# UNION OF INDIA AND ANR v. INDIA FISHERIES (P) LTD

- **Citation:** [1965] 3 S.C.R. 679
- **Court:** Supreme Court of India
- **Decided:** 1965-04-09
- **Bench:** K. Subba Rao, J. C. Shah, S. M. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-and-anr-v-india-fisheries-p-ltd-3448
- **Pages:** 5

## Headnote

Incqme Tax Act 1922, s. 49E-Department's power to set off r•-
fundable amount against tax remaining due-Whether available in
respect of tax due from company in liquidation-Whether subject to
ss. 228 and 229 of the Companies Act, 1913.
The respondent company was directed to be wound-up and an
official liquidator appointed by an order of the High Court in October,
1950. In December, 1950, the respondent was assessed to tax amounting to Rs. 8737 /- for the year 194&-49. A claim made for this tax on
the official liquidator was adjudged and allowed as an ordinary
claim and certified as such in April, 1952. The Liquidator declared a
dividend ol'W annas in the Rupee in August, 1954 and paid a sum
of Rs. 5188 to the Department, leaving a balance of Rs. 3549.
In June, 1954, the Department made a demand from the respondent and was paid Rs. 2565 as advance tax for the year 1955-56. On a
regular assessment being made for that year, only Rs. 1126 Was assessed as payable, so that a sum of Rs. 1460, inclusive of interest,
became refundable to the respondent. However, the Income Tax
Officer, purporting to exercise the power available to him under s. 49E
of the Income Tax Act, 1922, set off this amount against the balance
of Rs. 3549 due for the year 194&-49. A revision petition filed by respondent in respect of this set off was rejected bv the Commissioner
of Income Tax.
·
Thereafter, a petition under Art. 226 filed by the respondent to
set aside the orders of the Income Tax Officer and the Commissioner
was allowed by the High Court, mainly on the ground that the
demand for Rs. 8737 in respect of 1948-49, being adjudged ~nd certified came to have all the incidents and character of an unsecured
debt payable by the liquidator to the Department; it was therefore
governed by the pcovisions of Company Law and no other remedy
or method to obtain satisfaction of the claim was available to the
creditor.
In the appeal to this Court it was contended on behalf of the
appellant that s. 49E gave statutory power to Income-tax Officer
to set off a refundable amount against any tax remaining payable
and that this power was not subject to any provision of any other
law.
HELD: The Income Tax Officer was in error in applying s. 49E
and 8'tting off the refund due to the respondent. [6B3C-D]
The effect of ss. 228 and 229 of the Companies Act, 1913, is, inter
aLia, that an unsecured creditor must prove his debts and all unsecured debts are to be paid pari passu. Once the claim of the Depertment has to be proved and is proved in liquidation proceedings, it
679
~.·,
'''
[1965] 3 S.('. lt.
. -~-t
-- -- '
cannot~ ,by" eXercising the-\ right. under-· s. .i 49E get: priority -over 'the
A
• other unsecured creditors and thus defeat the very object of ss. 223 .
<ind 229 of the Companies Act. Furthermore, if_ there is ·arr~apparent~·
conflict between two independant provisions of lavt, the special pro- -
visioii n1us't prevail. Section 49E is a general. Provision applicable to
,.--- .
all a~~essees in all circumstances; ss. 228 and 229 deal with proof
of cieo.s and their payment in liquidation. Section 49E can be reconciled with ss. 228 and 229 by holding that s . .49E applies when insol- ' B'• .
pency rules do not apply. [682H-683JJ]
Civ1i APPELLATE JuR1so1crioN: Civil Appeal No.
211 of
1964.
,T-.
'
'Appeal from. the judgment a~d order dated February 22; 1961
of the Bombay High Court in Miscellaneous Application No. 352
C
of 1959.
·
Niren De, Additional Solicitor General, R'. Ganapathy Iyer
and R. N. Sachthey, for the appellants.
· A. V. Viswanatha Sastri, T. A. Ramachandran, J. B. Dadachanji, 0. C. Mathur and llavinder Narain, for the respondents..
D

## Text

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UNION OF INDIA AND ANR.
v.
INDIA FISHERIES (P) LTD.
April 9, 1965
[K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.]
Incqme Tax Act 1922, s. 49E-Department's power to set off r•-
fundable amount against tax remaining due-Whether available in
respect of tax due from company in liquidation-Whether subject to
ss. 228 and 229 of the Companies Act, 1913.
The respondent company was directed to be wound-up and an
official liquidator appointed by an order of the High Court in October,
1950. In December, 1950, the respondent was assessed to tax amounting to Rs. 8737 /- for the year 194&-49. A claim made for this tax on
the official liquidator was adjudged and allowed as an ordinary
claim and certified as such in April, 1952. The Liquidator declared a
dividend ol'W annas in the Rupee in August, 1954 and paid a sum
of Rs. 5188 to the Department, leaving a balance of Rs. 3549.
In June, 1954, the Department made a demand from the respondent and was paid Rs. 2565 as advance tax for the year 1955-56. On a
regular assessment being made for that year, only Rs. 1126 Was assessed as payable, so that a sum of Rs. 1460, inclusive of interest,
became refundable to the respondent. However, the Income Tax
Officer, purporting to exercise the power available to him under s. 49E
of the Income Tax Act, 1922, set off this amount against the balance
of Rs. 3549 due for the year 194&-49. A revision petition filed by respondent in respect of this set off was rejected bv the Commissioner
of Income Tax.
·
Thereafter, a petition under Art. 226 filed by the respondent to
set aside the orders of the Income Tax Officer and the Commissioner
was allowed by the High Court, mainly on the ground that the
demand for Rs. 8737 in respect of 1948-49, being adjudged ~nd certified came to have all the incidents and character of an unsecured
debt payable by the liquidator to the Department; it was therefore
governed by the pcovisions of Company Law and no other remedy
or method to obtain satisfaction of the claim was available to the
creditor.
In the appeal to this Court it was contended on behalf of the
appellant that s. 49E gave statutory power to Income-tax Officer
to set off a refundable amount against any tax remaining payable
and that this power was not subject to any provision of any other
law.
HELD: The Income Tax Officer was in error in applying s. 49E
and 8'tting off the refund due to the respondent. [6B3C-D]
The effect of ss. 228 and 229 of the Companies Act, 1913, is, inter
aLia, that an unsecured creditor must prove his debts and all unsecured debts are to be paid pari passu. Once the claim of the Depertment has to be proved and is proved in liquidation proceedings, it
679
~.·,
'''
[1965] 3 S.('. lt.
. -~-t
-- -- '
cannot~ ,by" eXercising the-\ right. under-· s. .i 49E get: priority -over 'the
A
• other unsecured creditors and thus defeat the very object of ss. 223 .
<ind 229 of the Companies Act. Furthermore, if_ there is ·arr~apparent~·
conflict between two independant provisions of lavt, the special pro- -
visioii n1us't prevail. Section 49E is a general. Provision applicable to
,.--- .
all a~~essees in all circumstances; ss. 228 and 229 deal with proof
of cieo.s and their payment in liquidation. Section 49E can be reconciled with ss. 228 and 229 by holding that s . .49E applies when insol- ' B'• .
pency rules do not apply. [682H-683JJ]
Civ1i APPELLATE JuR1so1crioN: Civil Appeal No.
211 of
1964.
,T-.
'
'Appeal from. the judgment a~d order dated February 22; 1961
of the Bombay High Court in Miscellaneous Application No. 352
C
of 1959.
·
Niren De, Additional Solicitor General, R'. Ganapathy Iyer
and R. N. Sachthey, for the appellants.
· A. V. Viswanatha Sastri, T. A. Ramachandran, J. B. Dadachanji, 0. C. Mathur and llavinder Narain, for the respondents..
D
The Judgment of the Court was delivered by
Sikri, J. This· appeal is in pursuant to a certificate ()f
fitness granted by the High ·Court of Maharashtra at Bombay
under Art. I 33(1)(c) of the Constitu.tion is directed against the
judgment of the said High Court in a petition under Art. 226 of E
the Constitution filed by the respondent.
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The lndia Fisheries (P) · Ltd. hereinafter called the respon•
dent was a private limited company and. was directed to be woundDp by an order of the Bombay High Court, dated October II, 1950,
and a Court Liquidator was appointed as the Official Liquidator F
thereof with all powers under s. 179 of the Indian Companies Act,
1913 <VII of 1913) to be exercised by him under s. 180 without
sanction or intervention of the· Court save and except in case of
sa!es of immovable property belonging to the respondent. For the
assessment ·year 1948-49, the respondent was assessed on December 8; 1950, the tax being assessed at Rs. 8,n7 /15/-. On or about
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. March 15,' 1951, the Income Tax Officer lodged a claim in respect
of this tax with the Official Liquidator. That claim was adjudged
and allowed as an ordinary claim and certified as such on April 2,
1952. In August, 1954, the Official Liquidator declared a dividend .
of 9f annas in a rupee and paid to the Income Tax Department
a sum of Rs. 5,188/3/- ag~inst the claim made by the"Income Tax
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Officer as an ordinary creditor. Thus a balance of Rs. 3,549/12/~
still remained payable to the Income Tax Department from the
assets of the respondent.
For the year 1955-56, the Department made a demand from
the respondent on June 22, 1954, for a sum of Rs. 2,565/6/- as
advance tax. ' This was paid by the Official Liquidator.· On. a
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UNION OF !NlllA ''· INDIA FISHERIES (Sikri, J.)
681
regular assessment being made for the said year, only Rs. 1,126/ 12/-
was assessed as payable by the respondent. After adjus.ting this
sum against the advance payment of Rs. 2,565/6/-, Rs. 1,46011/-
became refundable to the respondent, inclusive of interest. Instead
of refunding the said balance to the respondent, the Income Tax
Officer set off the said amount against the balance of Rs. 3,549 / l 2/-
which was still outstandin• in resoect of the Income-tax demand
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for the year 1948-49. The respondent filed. a reymon pelih?n to
the Commissioner of Income-tax, but the said pellhon was reiected
by the Commissioner on September 21, 1959,. ho~ding that the
action of the Income Tax Officer was perfectly iusttfied under the
provision of s. 49E cf the Income Tax Act.
On November 25, 1959, the respondent filed a petition under
art. 226 of the Constitution and prayed for a writ, direction or
order for setting aside the orders oL the Income Tax Officer and
the Income Tax Commissioner. He further prayed for any further
writ, direction or order restraining the D~partment from setting off
the refund against the tax dues and directing them to hand over
the balance to the Official Liquidator.
The High Court held that the demand of Rs. 8,737 /12/- in'
respect of the assessment year 1948-49, being adjudged and certified, came to have all the incidents and character of an unsecured
debt payable by the Official Liquidator to the Department. The
High Court observed that "this claim thereafter was governed by
the provisions of the Company law and could be paid to the crerlitor orily in accordance with the provisions of the Company law. No
other remedy nor any other method of obtaining satisfaction d
this claim was available to the creditor thereafter. It was no longer
the amount of tax remaining payable by a person to whom the
refund was due within the meaning of Section 49E of the Income
Tax Act. In our opinion, therefore, the provision of Section 49E
was not available to the Department for setting off the amount of
the excess towards the balance of its claim of Rs. 8,737 /15/- which
the department had proved in the insolvency of the company and
G was being dealt with in the Insolvency." The High Court accordingly
set aside the orders passed by the Department in so far as they
set off the amount of the refund towards the tax remaining payable,
and directed the Income Tax Officer to deal with and dispose of the
claim of the present respondent for the refund an.ct pass appropriate
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orders in respect of the said amount of refund under the provisions
of s. 48 of the Income Tax Act.
The learned Additional Soliditor.General, on behalf ~f the
appellant, contends that s. 49E gives statutory power to the Income
Tax Officer. inter alia, to set off the amount to be refunded or any
part of that amount against the tax remaining payable by the person
to whom the refund is due, and this statutory power is not subject
to any provision of any other law. He says that the Companies Act
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[!Hi0] 3 s.e.Jt.
does not take away this power. Section 49E is in the following A
terms:
"Where under any of the provisions of this Act, a
refund is found to be ,·ue to any person, the Income-tax
Officer, Appellate. Assistant Commissioner or Commissioner, as the case may be, may, in lieu cf p3yment of
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the refund, set off the amount to be refunded, or any part
of that amount against the tax, interest or penalty, if any,
remaining p1yable by the person to whom the refund is
due."
Un the face of this provision, tbere is no doubt that this
section is not subject to any other provision of law. But it will
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be surprising if this power can be exercised in such a way as to
defeat the provisions of the Indian Companies Act. It is not denied
by the learned Additional Solicitor-General that the State has no
priority in respect of this claim. The question then arises whether
s. 49E is subject to the Insolvency Rules contained in the Companies Act. Section 228 of the Companies Act, 1913, provides:
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"228. Debts of all descriptions to be proved.-
In every winding up (subject in the case of insolvent
companies to the application in accordance with the provisions of this Act of the law of insolvency) all debts payable on a contingency, and all cla.ims against the company, present or future, certain or contingent, shall be
admissible to proof against the company, a just estimate
being made, so far as possible, of the value of such debts
or claims as may be subject to any contingency or for
some other r~son do not bear a certain value."
Section 229 provides:
"Applis;:ation of insolvency rules in winding up of
insolvent companies.-
In the winding up of an insolvent company the same
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rules shall prevail and be observed with regard to the
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respective rights of secured and unsecured creditors and
to debate provable and to the valuation of annuities and
future and contingent liabilities as are in force for the
time being under the law of insolvency with respect to
the estates of persons adjudged insolvent; and all persons who in any such case, would be entitled to prove for
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and receive dividends out of the assets of the company
may come in under the winding up, and make such claims
against the company as they respectively are entitled to
by virtue of this section."
The effect of these stattttory provisions is, inter alia, that an
unsecured creditor must prove his debts and all unsecured debts
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UNION OF INDIA V. INDIA FISHERIES (Sikri, J.)
683
are to be paid pari passu. Therefore, once the claim of the Department bas to be proved and is proved in the liquidation proceedings,
the Department cannot by exercising the right under s. 49E of
the Income Tax Act get priority over the other unsecured creditors.
If we were to read s. 49E in the way suggested by the learned
Additional Solicitor-General, it would be defeating the very object
underlying ss. 228 and 229 of the Companies Act, 1913. If there
is an apparent conflict between two independant provisions of law,
the special provision must prevail. Section 49E is a general provision applicable to all assessees and in all circumstances; ss. 228
and 229 deal with the proof of debts and their payment in liquidation. In our opinion, s. 49E can be reconciled with ss. 228 and 229
by holding thats. 49E applies when insolvency rules do not apply.
Accordingly, agreeing with the High Court, we hold that the Income Tax Officer was in error in applying s. 49E and setting ofli
the refund due. The Commissioner was equally in error in affirming
this order.
The learned Additional Solicitor-General also urged that the
application under art. 226 was misconceived because the Income
Tax Officer had jurisdiction. But if we interpret s. 49E as we have
done, it is a clear case of lack of jurisdiction. At any rate, there
is an error apparent on the face of the orders and the High Court
was quite right in exercising its jurisdiction under Art. 226.
The appeal is accordingly dismissed with costs.
Appeal dismissed.
LjP(D ).'iSC r-5