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Report No. 60

10.17. Possible justification for the rule of priority considered-Discharge of governmental functions.-

Before a conclusion can be reached as to the proper rule to be enacted in this respect, it is essential to go into the possible justifications for the rule of priority. The first general justification is that the State should be able to discharge its primary governmental functions, and funds are needed for this purpose.

As the Supreme Court has observed1:-

"It is essential that as a Sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds, and this consideration emphasises the necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues".

In a Bombay case,2 it was observed, "Even in a democracy and even under socialism the State must have certain rights and privileges. The State has to govern, the State has to find money to be used for socialistic principles and Courts have always given every facility to the State to realise money which are not collected for any private purpose but are intended for the public coffer and which are ultimately intended for the public need. This principle, which has been accepted by our Courts, is not a principle which is peculiar to British jurisprudence".

1. Builders Supply Corporation v. Union of India, (1965) 56 ITR 91 (103) (SC).

2. Bank of India v. Bawanta, (1954) 57 Bom LR 345 (364) (Chagla C.J.).

General Clauses Act, 1897 Back

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