Collector of Customs & Ors Vs.
M/S. Soorajmull Nagarmull & ANR  INSC 93 (28 March 1969)
28/03/1969 HIDAYATULLAH, M. (CJ)
HIDAYATULLAH, M. (CJ) MITTER, G.K.
CITATION: 1970 AIR 118 1970 SCR (1) 123 1969
SCC (1) 858
Civil Procedure Code, 1908--Order 21 Rule 2,
Income Tax Act, 1922, section 46 (5A)-Decree against the Union of India for
refund of excess customs duty collected-Notice issued to Collector by the
Income Tax Officer under section 46(5A) of Income Tax Act, 1922-Payment by
Collector against tax- Whether amounted to payment by judgment debtor which
could be adjusted under Order 21 Rule 2.
The respondent filed suits against the
Collector of Customs and the Union of India claiming refund of excess customs
duty levied on spindle oil imported into India. The trial court granted decrees
against the Union of India for the amounts charged in excess. As the respondent
had large out standings of tax, the Income Tax Officer issued a notice under
section 46(5A) of the Income Tax Act, 1922 calling upon the Collector of
Customs to pay the amount of the decree to him. The Collector paid the amount
into the Reserve Bank, who issued receipts crediting the amount against
super-tax due from the respondent. He then applied to the High Court under O. 21
r. 2 C.P.C. for the adjustment of the decree by this amount. This was refused
by a single Judge as well as in appeal by a division bench. It was held that
the decrees were against the Union of India and not the Collector of Customs
and that payment by the Collector was not a payment by the judgment debtor.
Furthermore the amounts were held by the Collector on behalf of the Union of
India and not on behalf of the Firm. The High Court also found the notice to be
defective inasmuch as it asked for payment towards income tax and penalty,
while the receipts which were granted to the Firm stated that the amount paid
was against super-tax due.
On appeal to this Court,
HELD : The Union of India operates through
different Departments and a notice to the Collector of Customs in the
circumstances was a proper notice to issue because it was the Collector of
Customs who had in the first instance recovered the amount and held it from the
Collector paid the amount on behalf of the
Union of India.
[126 A] A notice under section 46(5A) is -no
more than a kind of garnishee order issued to the person holding money and the
money is due to an assessee. The amount which was held. by the Collector of
Customs could properly be asked to be deposited with the income tax authorities
under section 46(5A). [127 B-D] Super tax is also a kind of income tax and
therefore, the notice could issue in the form it did.
There was no force in the contention that the
amount, which could be adjusted under O. 21, r. 2, is a voluntary payment by
the judgment debtor to the decree holder and the present case was not one of
voluntary payment at all. Order No. 21, r. 2 merely contemplates payment out of
court and says nothing about voluntary payment. A garnishee order can never by
its nature lead to a voluntary payment and it is not to be thought that a
garnishee order does not lead to the adjustment of the decree 124 sufficient
for being certified by the Court. Payment by virtue of s. 46(5A) is in the
nature of a garnishee payment and must, therefore, be subject to the same rule.
[127 G-128 B] In re Beckitt, .T.R. 1, Bidhoo Beebee v. Keshub Chunder
Baboo & Ors. 9 W.R. 462, Mahiganj Loan Office Ltd.
v. Behari Lal Chaki, I.L.R.  1 Cal.
781, A. P. Bagchi v. Mrs. F. Morgan A.I.R. 1935, AU 513, Thomas Skinner v. Ram
Rachpal I.L.R.  All 294, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 429 and 430 of 1966 Appeals by special leave from the judgments and orders
dated January 22, 1964 of the Calcutta High Court in Appeals Nos.
199 and 200 of 1962 from Original Order.
B.Sen and S. P. Nayar, for the appellants (in
both the appeals).
A.N. Sinha -and D. N. Gupta, for respondent
No. 1 (in both the appeals).
The Judgment of the Court was delivered by
Hidayatullah, C.J. This is an appeal against the judgment and decree of the
High Court of Calcutta refusing to enter satisfaction of two decrees under O.
21 r. 2 of the Code of Civil Procedure obtained by the respondents against the
Union of India in the following circumstances.
The respondents M/s Soorajmull Nagarmull
imported spindle oil from Philadelphia. The firm was required to pay Customs
Duty under Item 27(3) of the First Schedule to the Tariff Act, 1934 at 27% ad
valorem. The firm filed two suits asking for refund of excess duty claiming
that the oil was dutiable only under Item 27(8) at -/2/6 per imperial gallon.
The suits were filed against the Collector of
Customs, the Assistant Collector of Customs for Appraisement and the Union of
India. The suits were successful and decrees were passed against the Union of
India for refund of the amount charged in excess. In one suit the decree was
for payment of Rs. 43,723/- with interest at 6% per annum from 1st day of
April, 1952 until realisation. In the second suit the decree was for Rs.
75,925/- with similar interest.
Since the firm had not paid a sum of Rs.
18,08,667.72 as tax the Income-Tax Officer, Circle 11, Calcutta issued a notice
under S. 46(5a) of the Indian Income-Tax Act, 1922 calling upon the Collector
of Customs to pay the amount of the decree to him and stating that his receipt
would constitute a good and sufficient discharge of the liability for refund to
the firm. The Collector of Customs paid the amount into the Reserve Bank and
the Reserve Bank issued receipts crediting the amount against Super- 125 tax
due from the firm. The Collector of Customs then applied to the High Court of
Calcutta under 0. 21 r. 2 of the Code of Civil Procedure for the adjustment of
the decrees by this payment. This was refused by a learned single Judge who
gave no reasons while dismissing the petition. On appeal to the Division Bench
it was held by the Division Bench on January 22, 1964 that the adjustment of
the decrees could not be granted. It is against the last order that the present
appeals have been filed by -,special leave of this Court.
The High Court in reaching the conclusion
observed that the decrees were against the Union of India and not the Collector
of Customs. Further the sums were held by the Collector of Customs on behalf of
the Union of India and not on behalf of the firm. The High Court found the
notice to be defective inasmuch as it asked for payment towards Income-tax and
towards penalty, while in the receipts which were granted to the firm, stated
that the amount was for Super-tax. On these three grounds, the High Court held
that the learned single -Judge was right in dismissing the application of the
Collector of Customs for the adjustment of the decrees.
Order 2 1, r. 2 of the Code of Civil
Procedure takes note of payments out of court to decree-holders and provides
that where any money payable under a decree of any kind is paid out of Court,
or the decree is otherwise adjusted in whole or in part to the satisfaction of
the decree-holder, the decree-holder shall certify such payment or adjustment
to the Court whose duty it is to execute the decree, and the Court shall record
the same accordingly. It is also provided that the judgment-debtor also may
inform the Court of such payment or adjustment, and apply to the Court to issue
a notice to the decree-holder to show cause why such payment or adjustment
should not be recorded as certified.
The contention of the respondents in these
appeals is that the decrees were not passed against the Collector of Customs but
against the Union of India and that payment by the, Collector of Customs was
not a payment by the judgment- debtor. In our judgment this plea is highly
technical. The amount was recover by the Collector of Customs from the firm and
was being held by the Union of India through the Collector of Customs. The
Collector of Customs paid the money not on behalf of himself but on behalf of
the Union of India and it must be treated as a proper payment of the amount to
the firm. The objection of the respondent that it amounts to a payment by one
Department of the Government to another does not, in our opinion, hold much
substance. It is also extremely technical. The Union of India 126 operates
through different Departments and a notice to the Collector of Customs in the
circumstances was a proper notice to issue because it was the Collector of
Customs who had in the first instance recovered this money and held it from the
It is next contended that the notice is
defective inasmuch as it shows that the money was lying with the Collector of
Customs whereas it was, in fact, lying with the Union of India and that it was
not money held by the Collector of Customs on behalf of the firm. Section
46(5A) of the Income-tax Act reads as follows :
"46. Mode and time of recovery.
(5A) The Income-tax Officer may at any time
or from time to time, by notice in writing (a copy of which shall be forwarded
to the asessee at his last address known to the Income-tax Officer) require any
person from whom money is due or may become due to the assessee or any person
who holds or may subsequently hold money for or on account of the assessee to
pay to the Income-tax Officer, either forthwith upon the money becoming due or
being held or at or within the time specified in the notice (riot being before
the money becomes due or is held) so much of the money as is sufficient to pay
the amount due by the tax payer in respect of arrears of income-tax and penalty
or the whole of the money when it is equall to or less than that amount.
Any person making any payment in compliance
with a notice under this I sub-section shall be deemed to have made the payment
under the authority of the assessee and the receipt of the income-tax Officer
shall constitute a good and sufficient discharge of the liability of such
person to the assessee to the extent of the amount referred to in the receipt.
Any person discharging any liability to the
assessee after receipt of the notice referred to in this sub-section shall be
personally liable to the Income-tax Officer to the extent of the liability
discharged or to the extent of the liability of the assessee for tax and
penalties, whichever is less.
127 If the person to whom a notice under this
sub-section is sent fails to make payment in pursuance thereof to the Income-tax
Officer, further proceedings may be taken by and before the Collector on the
footing that the Income-tax Officer's notice has the same effect as an
attachment by the Collector in exercise of his powers under the proviso to
sub-section (2) of section 46.
Such notices of the Income-tax Officer are no
more than a kind of a garnishee order issued to the person holding money which
money is due to an assessee. The Collector of Customs had recovered this money
and under the decrees of the Court the Union of India was liable to refund it
to the firm. A garnishee order is issued to a debtor not to pay to his own
creditor but to some third party who has obtained a final judgment against the
creditor. By a parity of reasoning this amount, which was with the Collector of
Customs, could be asked to be deposited with the Income-tax Authorities under
S. 46(5A). The argument is extremely technical for that the firm is entitled to
get a double benefit of the decree, first by having the decretal amount paid to
the benefit of the firm and then to recover it again from the Union of India.
It is contended lastly that the notice of the
Income-tax Officer spoke of Income-tax and/or penalty whereas the amount was
taken towards payment of Super-tax due from the firm It is, however, conceded
in the face of authorities cited at the Bar that the Super-tax is also a kind
of Income-tax and, therefore, the notice could issue in the form it did. The
leading case on the subject is In re Beckitt(1) and learned counsel for the
respondents did not controvert the proposition laid down there. It is, however
argued on the authority of Bidhoo Beebee v. Keshub Chunder Baboo and Ors., (2)
Mahiganj Loan Office, Ltd. v. Behari Lal Chaki,(3) A. P. Bagchi v. Mrs. F.
Morgan(4 ) and Thomas Skinder v. Ram Rachpal(5), that the payment which can be
adjusted under O. 21, r. 2 is a voluntary payment by the judgment-debtor to the
decree holder and that this iS not a case of voluntary payment, at, all. The
rulings which have 'been cited do not, in our opinion, apply here. This point
was not considered in the High Court and seems to have been thought of here.
Order 21, r. 2 merely contemplates payment out of court and says nothing about
voluntary payment. A garnishee order can never by its nature (1)  1. T.
R. 1. (2) 9 W. R. 462.
(3) 1. L. R.  Cal. 781. (4) A. 1. R.
(5) 1. L. R. 1938 All. 294.
128 lead to a voluntary payment and it is not
to be thought that a garnishee, order does not lead to the adjustment of the
decree sufficient for being certified by the Court. Payment by virtue of S.
46(5A), as we have stated before, is in the nature of a garnishee payment and
must, therefore, be subject to the same rule.
The rulings themselves do not control the
In 9 W.R. 462 the payment was not under a
garnishee order but under the process of the court issued in execution by
arrest of the judgment-debtor. Contrasting what had happened in the case with
the words of the second rule of 0.
21 (then s. 206 of the Code of 1859) the
learned Judges observed that s. 206 covers cases of voluntary payment. The
debtor was protected by treating the payment as being made through the court.
The exact point we are dealing with was not before the Court. In I.L.R. 
1 Cal. 781 there was a scheme framed by the depositors of a banking Company for
return of their deposits in spite of opposition from decree- holders depositor
of the Company. The scheme was sanctioned by the Court. The scheme was binding
on the decree-holder but it was not treated as an adjustment within O. 21, r. 2
of the Code of Civil Procedure. The reason given was that the adjustment must
be to the satisfaction of the decree- holder and must be with the consent of
both the decree- holder and the judgment-debtor and not one which is made
binding by operation of law. It is to be noticed that that was a payment to
which the judgment-debtor had objected although it was binding on him. We see
no reason for making a distinction between a voluntary payment out of court and
a payment out of court which the law regards as valid. No -reasons are given in
the judgment why such a distinction should be made. In I.L.R.  An. 294
the payment was made in court and not outside court. This' is the nearest case
to the present one and but for this difference, it is reasonable to think that
the learned Judges would have taken the same view of the matter as we have
taken. The reason given by the learned judges brings out the real object of the
"where a judgment-debtor makes payment
outside the Court, the Court knows nothing about the payment ' and therefore r.
21 ordains that the parties should inform the
Court about the payment." This object in our opinion is fully achieved
when there is payment under a garnishee order outside the Court. In the case
cited the Court knew of the payment and could give protection in other ways. In
A.I.R. 1935 All. 513 the payment was again without the consent of the
Judgment-debtor either in fact or in law. Too much emphasis appears to have
been placed upon mutual understanding and too little on payment out of court
which is the essence 129 of the rule. The case turned on whether there was any
understanding and too little on payment out of court which is the essence
debtor on repairs would be set off against the decretal amount and therefore O.
21, r. 2 of the Code of Civil Procedure was held inapplicable.
In none of the cases the point of a garnishee
order was considered. In our opinion, a case of a garnishee payment or one made
under s. 46(5A) of the Income-tax Act of 1922 stands on a different footing and
if the payment has been legally made out of Court in full and final discharge
of the liability under a decree, there is no reason why the judgment debtor
cannot move the Court for getting the adjustment or payment certified, The
payment was required to be certified under O. 21, r. 2 of the Code of Civil
Procedure and we order that it be so certified.
The appeals are accordingly allowed with
costs here and in the High Court.