# HINDUSTAN CONSTRUCTION CO. LTD v. INCOME TAX OFFICER (COMPANIES CIRCLE) BOMBAY &ANR

- **Citation:** [1965] 2 S.C.R. 414
- **Court:** Supreme Court of India
- **Decided:** 1964-12-10
- **Case number:** CIVIL APPEI.LATE JURISDICTION: Civil Appeal No. 136 of 1964
- **Bench:** P. B. Gajendragadkar, M. Hidayatullah, J. C. Shah, S. M. Sikri, R. S. Bachawat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hindustan-construction-co-ltd-v-income-tax-officer-companies-circle-bombay-anr-3418
- **Pages:** 7

## Headnote

lr.dian Income-tax, 1922 (11 of 1922), s. 49E-Claim of Set-<>ffPrior adjudication of amount of refund due whether necessary-"found to
be due", meaning of-"Jn lieu of payment", meaning of-Set-off can
be given only when there is subsisting obligation to make refund.
C
The appellant company made a claim under s. 5 of the Incomo-tax
(Double Taxation Relief) (Indian States) Rules, 1939, for refund of the
income-tax paid by it in an Indian State. The claim was rejected by the
Income-tax Officer as time-barred. The Commissioner of Income-tax and
the Central Board of Revenue refused to interfere and the appellant sought
no further legal remedy against their orders. Subsequently on certain tax
demands being made by the Income-tax Officer, the appellant made reproD
sentation that the amounts in respect of which application had earlier been
made under r. 5 should be set off against the demand as pro\ided by
•· 49E of the Indian Income-tax Act, 1922. The Income-tax authoritieo
having rejected this claim also, the appellant went to the High Court under
Art. 226 of the Constitution.
The High Court held that the expression
"found to be due" in s. 49E clearly meant that there must be, prior to
the claim of set off, an adjudication whereunder an amount is found
due by way of refund to the person claiming set-off. Since there was no
E
such adjudication in the appellant's favour, the writ petition was dismissed. However a certificate of fitness under Art. 133(1) (c) was granted
to the appellant.
HELD : (i) It is not necessary that there should be a prior adjudication
before a claim can be allowed under s. 49E. There is nothing to debar
the Income-tax Officer from determining the question whether a refund is
due or not when an application is made to him under s. 49E. The words
F
"is found" do not necessarilv lead to the conclusion that there must be a
prior adjudication. [419 D-EJ
(ii) The set-off under s. 49E must however be "in lieu of payment"
which expression connotes that payment is outstanding I.e. there is a subsisting obligation on the Income-tax Officer to pay. If a claim to refund
is barred bv a final order. it cannot be said that there is a subsisting
obligation to make the payment. [419 F-GJ
G
Slllbbs v. Director of Public Prosecutions 24 Q.B.D. 577, relied on.
(iii) In the present case the orders of the Commissioner and the
Central Board of Revenue rejecting the appellant's claim under r. 5 of the
Indi.'.1n S!zte Rules had become final.
They were not challenged even in
the petition under Art. 226. There was thus no subsisting obligation on
the part of the Income-tax Officer to make payment to the appellon!, and
the claim of the appellant under s. 49E must therefore, fail. [419 G-H]
H
CIVIL APPEI.LATE JURISDICTION: Civil Appeal No. 136 of
1964;
B
HINDUSTAN CONSTR. CO. V. I.T.O. (Sikri, /.)
415
Appeal from the judgment and order dated February 24, 1961
of the Bombay High Court in Misc. Application No. 333 of
1960.
A. V. Viswanatha Sastri, T. A. Ramachandra, I. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the appellant
R. Ganapathy Iyer, R. H. Dheber and ~. S. Sachthey, for the
respondent.

## Text

HINDUSTAN CONSTRUCTION CO. LTD.
v.
INCOME TAX OFFICER (COMPANIES CIRCLE) BOMBAY
&ANR.
A
December 10, 1964
B
{P. B. GAJENDRAGADKAR, C. ]., M. HIDAYATULLAH, J. C. SHAH,
S. M. SIKRI and R. S. BACHAWAT, JJ.J
lr.dian Income-tax, 1922 (11 of 1922), s. 49E-Claim of Set-<>ffPrior adjudication of amount of refund due whether necessary-"found to
be due", meaning of-"Jn lieu of payment", meaning of-Set-off can
be given only when there is subsisting obligation to make refund.
C
The appellant company made a claim under s. 5 of the Incomo-tax
(Double Taxation Relief) (Indian States) Rules, 1939, for refund of the
income-tax paid by it in an Indian State. The claim was rejected by the
Income-tax Officer as time-barred. The Commissioner of Income-tax and
the Central Board of Revenue refused to interfere and the appellant sought
no further legal remedy against their orders. Subsequently on certain tax
demands being made by the Income-tax Officer, the appellant made reproD
sentation that the amounts in respect of which application had earlier been
made under r. 5 should be set off against the demand as pro\ided by
•· 49E of the Indian Income-tax Act, 1922. The Income-tax authoritieo
having rejected this claim also, the appellant went to the High Court under
Art. 226 of the Constitution.
The High Court held that the expression
"found to be due" in s. 49E clearly meant that there must be, prior to
the claim of set off, an adjudication whereunder an amount is found
due by way of refund to the person claiming set-off. Since there was no
E
such adjudication in the appellant's favour, the writ petition was dismissed. However a certificate of fitness under Art. 133(1) (c) was granted
to the appellant.
HELD : (i) It is not necessary that there should be a prior adjudication
before a claim can be allowed under s. 49E. There is nothing to debar
the Income-tax Officer from determining the question whether a refund is
due or not when an application is made to him under s. 49E. The words
F
"is found" do not necessarilv lead to the conclusion that there must be a
prior adjudication. [419 D-EJ
(ii) The set-off under s. 49E must however be "in lieu of payment"
which expression connotes that payment is outstanding I.e. there is a subsisting obligation on the Income-tax Officer to pay. If a claim to refund
is barred bv a final order. it cannot be said that there is a subsisting
obligation to make the payment. [419 F-GJ
G
Slllbbs v. Director of Public Prosecutions 24 Q.B.D. 577, relied on.
(iii) In the present case the orders of the Commissioner and the
Central Board of Revenue rejecting the appellant's claim under r. 5 of the
Indi.'.1n S!zte Rules had become final.
They were not challenged even in
the petition under Art. 226. There was thus no subsisting obligation on
the part of the Income-tax Officer to make payment to the appellon!, and
the claim of the appellant under s. 49E must therefore, fail. [419 G-H]
H
CIVIL APPEI.LATE JURISDICTION: Civil Appeal No. 136 of
1964;
B
HINDUSTAN CONSTR. CO. V. I.T.O. (Sikri, /.)
415
Appeal from the judgment and order dated February 24, 1961
of the Bombay High Court in Misc. Application No. 333 of
1960.
A. V. Viswanatha Sastri, T. A. Ramachandra, I. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the appellant
R. Ganapathy Iyer, R. H. Dheber and ~. S. Sachthey, for the
respondent.
The Judgment of the Court was delivered by :
Sikri, J.
This is an appeal on a certificate granted by the
·C
High Court of Bombay against its judgment dated February 24,
1961, dismissing the petition filed by the appellant under Art.
226 of the Constitution of India.
This appeal raises a short
question as to the construction of s. 49E of the Indian IncomeTax Act, 1922, hereinafter referred to as the Act.
Before we
deal with this question, it is necessary to set out the relevant
D
facts.
The appellant, at the material time, carried on business not
only in India but also outside India, i.e. Ceylon, the former States
of Kolhapur and Kapurthala and other places. It is not necessary
to give the facts relating to the income in Ceylon and Kolhapur
.E
because if the facts relating to the income made in Kapurthala
are stated, these will bring out the real controversy between the
appellant and the Revenue. We may mention that it is common
ground that the facts relating to Ceylon income and Kolhapur
income are substantially similar.
F
On July 9, 1954, the appellant wrote a letter to the Income
Tax Officer, Companies Circle, Bombay, stating that for the
assessment year 1949-50, it was entitled to refund on the income
taxed in Kapurthala State. It attached an original certificate for
tax showing payment of Rs. 37,828/11/-, and requested that a
refund order be passed at an early date. On June 27, 1956, the
G Income Tax Officer rejected the claim on the ground that the
claim filed by the appellant was not within the time limit of four
years laid down in r. 5 of Income-Tax (Double Taxation Relief)
(Indian States) Rules 1939-hereinafter called the Indian States
Rule5.
On December 18, 1956, the ~ppellant filed a revision,
under s. 33A of the Act, Rgainst the said order, before the ComH missioner of Income-Tax, Bombay. The appellant stated in the
petition that "unfortunately the Company's assessment for the
year in question was completed by the Income-Tax Officer on
416
SUPREME
COURT
REPORTS
[1965] 2 S.C.R.
the last day vf the financial year 1953-54, i.e., 31-3-1954 being
A
the last date on which their claim for double income-tax relief
should have been lodged.
In absence of the assessment order
being received by the Company it was not physically practicable
for the assessee to lodge its claim 'for double income-tax relief
and as such the time prescribed under Section 50 had already
expired when the assessment order was received by the company."
The Commissioner made some enquiries.
The appellant, in its
letter dated June 30, 1958, replied that no provisional claim for
double income-tax relief was made by the appellant within the
time prescribed.
The appellant reiterated its own plea that it
B
was not "physically practicable" for th,e assessee to lodge its C
claim for double-tax relief within the time prescribed. The Commissioner, however, rejected the petition. He observed that "the
assessment in the Kapurthala State was made on 20-3-1950, i.e.,
much before the assessment was completed by the
Bombay
Income-tax Officer.
Nothing prevented the petitioner, therefore,
from filing a provisional claim before the period of limitation was D
over.
At least, it should have made such a claim before the
Income Tax Officer at the time of assessment. I regret I cannot
condone the delay in filing the claim as there is no provision under
Section 50 for such condonation." The appellant then approached
the Central Board of Revenue.
The Central Board of Revenue,
by its letter dated December 31, 1958, declined to interfere in the E
matter.
The appellant did not take any steps to apply to the High
Court under Art. 226 for quashing the above orders of the Commissioner of Inocme-Tax or the Central Board of Revenue.
On August 28, 1959, the Income-Tax Officer issued three
notices of demand under s. 29 of the Act in respect of the Assess1
ment years 1949-50, 1950-51 and 1951-52. The appellant then
wrote a letter dated September 4, 1959, requesting the IncomeTax Officer to set off the refunds to which the appellant was
entitled pursuant to the provisions of Income-Tax (Double
Taxation Relief) (Ceylon) Rules, 1942, and
read with
the
provisions of ss. 49A and 48 of the Income-Tax Act, in respect G
of the assessment years 1942-43, 1943-44 and 1944-45, relating
to Ceylon, and the assessment year 1947-48 and 1949-50 relating to Kolhapur and Kapurthala, against the said demands. In
this letter the appellant gave arguments in support of its request.
In short, the argument was that although the applications claiming those refunds were submitted beyond the prescribed
time
H
limit, nevertheless the appellant had a right still, pursuant to the
the provisions of s. 49E, to call upon the Income-Tax Officer to
•
IDNDUSTAN CONSTR. CO. v. I.T.O. (Sikri, /.)
417
A set off the refunds found to be due to the appellant against the
tax demands raised by the Income-Tax Officer on the appellant.
The appellant also approached the Central Board of Revenue,
urging similar points. The Central Board of Revenue, however,
by its letter dated June 24, 1960, declined to interfere in the
matter.
B
The appellant then on October 7, 1960, filed a petition under
Art. 226 of the Constitution. After giving the relevant facts
and submissions, the appellant prayed that the High Court be
pleased to issue a writ in the nature of Mandamus or a writ,
direction or order under Art. 226 of the Constitution, directing
C the respondents to set off the refunds due to the petitioner under the
aforesaid double taxation relief rules against the tax payable by
it for the assessment year 1955-56. It appears that in the meantime the petitioner had paid tax for the assessment years 194950 and 1950-51, and the demand for Rs. 89,000.58 for the
,o assessment year 1951-52 was kept in abeyance, .and later when
the assessment for 1955-56 was completed, fue Income-Tax
Officers had agreed to keep in abeyance Rs. 79,430.19 out of
the total demand relating to the assessment year 1955-56, till
the decision of the Central
Board of Revenue.
The second
prayer was that the High Court be pleased to issue writs in the
Ii: nature of Prohibition or other direction or order under Art. 226
of the Constitution prohibiting the respondents, their officers,
servants and agents from demanding cir recovering from the
petitioner the tax payable by it for the assessment year 195556 without first setting off against that tax the refunds due to
the petitioner under the aforesaid double tax relief rules. It will
·r be noticed that no prayer was made for quashing the order of
the Commissioner, dated August 23, 1958, and the order of the
Central Board of Revenue dated December 31, 1958. It was
indeed contended by Mr. S. P. Mehta, the learned counsel for
the appellant before the High Court that the appellant was not
challenging the orders of the Income-Tax Officer rejecting his
G application for refund, but was only challenging the orders made
by them rejecting its application for grant of set off.
Mr. Viswanatha Sastri, the learned counsel for the appellant
first
urged that as compliance with r. 5 of the Indian States
Rules, 1939 was physically impossible, r. 5 did not apply, and
H
consequently ',the refund due to the appellant notwithstanding
r. 5. But we cannot go into the question whether r. 5 was
rightly or wrongly applied by the Income-Tax authorities. The
HS
SUPREME
COURT
REPORTS
[1965] 2 S.C.R.
orders dated August 23, 1958 and December 31, 1958, cannot
A
be attacked in these proceedings. Therefore, we must proceed
on the basis that those orders were validly passed. We express
no opinion whether the view of the Income-Tax authorities that
r. 5 was applicable in the circumstances of the case was correct
or not.
This takes us to the construction of s. 49E. Section 49E
reads thus:
"49E. Power to set off amount of refunds against
tax remaining payable.-Where under any of the proviB
sions of this Act, a refund is found to be due to any
c
person, the Income-tu Officer, Appellant
Assistant
Commissioner or Commissioner, as the case may be
may, in lieu of payment of the
refund, set off the
amount to be refunded, or any part of that amount
against the truc, interest or penalty if any, remaining
payable by the person to whom the refund is due."
D
The High Court held that s. 49E of the Act did not give
any assistance to the appellant because, according to it, there
must be prior adjudication in favour of the appellant. The High
Court observed that "the expression found to be due" clearly
means that there must, prior to the date set off is claimed, be 'an E
adjudication whereunder an amount is found due by way of
refund to the person claiming set off."
Mr. Sastri contends that it is not necessary that there should
be a prior adjudication to enable a person to claim set off. He
says that the Income-Tax Officer can decide the que,tion whether
refund is due or not when an application for refund is made to
him. On the facts, he 'ays that it is clear that the appellant is
entitled to refund under r. 3 of Indian States Rules, 1939, and
the Income-Tax Officer has only to c:llculate the relief due and
then set it off.
The learned counsel for the respondent, Mr.
Ganapathi Iyer, on the other hand. contends that the orders of
the Commissioner and the Central Board of Revenue
having
become final, there was no obligation on the Income-Tax Officer
to make any payment of refund, and he says that it is a condition
precedent to the applicability of s. 49E that the Income-Tax
Officer mu<! be under an obligation to make a payment.
He
points out that the expression "in lieu of payment of the refund"
clearly indicates that the Income-Tax Officer must be under an
obligation to make a payment of refund.
He further contends
,:_:
.,_ ,_
F
G
H
I·
IUNDUSTAN CONSTR.. CO. v. I.T.O. (Sikri, /.)
419'
A that the refund is not due under the Act but under the said Rules,.
and therefore, s. 49E does not apply.
There is no difficulty in refuting the contention of the learned
counsel for the Revenue that the refund, if due, was due under
B the provisions of the Act. Section 59 ( 5) provides that the rules.
made under this section shall have effect as if enacted under this
Act. This provision thus makes the Indian State Rules, 1939.
part of the Act, and consequently if a refund is due under the
Rules, it would be refund due under the Act within the meaning
of s. 49E.
c
The question then arises as to whether there should be a
prior adjudication existing before a set off can be allowed under
s. 49E, and whether there is any other condition which is necessary to be fulfilled before the section becomes applicable.
We
are of the opinion that it is not necessary that there should be a
D prior adjudication before a claim can be allowed under s. 49E..
There is nothing to debar the Income-Tax Officer from detennining the question whether a refund is due or not when an application is made to him under s. 49E. The words "is found" do not
necessarily lead to the conclusion that there must be a
prior
adjudication. But this is not enough to sustain the claim of the
E
appellant. It must still show that a refund is due to it. The words
"found to be due" in s. 49E may possibly cover a case where the·
claim to refund has been held barred under r. 5 of the Indian
State Rules but that this is not the correct meaning is made clear·
by the expression "in lieu of payment". This expression, accordF
ing to us, connotes that payment is outstanding, i.e. that there is
subsisting obligation on the Income-Tax Officer to pay. If a claim
to refund is barred by a final order, it cannot be said that thert
is a subsisting obligation to make a payment.
The expression
"in lieu or• was construed in Stubbs v. Director of Public Prosecutions('). It was held there that where a liability has to be disG
charged by A in lieu of B, there must be a binding obligation on
B to do it before A can be charged with it. In our opinion, there
must be a subsisting obligation to make the payment of refund
before a person is entitled to claim a set off under s. 49E. In this
case, in view of the orders of the Commissioner and the Central
Board of Revenue mentioned above there was no subsisting obliH
gation to pay, and therefore, the claim of the appellant
must
fail.
(1} 24 Q. II. D. 577
420
SUPRBMl!
COURT
REPORTS
(1965] 2 S.C.ll.
Therefore, agreeing with the High Court, we hold that s. 49E A
of the Act is of no assistance to the appellant and that the petition was rightly dismissed by the High Court. The appeal
accordingly fails and is dismissed, but in the circumstances of the
case there will be no order as to costs.
Appeal dismissed.
B: