also be enforced because it was
specifically provided for and covered· by the provisions of s. i6 of the
Indian Income-tax Act, 1922, and by the relevant provisions of the Recovery Act.
HELD : (i) The Common Law doctrine of the priority o[ Crown debts
had a wide sweep but the question in the present appeal was the narrow
ooe whether the Union of India was entitled to claim that the reco\ery
of the amount of tax due to it from a citizen must take precedence and
priority over unsecured debts due from the said citizen to bis other private
290
SUPREME COURT REPORTS
1965] 2 S.C. R.
creditors. 'fhe weight of authority in- India was strongly in support ot \he
priority o.f tax dues. [300 DJ
· ·
·
The Secrt:tary c>/ Stat~ in Council for India v. 1'he Bon:bay Landing &
Shipping Co. (Limited), (1868-69) 5 Born. H.Oi>R. p. 23; Man.ickam Chettiar.
r. Income-tax Officer. J\IJdura, (1938), 6 I.T.R. 180, Raoiacharuira v.
Pitchaikam1i, ( 1884) 1.L.R. 7 Mad. 434; Bank of India v. John Bowman
and Ors., A.LR. 1955 Born. 305, Beil v. The Municipal Com1nissioners for
the City of Ma:lra.r, (1902) l.L.R. 25 Mad. 457 .... discussed.
Kaka fl(uhan11nad Ghouse Sahib & Co. v. United Co1nn2ercial Syudicat(.'
Md Others, ( 1963) 49 l.T.R. 824, disapproved.
(ii) The Common Law doctrine on which the Union of India based it&
·claim in the present proceedings had been applied and upheh.J in lhat par11
·of India \\''hich v1as know·n as '.British lndia' prior to the Con1ti'tut.ion.
1·nc
rules of Common Law relating to suhstantive rights \Vhich had been :idopt1..~l
by this country and enforced by judicial decisions, amount to "!n;,:v in
force' in the territory of India at the relevant time \Vithin the meaning of
Art. 372( I).
In that viev..' of the 1natter, the contention of the aprcilaiit.
1hat :ifter the ('onslitution \Vas adopted the position of th~ Uni\111 of tndia
in regard tu iLl claiin for priority in the present procccdlngs had h1.."Cn
alerted could not he upheld. [302 B-CJ
Director of Ilaitioni:1g and Distribution v. The Corporation of C'a.'c"·utta &
Ors., [1961J I S.C.I<. 156 relied on.
Quaere: Whether Art. 372(1) would assist the enforcement of the
said doctrine in the States where it 'W·as not accepted as part of the 1;1\v
before the· Constitution? ]f this doctrine is supposed to be an essential
attribute of sovereignty where does sovereignty reside after the Constitution'!
Does it reside in the Union as \'>ell as in the constituent States? If yes.
what would he the ·position if cornpetin,g claims \\'ere made by the States
inter se, or by one of the States against the Union? [302 E-HJ
(iii) The basic justification for the clai.m for priority of Government
·debts rests on the well-recognised principle that the State is entitled to
raise money by taxation, otherwise it will not be able to function as a
sovereign govern1nent at all.
This consideration emphasizes the necessity
and wisdom of conceding to the State the right to claim priority in respect
·Of its tax dues. [303 A-BJ
Quaere : Whether the doctrine will be equally applicable in respect of
·debts due to the State if they are contracted by citizens in relation to
.:ommercial activities of the modern State ? [303 C-DJ
(iv) Jn iμaking a provision for the recO\·ery of arrears of ta<, it can·
not be said that s. 46 deals with or provides for the principle of priority
of tax dues at all. [306 HJ
A
c
D
F
The Recovery Act also is intended mainly to provide for the procedme
to recover public debts. Thi.s act is not directly concerned with the right
to recover arrears or with priority of tax dues. Rule 22 can no doubl be
G
invoked to recover arrears of tax, but that is because the procedure prescribed by the said rule applies to the recovery of public debts, and tax
arrears can be treated as public debts inasmuch as by virtue of s. 46(2)
·Of the Incomc~t~:x Act they become recoverable ;lS ar;cars of 12-r.d revenue.
nos F, HJ
Neither the ·provisions of s. 46 of the Income-ta.'l Act nor those of the
Recovery Act can thus be said to have displaced the doctrine of prior:ty
H
of arrears of tax over private debts.
Governor-General in Council v. Shiromani Sugar Mills Ltd. (In liquidation), [1946] F.C.R. 40 distinguished.
A
B
BUILDERS CORP. v. UNION (Gajendragadkar C.J.)
29 l;
Province of Bombay Y. Municipal Corporation of the City of Bombay.
(1946) L.R. 73 I.A. 271, Auorney-General v. De Keyser's 1-~oyal Hvtel.
Ltd., [1920] A.C. 508 at 526, l'urshollam Govindji Halai v. Shree B. M.
Desai, Ar!ditiond Collector of Bombay & Others, (1955] 2 S.C.R. 887 referred to.
CIViL APPELLAU JURISDJCTION: Civil Appeal No. 824 of
1963.
Appeal from the judgment and order dated June 21, 1955 of
the Calcutta Higil Court in Civil Revision Case No. 231 of 1954.
S. C. Das Gupta and Sukumar Chose, for the appell;mt.
S; V. Gupte, Solicitor-General. N.' D. Karklwnis and R. N.
c
Sachtlzey, for respondent No. I.
D
F
G
H
The Judgment of the Court was delivered by
Gajcmlragadkar, C.J.
The short questiou of law which arises
in this appeal is whether respondent No. l, the Union of India,
is entitled to claim that the tax due to it from respondent No. 2,
M/ s. R. K. Das & Co., on account of the assessment years 1946-47
and 1947-4g has priority and precedence over the decretal amount
due to the appellant, M/ s. Builders Supply Corporation, from
respondent No. 2. This question has been answered against the
appellant by the Calcutta High Court, and by its present appeal
brought to this Court with a certificate issued by the said High
Court, the appellant contends that the decision of the Calcutta
High Court is erroneous in law.
It appears that respondent No. 2 secured a building contract
from the Government in connection with the construction of the·
Mint and in that behalf it had to make a deposit of Rs. 50,000 as
security for the due execution of the contract. Jn connection with
the execution of the said. contract, respondent No. 2 obtained a
supply of building materials from the appellant.
The appellant
was unable to secure payment for the goods thus supplied by it,
and so, it had to sue respondent No. 2. for recovery of the dues.
In that suit, on the 18th April. 1949, the appellant obtained an
order for ~ttachment before judgment of Rs. 5,000 out of the
aforesnid security deposit of Rs. 50,000. This deposit was lying
with the Superintending Engineer, Calcutta Central Circle No. l.
Subsequently. on the 16th June, 1950, the appellant's suit was
decreed by the 5th Additional Subordinate Judge, 24 Parganas,
for a sum of Rs. 12,275-9-0. This decree was put in execution by the
appellant on the 14th February, 1952, in the court of the 7th SubJudge and in consequ~nce, Money Execution Case No. 9 of 1952
was started. Four days thereafter, the Subordinate Judge issued
292
SUPREME COURT REPORTS
[ 1965) 2 S.C. R.
an order for the attachment of a further sum of Rs. 7,275-9-0 out
of the aforesaid security amount deposited by respondent No. 2.
Whilst writing to the Superintending Engineer in that behalf, the
Subordinate Judge asked him to remit to the court the sum of
A
Rs. 5,000 which had already been attached before judgment. On
receiving this communication, the Superintending Engineer placed
a further sum of Rs. 7,275-9-0 under attachment. but did not
B
comply with the requisition of the court to remit Rs. 5,000 to it.
On the 30th April, 1952, the Executing Court wrote to the Superintending Engineer and asked him to transmit the whole of the
amount of Rs. 12,275-9-0 which was under attachment as a resuh
of the two previous orders passed in that behalf, but this requisition also was not complied with till March 9, 1953.
Meanwhile, the Certificate Officer of 24 Parganas had addressed
c
a letter to the Subordinate Judge on the 23rd July, 1952, and
requested him that if the Superintending Engineer had transmitted
any money to his court, its payment to the appellant should be
withheld in order to enable a claim under 0.21 r. 52 of the Civil
Procedure Code to be preferred on behalf of the Government.
Along with that letter, the Certificate Officer sent a copy of another
letter which had been addressed by him to the Superintending
Engineer asking him not to make any payment out of the amount
deposited by respondent No. 2, but to retain it after deducting the
departmental dues. The Superintending Engineer was informed by
E
this letter that arrears of income-tax due from respondent No. 2
exceeded Rs. 50,000 with the result that the whole of the security
deposit, less departmental dues, was liable to be applied to the
satisfaction of the tax debt in respect of which Government had
priority over all unsecured creditors.
o·
F
In spitr of this letter, however, the Superintending Engineer
sent the whole of the amount attached at the instance of the
appellant to the Executing Court and it was received in the Executing Court on the 9th March, 1953. On the 21st March, 1953,
the Executing Court addressed a letter to the Certificate Officer
in reply to the c:ommunication received by it from him, requiring
G
him to state why the amount in question should not be paid to the
appellant and adding that in case no effective step was taken on
or before the 10th April, 1953, the said amount would be paid to
the appellant. At this stage, the Commissioner of Income-tax,
representing respondent No. l, intervened and moved the Executing
Court for adjournment on several occasions. On every such occaH
sion, the Commissioner intimated to the Executing Court that
respondent No. 1 would show cause why the amount in question
BUILDERS CORP. v. UNION (Gajendragadkar C.I.)
293
A should not be paid to the appellant. During the course of these
proceedings, on the 17th June,
1953, the Certificate Officer
addressed a letter to the Executing Court under Rule 22 of
Schedule II to the Public Demands Recovery Act
(hereinafter
called the 'Recovery Act') and asked the c;ourt to hold the amount
subject to further intimation from him. This letter was received
B by the Executing Court on the 24th June, 1953, and in consequence, the Executing Court passed an order withholding payment
to the appellant until further orders. Finally, on the 15th July,
1953, respondent No. 1 made an application to the Executing
Court in which it claimed that the tax amount due to it from respondent No. 2 had a priority over the judgment debt due to the
C
appellant from the same debtor, and so, the whole of the amount
under attachment ought to be paid to it towards partial satisfactioR of the said income-tax dues. A similar application was made
on the 11th September, 1953, and this application gave material
details in respect of the income-tax demand against respondent
D No. 2. In both these applications, it was alleged that a certificate
under s. 46(2) of the Income-tax Act, 1922 (No. 11 of 1922)
had been duly forwarded to the Collector, 24 Parganas. and thus
proceedings under the Recovery Act had already been commenced
in that behalf.
The Executing Court set down these applications for hearing
E and elaborate arguments were urged before it by the ·appellant
and respondent No. 1 in support of their respective contentions.
In the result, the Executive Court upheld respondent No. l's plea
that the tax amount due to it from respondent No. 2 had a priority
over the decretal amount due to the appellant from the same
debtor and in consequence, it issued a direelion that the amount
F of Rs. 12.275-9-0 lying in its custody under attachment should be
paid to respondent No. 1.
This order was challenged by the appellant before the Calcutta
High Court by a revision application under s. 115 of the Code.
The proceedings taken before the Executing Court were initiated
G by the two applications made by respondent No. 1 under s. 151
of the Code.
Apparently, the Executing Court passed its order
in favour of respondent No. 1, purporting to exercise its jurisdiction under the said section. It was urged before the High Court
as a prelimaniry point that the Executin~ Court was in error in
allowing its jurisdiction under s. 151 of-the Code to be invoked
q
in the present proceedings. The High Court has held that it was
unnecessary to consider whether s. 151 was properly invoked or
not, because in its opinion, the claim made by respondent No. l
294
SUPREME COURT REPORTS
(1965) 2 S.C.R.
could be sustained under Rule 22 of the Statutory Rules framed
A
under the Recovery Act. This rule corresponds to 0.21 r. 52 of
the Code and the High Court thought that the Executing Court
had jurisdiction to deal with the claim of respondent No. 1 under
r. 22 read with 0.2 l r. 52 of the Code. It is unnecessary to deal
with this part of the controversy between the parties, because the
finding of the High Court on this point has not been challenged
B
before us.
The High Court then examined the merits of the dispute. It
held that it had been accepted by all the High Courts in India that
the tax amount due from an ass~ssee to respondent No. l has
priority "vis-a-vis and over claims of other creditors, though only
C
unsecured creditors".
The High Court rejected the appellant's
contention that the relevant provisions of the Recovery Act prevented a claim for priority made by respondent No. 1 in the present
case. The appellant had also urged before the High Court that
the claim for priority made by respondent No. l could no longer
be sustained, having regard to the fact that it was inconsistent D
with the provisions of the Constitution of India. This claim, it
was urged, was based on the common law doctrine of the Crown
prerogative and it could not be claimed by respondent
No. 1
inasmuch as it did not faII within the scope of Art.' 372(1) of the
Constitution. This contention has been rejected by the High Court,
and the High Court has also held that the said claim cannot be . E
said to be covered by any of the provisions of the Recovery Act
and as such can be legitimately enforced by respondent No. 1. As
a result of the findings, the High Court has discharged the rule
which was issued at the instance of the appellant in the revision
application preferred by it before the High. Court under s. 115 of
the Code. The appellant then applied for and obtained a certificate
F
from the High Court and it is with this certificate that the matter
has been brought before us in appeal.
The first point which falls for our decision in the present appeal
is whether the High Court was right in holding that the common
law doctrine about the priority of Crown debts on which the claim
G
of respondent No. 1 was '.lased, applied in the present case. This
common law doctrine has no doubt been evolved by the special
attributes associated with the Crown in England in early days.
It is the part of the Crown prerogative. As Halsbury has observed
"the royal prerogative may be defined as being that pre-eminence
which the Sovereign enjoys over and above all other persons by
H
virtue of the common law, but ou! of its ordinary course, in right
of her regal dignity. and comrrehends all the special dignities,
BUILDERS CORP. v. UNION (Gajendragadkar C.l.)
295
A liberties, privileges, powers and royalties allowed by the common
law to the Crown of England" ( 1) . This doctrine as originally
evolved by common law in England, had a very wide sweep and
it purported to take within its scope many privileges and powers.
Considered in the light of its wide sweep, some of these privileges
may sound archaic and feudal, but it is not necessary for our
B purpose to examine the said doctrine in all its width; in the present
appeal we are concerned with the n!trrow question as to whether
respondent No. 1 is entitled to claim that the recovery of the amount
of tax due to it from a citizen must take precedence and priority
over unsecured debts due from the said citizen to his other private
creditors. The competition in the present case is between responC dent No. 1 's claim to recover its tax dues and the appellant's claim
to recover its decretal dues from the same debtor, respondent No. 2.
The appellant is an unsecured creditor, though undoubtedly at its
instance, the amount in question has been attached partly before
judgment and partly in execution proceedings ·after the judgment
D was pronounced.
The question about the applicability of this part of the Crown
prerogative in India was considered by the Bombay High Court
as early as 1868. In The Secretary of State in Council for India v.
The Bombay Landing & Shipping Co. (Limited)., (2 ) Westropp,
J. has elaborately examined this problem. The learned Judge held
E that a judgment debt due to the Crown was in Bombay_entitled to
the same precedence in execution as a like judgment debt in
England, if there be no special legislative provision affecting that
right in the particular case. Similarly, it was held that a judgment
debt due to the Secretary of State in Council for India was in
Bombay entitled to the like precedence for the reason that such
F debt is vested in the Crown, and when realised, falls into the State
Treasury. Tracing the origin of this doctrine, the learned Judge
referred to the Commentary of Lord Coke on Littleton, where
Lord Coke has put the matter in these words; "The King, by his
prerogative, regularly is to be preferred, in payment of his duty or
debt, before any subject although the King's debt or duty be the
G latter" (p. 48). The learned Judge then referred to some English
decisions bearing on this point and concluded that "in England the
right of the Crown to precedence does not arise out of any peculiar
quality in the writ of extent. The reasoning of Lord Coke and
Chief Baron Parker rests on a broader foundation, namely, that
H
the destination of the debt, when recovered, is the State Treasury"
(p. 50).
(I) Halsbury's Laws of England, 3rd Edn. Vol. 7, p. 221, para 463,
(2) [1868-69] S Bom. H.C.R. p. 23.
L3Sup./6S-3
2~6
SUPREME COURT REPORTS
(1965] 2 S.C.R.
'It is significant that Westropp, J. considered the question from
A
a larger juristic point of view and observed that the common law
doctrine was "no novelty in India" and he referred to the rule
enunciated by Yajnavalkya in that behalf. Says Yajnavalkya, "A
debtor shall be forced to pay his creditors in the order in which
the debts were contracted, after first discharging those of a priest
or the King".(') On this topic, Katyayana says, "if there be many B
debts at once, that which was first contracted shall be first paid,
after those of a King or of a priest learned in the Veda".( 2 ) The
reference to the priority of a debt due to priests learned in Vedas
is obviously obsolete and can have no relevance at the present time.
But the point that Westropp, J. has made is that the common law
doctrine cannot be said to be a novelty to Hindu Jurisprudence. , c
He has also added that "Mllhammadan sovereigns were not prone
to waive or abandon such royal prerogative as they found existing
in India" (p. 49). We have referred to this aspect of the matter,
because if the larger question about the validity of the Crown prerogative in respect of claims other than tax claims falls to be conD
sidered in future, it may become necessary to enquire whether a
similar doctrine was recognised by Hindu Jurisprudence or not.
That enquiry is, however, foreign to the scope of the controversy
in the present appeal. So far as respondent No. l's claim in the
present appeal is concerned, there is no doubt that this claim has
,been consistently recognised by all the Indian High Courts.
Before referring to these decisions, however, it will be convenient to read the relevant provisions of the Indian Income-tax
Act as it stood at tbe relevant time (Act No. 11of1922). Section,
46(2) of this Act provides that the Income-tax Officer may forward
E
to the Collector a certificate under his signature specifying the F
amount of arrears due from an assessee, and the Collector, on
receipt of such a certificate, shall proceed to recover from such an
assessee the amount specified therein as if it were an arrear of land
revenue. There is a proviso to this sub-section which lays down
that without prejudice to any other powers of the Collector in this
behalf, he shall, for the purposes of recovering the said amount,
have the powers which under the Code of Civil Procedure, 1908 a
G
,Civil Court has for the purpose of the recovery of an amount due
under a decree. Section 46(3) lays down that in any area with
respect to which the Commissioner has directed that any arrears
may be recovered by any process enforceable for the recovery of
an arrear of any Municipal tax or local rate imposed under any
H
(1) Yaj. II, 41.
(2) Kat. 514.
(Vide.also Kane, History of Dharamsastra, p. 441)
BUILDERS CORP. v. UNION (Gajendragadkar C.l.)
297
A enactment for the time being in force in any part of the State, the
Income-tax Officer may proceed to recover the amount due by such
process.
This provision prescribes an alternative procedure for
the recovery of the debts in regard to cases falling under it. Section
46 ( 5) provides yet another alternative remedy; it Jays down that
if any arrear is in respect of any income chargeable under the head
B "salaries" the Income-tax Officer may require any person paying
the same to deduct from any payment subsequent to the date of
such requisition any arrears due from such an assessce; and it
requires that such requisition shall be complied with. The Explanation to s. 46 provides that it shall be lawful for the Income-tax
Officer, if for any special reasons to be recorded he so thinks fit,
C
to have recourse to any such mode of recovery notwithstanding that
the tax due is being recovered from an assessee by any other mode.
These provisions indicate the several remedies open to the Incometax Officer to adopt in order. to recover arrears of income-tax due
from any assessee.
D
Jn construing the relevant provisions of s. 46, the High Courts
in India have had frequent occasions to consider whether the
Government of India is entitled to claim priority for arrears of
income-tax due to it from assessees over the private debts due from
them to their creditors, and this claim has been consistently upheld.
In Manickam Chettiar v. Income-tax Officer Madura, (1) a Full
E
Bench of the Madras High Court has held that the income-tax debt
has priority over private debts and that the Court had inherent
power to make .an order on the application for payment of moneys
due to the Crown. In that connection, the Court held that s. 46 of
the Income-tax Act is not exhaustive of the remedies of the Crown
to cover arrears of income-tax and does not preclude an application
F of this nature. The Court further held that it was also not necessary for the Crown to obtain a decree against the assessee or to.
effect an attachment before making such an application.
The
application in question had been made under s. 151 of the Code.
Leach, C.J., who delivered the· principal judgment of the Full
G Bench, referred to the fact that the argument which had been urged
before the Court was that there was nothing in the Code which
placed the Crown in a different position from that of a private
person, and so, no application could be made by the Crown to
1ecover its tax dues unless a decree had been obtaine.d in that
behalf; and observed that the argument ignored the special position
H of the Crown, the special circumstances and the Court's in.lierent
powers.
The learned Chief Justice stated that it could not be
(I} [1938J 6 I.T.R. 180.
298
SUPREME COURT REPORTS
[ 1965] 2 S.C.R.
denied that the Crown had the right of priority in payment of debts
A
due to it; it is a right which has always existed and has been
repeatedly recognised in India. In the case before the Court, the
debt represented money due to the Crown under the Indian lncometax Act and the demand of the Income-tax Officer was not open
to questions. We ought to add that Varadachariar, J. who had
referred this matter to the Full Bench, apparently entertained some· B
doubt about the correctness of the procedure
adopte~ by the
Income-tax Department in seeking to recover the arrears in
question. With that aspect of the matter we are not concerned in
the present appeal. It is, however, noteworthy that Varadachariar,
J. recognised the fact that there was overwhelming weight of
authority in favour of the recognition of the priority of the Crown
C
debts over the private debts due from the same debtor. His attention was drawn to a note of dissent on this point which had been
struck down by an earlier decision of the Madras High Court in
Ramachandra v. Pitchaikanni, (') but he did not attach any
importance to the opinion there expressed, because in his opinion,
D
"the weight of authority in favour of the recognition of the priority in question even in this country is so strong that this expression
of doubt cannot help the petitioner to any material degree".
In the Bank of India v. John Bowman and Ors.,( 2 ) the
Bombay High Court had occasion to consider the same point. In
dealing with the question, Chagla, C.J., observed that the priority E
given to the Crown is not on the basis of its debt being a judgmentdebt or a debt arising out of statute, but the principle is that if the
debts are of equal degree and the Crown and the subject are equal,
the Crown's right will prevail over that of the subject. It was urged
before the High Court that the democratic set-up which had been
ushered in this country by the Constitution was inconsistent with
F
the doctrine of Crown priority, but the learned Chief· Justice
rejected this argument and observed that whatever may have been
the historical origin of the principle which gives priority to the
debts due to the Crown, when the English Courts came to consider
this question, the principle had become a part of the Common law
G
of England. It is not so much because the Crown has any special .
privileges in England that this principle has been upheld, but it
is because the State in England has taken the place of the Crown
and the English Courts have continued the privilege which was once
the privilege of the King and have afforded the same privilege to
the State because they have realised that the State has certain rights
ff
and privileges which cannot be overlooked.
(I) [1884] I .L.R. 7 Mad. 434.
(2) A.I.R. 1955 Bom. 305.
I
BUILDERS CORP. v. UNION (Ga;endragadkar C.J.)
299
A
In Kaka Mohamed Ghouse Sahib & Co. v. United Commercial
Syndicate and Others, ( 1) the Madras High Court has held that it is
a settled principle of constitutional law that as between creditors
of the same rank the Government is entitled to priority, and the
Republican character of the Constitution of India has not abrogated
this general doctrine of priority of State debts. In dealing with this
B question, Ramamurti, J. has referred to. the relevant decisions in
relation to the arrears of income-tax due to the Government and
has pointed out that there is a consensus of judicial opinion on the
question that the arrears of tax due to the State can ~!aim priority
over private debts. This position has not been seriously disputed
before us, and so, it is unnecessary to refer to other decisions which
C
deal with this problem.
As we have already indicated, there is one decision in which a
note of dissent was struck by the Madras High Court, and that is
the decision in the case of Ramachandra(2).
In
that
ca;,e,
certain land had been sold under the provisions of s. 10 of the
D Madras Abkari Act, 1864, for arrears due by an abkari renter.
F
It was held that the purchaser at the sale did not take the land free
of all encumbrances as in the case of a sale for arrears of land
revenue under the provisions of the Revenue Recovery Act
(Madras Act IT of 1864). With the actual decision in the case,
we are not concerned in the present appeal; but it appears that the
learned Judges in that case made a reference to the question as to
whether Crown debts have priority, and they expressed the opinion
that the said doctrine would not be universally applicable and
three reasons were cited in support of this view. The first reason
was that the East India Company was only a corporation with
limited powers of sovereignty delegated to it, and in the Courts
it was treated as a subject; the second reason was that the right of
Government to priority to a mortgage was not recognised in the
mufassil which was evident by the express language of the Act
which declared the land revenue to be a first charge on the land;
and according to the Court, such a provision would have been
G
unnecessary, if by Common law every debt due to the Crown was
a first charge on the land. The third reason given by the Court was
that the Court hesitated to import into places outside the Presidency
towns the doctrine of the Common law of England which would
cause inconveniences to purchasers. Having set out these reasons,
the Court, however, took the precaution of adding that it w~s not
H
necessary for the purpose of the appeal before it whether debts due
to Government in this country have the same preference over
(I) (1963] 49 I.T.R. 824.
(2) (1884] I.L.R. 7 Mad. 434.
300
SUPREME COURT REPORTS
[1965] 2 S.C.R.
private debts as Crown debts in England. This observation was
A
made, because in the case with which the Court was concerned, the
hypothecation was in 1874, and the abkari revenue fell into arrear
in a subsequent year, and it was held that even in England the lien
of the Crown attached only from the time when the owner of the
land became a debtor to the Crown, and since 1839 the common
law has been greatly modified in England by statute for the protecB
tion of purchasers. lt would thus be seen that the observations in
question are obiter observations and it does not appear that the
matter was elaborately argued before the Court; and considerations
relevant for the purpose of deeiding the point as to priority of tax
dues have not been fully examined. Besides, this view has been
C
dissented from by Bhashyam Ayyangar, J. of the Madras High
Court in Bell v. The Municipal Commissioners for the City of
Madras,(') and as we have already indicated, in the words of
Varadachariar, J. in Manickam Chettiar(2), the weight of
authority in support of the applicability of the common law doctrine
in regard to tax dues in this country is so strong that no significance 0
can be attached to these obiter observations.
That takes us to the second argument urged before us by Mr.
Das Gupta for the appellant. He contends that though this doctrine
of the priority of tax dues might have been recognised by judicial
decisions in India prior to 1950, 'there is no scope for continuing E
its operation after the Constitution came into force. This argument
naturally proceeds on the assumption that the judicial recognition
of the relevant Common law doctrine cannot claim the protection
of Art. 372(1). It will be recalled that Art. 372(1) provides,
inter alia, for the continuance in force of existing laws. Ii lays
down that notwithstanding the repeal by this Constitution of the
F
enactments referred to in Art. 395 but subject to the other provisions of this Constitution, all the laws in force in the territory of
India immediately before the commencement of this Constitution
shall continue in force therein until altered or repealed or amended
by a competent Legislature or other competent authority.
The
question which arises is whether this doctrine of priority which is
G
based on common law and which was recognised by our High
Courts prior to 1950, can be said to constitute "law in force" in
the territory of India at the relevant time. In other words, is this
doctrine of common law which was introduced in this country and
followed, law in force within the meaning of Art. 372 (l) ? If it
is, then by virtue of Art. 372(1) itself, the same law would conH
tinue to be in force until it is validly altered, repealed or amended.
(t) [19J2J I. L.R. 25 Mad. 457.
(2) [1938) 6 I.T.R. 180.
I
I
BUILDERS CORP. v. UNION (Gajendragadkar C.J.)
301
A
This question can no longer be in doubt because of the decision
of this Court in the Director of Rationing and Distribution v. The
Corporation of Calcutta & Ors.('). In that case, this Court was
called upon to consider the question as to whether the decision of
the Privy Council in Province of Bombay v. Municipal Corporation
of the City of Bombay(") which had laid down a certain rule of
B
interpretation could be said to be 'law in force' within the mealling
of Art. 3 72 ( 1). The majority judgment indicates that the rule of
interpretation of statutes enunciated by the Privy Council amounted
to law in force and as such, it continued to be in force even after
the Constitution was adopted, with the result that according to the
majority opinion, the rnle of interpretation of statutes that the State
C
is not bound by a statute unless it is so provided in express terms
or by necessary implication, is still good law.
On this part of the decision, there was some difference of
opinion. Sarkar, J. held that the rule that the Crown is not bound
by the provisions of any statute unless it is directly or by necessary
D
implication referred to, is really a rule of construction of statutes
and is not dependent on royal prerogatives. There was, therefore,
no reason, according to the learned Judge, why it should not be
applied to the interpretation of statutes after the Constitution.
Wanchoo, J., however, took a different view. He held that the
rule in question was based on the royal prerogative as known to
E the common law of England and it could not be applied to India
when there was no Crown in India and when the Common law of
England was not applicable. According to him, the proper rule
of construction which should be applied now is that the State is
bound by a statute unless it is exempted expressly or by necessary
F implication.
It is, however, clear that there was no difference of opinion on
the question that Common law was included within the expression
"law in force" used by Art. 372 {l), The majority judgment
expressly states that the relevant expression "law in force" includes
not only statutory law, but also custom or usage having the force
G
of law and as such, it must be interpreted as including the Conimon
law of England which was adopted as the law of this country
before the Constitution came into force ( p. 173). Wanchoo, J.
has also agreed with this view, because he has expressly observed
~at "the royal prerogative where it deals with substantive rights
of the Crown as against its subjects, as, for example, the priority
H of Crown debts over debts of the same nature owing to the subject,
stands on a different footing from the royal prerogative put forward
(I} [1961] l S.C.R. !SS.
(2) [1946] L.R. 73 I.A. 271.
302
SUPllBMB COUR.T llBPOllTS
[1965] 2 S.C.ll.
in the present case, which is really no more than a rule of construeA
tion of statutes passed by Parliament. Where, for example, a royal
prerogative dealing with a substantive right has been accepted by
the Courts in India as applicable here also, it becomes a lilw in
force which will continue in force under Art. 3 72 (1 ) of the Constitution" (p. 188). Therefore, this decision clearly shows that the
rules of Common Law relating to substantive rights which had
B
been adopted by this country and enforced by judicial decisions,
amount to 'law in force' in the territory of India at the relevant
time within the meaning of Art. 3 72 ( 1 ) . In that view of the matter,
the contention of Mr. Das Gupta that after the Constitution was
adopted, respondent No. 1 's position in regard to its claim for
C
priority in the present proceedings has been altered, cannot be
upheld.
At this stage, we ought to make it clear that in the present
appeal we are dealing with a very narrow point, and that relates
to respondent No. l's claim that arrears of tax due to it have precedence or priority over money debts due to a private creditor from
D
the same debtor. We think it necessary to emphasise this aspect of
the matter, because the basic doctrine of Crown privileges as
originally evolved by Common Jaw in England may lead to different
categories of claims made in different circumstances and by
different States in India; and we want to make it deer that our
present decision should be confined only to the narrow Point with E
which we are directly concerned. Questions may arise as to whether
the relevant Common Jaw doctrine was accepted in some Indian
States. If it is shown th_at it was not, it may have to be considered
whether Art. 372(1) would assist the enforcement of the said
doctrine in such States. One thing is clear that if the said doctrine
11
was accepted as a part of the Jaw in any part of the country, it will
not cease to be operative, because it is included in the expression
"law in force" under Art. 3 72 (1 ) ; but the position would be
differeat in respect of such parts of the territory of India where
the said doctrine was not recognised or applied prior to 1950.