Kalyan Mills Ltd. Vs. Union of India
& Ors [1986] INSC 247 (21 November 1986)
OZA, G.L. (J) OZA, G.L. (J) REDDY, O.
CHINNAPPA (J)
CITATION: 1987 AIR 371 1987 SCR (1) 362 1987
SCC (1) 27 JT 1986 905 1986 SCALE (2)862
ACT:
INCOME TAX ACT, 1961--Section 46(2) &
46(5A)--Tax dues
recoverable from assessee company--Assessee
company informing that amount can be recovered by Union of India from the
amount owed by Appellant Company--Suit for recovery of tax dues by Union of
India against appellant company--Validity of such claim.
HEADNOTE:
The Union of India-Respondent No. 1, had to
recover certain arrears of taxes from the assessee-company--Respondent No. 2.
The assessee--company informed the Union of India that the tax dues recoverable
from it be recovered from the amount which was owed by the appellant-company to
it. The debt due by the appellant-company to the assessee-company was shown to
the credit of assessee--company in the accounts of the appellant--company. The
appellant--company acknowledged and admitted its liability to the assessee company
and promised the Union of India to pay the amount of tax dues against the debt
due by it to the assessee-company.
Notices under s. 46(2) and s. 46(5A) of the
Income Tax Act were issued to the appellant--company for the recovery of the
said amount.
The Union of India filed a suit seeking a
decree against the appellant-company and four other defendants. The appellant--company
set up a false theory that the assessee--company itself was liable to pay the
appellant company and, therefore, it was not liable to pay tax dues of the
assessee-company.
The trial court decreed the suit holding that
the Union of India was entitled to a money decree against the appellant--company.
The appeal preferred by the appellant--company
was dismissed by the High Court.
In the appeal to this Court on behalf of the
appellant--company it was contended that a suit as filed by the respondent and
the decree granted by the trial court was not permissible in law because
proceedings for appointment of 363 receiver can only be contemplated in
execution proceedings of a decree against the original debtor.
Dismissing the appeal the Court,
HELD: 1. The High Court has rightly
maintained the decree by coming to the conclusion that the amount of commission
earned by the assessee company was admittedly with the appellant. It was
withheld by the appellant under the pretext that it had a counter-claim against
the assessee Under s. 46(2) of the Income Tax Act, a prohibitory order
attaching the said money of the assessee--company was issued and the machinery
under S.46(5A) of the Act was no longer effective as the appellant set up a
counter-claim against the assessee and there was no option for the Union of
India but to obtain adjudication from the civil court. [365H -366B]
2. No money decree could be passed against
the appellant--company except for the money lying in the deposits with them for
the assessee-company and it is for that purpose that the decree for appointment
of receiver was made so that the amount be recovered and paid to the
plaintiff-Union of India. [366C-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
447(N) of 1973.
From the Judgment and Decree dated
18/19.4.1972 of the Gujarat High Court in First Appeal No. 184 of 1964.
V.A. Bobde and A.G. Ratnaparkhi for the
Appellant.
S.C. Manchanda, Ms. A. Subhashini and K.C.
Dua for the Respondents.
The Judgment of the Court was delivered by
OZA. J. This appeal arises out of a certificate granted by this Court. The
facts necessary for the disposal of this appeal are that the respondent No. 1
Union of India fried a suit against the petitioner. The petitioner is a public
limited company. Respondent No. 2 which is also a public limited company was
the assessee company and the Union of India, respondent No. 1 had to recover a
sum of Rs 1,32,400.87 p. from the said assessee company on account of arrears
of income tax, excess profit tax, business profit tax. To recover this amount a
suit was filed on 15.2.58 impleading therein besides the present appellant said
assessee company and others as defendants. It was alleged that the assessee
company by its letter dated 4.10.48 informed the plaintiff Union of 364 India
that the arrears due from it be recovered from the petitioner on account of its
commission. It was alleged that for recovery of the said amount notice under
Section 46(2) of the Income Tax Act was issued on two occasions, 9.11.48 and
30.3.51 and thereafter a notice under Section 46(5A) of the Act was issued
against the appellant-defendant No. 1 Kalyan Mills Ltd. on July 22, 1949. It is alleged that the defendant No. 1 assessee-company had informed the plaintiff
Union of India by a letter dated October 11, 1948 that the tax dues recoverable
from the assessee-company be recovered from the amount which was owed by the
appellant-company to the assessee-company. It was inter-alia asserted in the
plaint that the debt due by the appellant-company to the assessee-company was
shown to the credit of the assesseecompany in the accounts of the
appellantcompany. It is said that by two letters addressed by the
appellant-company on November 18, 1948 and December 3, 1948, it acknowledged and admitted its liability to the assessee-company and had further more
promised the plaintiff to pay the amount of tax dues against the debt due by
the appellant-company, to the assessee-company. The plaintiff proceeded to
assert in view of the admissions made by the appellant company and the promise
made by it to pay the tax dues from the debt due by it to the assessee-company
and having regard to the recovery proceedings undertaken by the competent
authority under Sections 46(2) and 46(5A) of the Act, the plaintiff had
priority over all other unsecured dues and that the appellant company was under
an obligation to pay the amount of Rs 1,32,400.87 p. under these circumstances.
It was also alleged by the plaintiff-respondent (Union of India) that
notwithstanding the fact that the debt due by the appellant-company to the
assessee-company was shown to the credit of the assessee-company in the books
of accounts of the appellant company. The appellant company had subsequently
set up a false theory that the assessee company itself was liable to the
appellant company and that the appellant company was not liable to pay dues of
the assessee. It. was in terms asserted that the version set up by the
appellant company that it had a claim against the assessee company was a got up
version and that it had been created merely with a view to defeat or delay the
dues of the plaintiff. It was contended that the appellant company had made a
false counter claim against the assessee company with this end in view viz. to
defeat and delay the claim of the plaintiff though it had taken no action in
regard to the alleged counter claim. A reference was made to a resolution
passed by the appellant company on December 9, 1949 to transfer the debt due to
the assessee company to the Managing Agents' commission and suspense account.
No action was ever taken by the appellant company against the assessee company
for the alleged claim arising in the context of damages in connection with the
alleged malfeasance and misfeasance of the assessee company in the course of
discharge of their functions as the Managing Agents of the appellant company.
As admittedly the assessee-company was functioning as the Managing Agents of
the appellant-company, it was contended that no action was taken for more 365
than three years and that no steps have been taken in this connection because
the counter claim was a sham one.
It was further contended by the
plaintiff-respondent (Union of India) that the appellant company and the
assessee company were colluding with each other with the object of defeating or
delaying the payment to the plaintiff and that the adjustment entries made by
the appellant company in its books of accounts were a step in this direction.
Such entries or adjustments were illegal and they were not binding on the
plaintiff in as much as the recovery proceedings had already been initiated against
the assessee company and that the adjustments and entries were false as was
evident from the admissions made by the appellant-company in its letter to the
plaintiff. A charge of fraud and collusion has been levelled against the.
appellant company, the assessee company and the other defendants. With these
facts the respondent Union of India instituted the present suit seeking a
decree against defendants 1 to 5 i.e. the present appellant and other
defendants for an amount of Rs 1,32,400.87 p. with interest and a prayer also
was made for appointment of receiver for recovery of the amount due from
defendant No. 5 and its nominees other defendants. Various defences were
raised. The suit was decreed by the trial court and the trial court held that
the plaintiff respondent was not entitled to a money decree against the
appellant company. It also recorded a finding that the contention of the
appellant company that it had a genuine and valid counter claim against the
assessee company and that it had been adjusted was unfounded. In the opinion of
the learned trial court it was a unilateral act of the appellant company of
adjusting the sum due to the assessee company against the alleged claim in
respect of damages for malfeasance and misfeasance against the assessee company
was invalid and was not binding on the plaintiff-respondent. It also held that
the sum in' excess of the tax claimed by the plaintiff from the assessee
company was due to the assessee company against the appellant and it held that
the plaintiff was entitled to a decree for appointment of receiver to realise
the dues of the plaintiff from the appellant company having regard to the fact
that appellant company was indebted to the assessee company for a sum in excess
of tax dues claimed by the plaintiff, and to that extent the suit was decreed.
The appellant preferred an appeal and a
Division Bench of the Gujarat High Court by their judgment dated April 19, 1972 dismissed the appeal and maintained the decree passed by the trial court
and on certificate against that judgment that the present appeal is filed in
this Court. The main contention advanced on behalf of the appellant was that a
suit was filed by the respondent and the decree granted by the trial court was
not permissible in law as it was contended that such proceedings for
appointment of receiver can only be contemplated in execution proceedings of a
decree against the original debtor. Facts are not in dispute. The learned
Judges of the High Court maintained the 366 decree by coming to the conclusion
that the amount of commission earned by the assessee company was admittedly
with the appellant. It was withheld by the appellant under the pretext that it
had a counter claim against the assessee. It is also not in dispute that under
Sec. 46(2) a-prohibitory order attaching the said money of the assessee company
was issued. It is also not in dispute that the machinery under Sec. 46(5A) of
the Income Tax Act was no longer effective as the appellant set up a
counter-claim against the assessee company and there was no option for the
Union of India but to obtain adjudication from the civil court and in this view
of the matter the learned Judges of the Gujarat High Court maintained the
decree passed by the trial court.
An objection was also taken about the form of
the decree passed by the trial court which only was for the appointment of a
receiver. Admittedly no money decree could be passed against the appellant
company except for the money lying in the deposits with them of the assessee
company and it is for that purpose that the decree for appointment of receiver
was made so that the amount be recovered and paid to the plaintiff--Union of
India.
Having considered the question and heard the
learned counsel for the appellant, we see no error in the judgment passed by
the learned High Court of Gujarat. The appeal is therefore dismissed with
costs.
A.P.J. Appeal dismissed.
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