TMI Blog1964 (11) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... DRAGADKAR C.J.---The short question of law which arises in this appeal is whether respondent No. 1, the Union of India, is entitled to claim that the tax due to it from respondent No. 2, M/s. R. K. Das and Co., on account of the assessment years 1946-47 and 1947-48 has priority and precedence over the decretal amount due to the appellant, M/s. Builders Supply Corporation, from respondent No. 2. This question has been answered against the appellant by the Calcutta High Court, and by its present appeal brought to this court with a certificate issued by the said High Court, the appellant contends that the decision of the Calcutta High Court is erroneous in law. It appears the respondent No. 2 secured a building contract from the Government in connection with the construction of the Mint and in that behalf it had to make a deposit of Rs. 50,000 as security for the due execution of the contract. In connection with the execution of the said contract, respondent No. 2 obtained a supply of building materials from the appellant. The appellant was unable to secure payment for the goods thus supplied by it, and so, it had to sue respondent No. 2 for recovery of the dues. In that suit, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Government had priority over all unsecured creditors. In spite of this letter, however, the Superintending Engineer sent the whole of the amount attached at the instance of the appellant to the Executing Court and it was received in the Executing Court on March 9, 1953. On March 21, 1953, the Executing Court addressed a letter to the Certificate Officer in reply to the communication received by it from him, requiring him to state why the amount in question should not be paid to the appellant and adding that in case no effective step was taken on or before April 10, 1953, the said amount would be paid to the appellant. At this stage, the Commissioner of Income-tax, representing respondent No. 1, intervened and moved the Executing Court for adjournment on several occasions. On every such occasion, the Commissioner intimated to the Executing Court that respondent No. 1 would show cause why the amount in question should not be paid to the appellant. During the course of these proceedings, on June 17, 1953, the Certificate Officer addressed a letter to the Executing Court under rule 32 of Schedule II to the Public Demands Recovery Act (hereinafter called the " Recovery Act ") and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be sustained under rule 22 of the Statutory Rules framed under the Recovery Act. This rule corresponds to Order 21, rule 52 of the Code and the High Court thought that the Executing Court had jurisdiction to deal with the claim of respondent No. 1 under rule 22 read with Order 21, rule 52 Of the Code. It is unnecessary to deal with this part of the controversy between the parties, because the finding of the High Court on this point has not been challenged before us. The High Court then examined the merits of the dispute. It held that it had been accepted by all the High Courts in India that the tax amount due from an assessee to respondent No. 1 has priority " vis-a-vis and over claims of other creditors, though only unsecured creditors ". The High Court rejected the appellant's contention that the relevant provisions of the Recovery Act prevented a claim for priority made by respondent No. 1 in the present case. The appellant had also urged before the High Court that the claim for priority made by respondent No. 1 could no longer be sustained, having regard to the fact that it was inconsistent with the provisions of the Constitution of India. This claim, it was urged, was ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues from the same debtor, respondent No. 2. The appellant is an unsecured creditor, though undoubtedly at its instance, the amount in question has been attached partly before judgment and partly in execution proceedings after the judgment was pronounced. The question about the applicability of this part of the Crown prerogative in India was considered by the Bombay High Court as early as 1868. In Secretary of State in Council for India v. Bombay Landing Shipping Co. Limited, Westropp J. has elaborately examined this problem. The learned judge held that a judgment debt due to the Crown was in Bombay entitled to the same precedence in execution as a like judgment debt in England, if there be no special legislative provision affecting that right in the particular case. Similarly, it was held that a judgment debt due to the Secretary of State in Council for India was in Bombay entitled to the like precedence for the reason that such debt is vested in the Crown, and when realised, fall into the State Treasury. Tracing the origin of this doctrine, the learned judge referred to the Commentary of Lord Coke on Littleton, where Lord Coke has put the matter in these words : " The King, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re specifying the amount of arrears due from an assessee, and the Collector, on receipt of such a certificate, shall proceed to recover from such an assessee the amount specified therein as if it were an arrear of land revenue. There is a proviso to this sub-section which lays down that without prejudice to any other powers of the Collector in this behalf, he shall, for the purposes of recovering the said amount, have the powers which under the Code of Civil Procedure, 1908, a civil court has for the purpose of the recovery of an amount due under a decree. Section 46(3) lays down that in any area with respect to which the Commissioner has directed that any arrears may be recovered by any process enforceable for the recovery of an arrear of any municipal tax or local rate imposed under any enactment for the time being in force in any part of the State, the Income-tax Officer may proceed to recover the amount due by such process. This provision prescribes an alternative procedure for the recovery of the debts in regard to cases falling under it. Section 46(5) provides yet another alternative remedy ; it lays down that if any arrear is in respect of any income chargeable under the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a right which has always existed and his been repeatedly recognised in India. In the case before the court, the debt represented money due to the Crown under the Indian Income-tax Act and the demand of the Income-tax Officer was not open to question. We ought to add that Varadachariar J., who had referred this matter to the Full Bench, apparently entertained some doubt about the correctness of the procedure adopted by the income-tax department in seeking to recover the arrears in question. With that aspect of the matter we are not concerned in the present appeal. It is, however, noteworthy that Varadachariar J. recognised the fact that there was overwhelming weight of authority in favour of the recognition of the priority of the Crown debts over the private debts due from the same debtor. His attention was drawn to a note of dissent on this point which had been struck by an earlier decision of the Madras High Court in Ramachandra v. Pitchaikanni, but he did not attach any importance to the opinion there expressed, because, in his opinion, " the weight of authority in favour of the recognition of the priority in question even in this country is so strong that this expression of doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n land had been sold under the provisions of section 10 of the Madras Abkari Act, 1864, for arrears due by an abkari renter. It was held that the purchaser at the sale did not take the land free of all encumbrances as in the case of a sale for arrears of land revenue under the provisions of the Revenue Recovery Act (Madras Act II of 1864). With the actual decision in the case, we are not concerned in the present appeal ; but it appears that the learned judges in that case made a reference to the question as to whether Crown debts have priority, and they expressed the opinion that the said doctrine would not be universally applicable and three reasons were cited in support of this view. The first reason was that the East India Company was only a corporation with limited powers of sovereignty delegated to it, and in the courts it was treated as a subject ; the second reason was that the right of Government to priority to a mortgage was not recognised in the mufassil which was evident by the express language of the Act which declared the land revenue to be a first charge on the land ; and, according to the court, such a provision would have been unnecessary, if by common law every deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other provisions of this Constitution, all the law in force in the territory of India immediately before the commencement of this Constitution shall continue in force therein until altered or repealed or amended by a competent legislature or other competent authority. The question which arises is whether this doctrine of priority which is based on common law and which was recognised by our High Courts prior to 950, can be said to constitute " law in force " in the territory of India at the relevant time. In other words, is this doctrine of common law which was introduced in this country and followed, law in force within the meaning of article 372(1) ? If it is, then by virtue of article 372(1) itself, the same law would continue to be in force until it is validly altered, repealed or amended. This question can no longer be in doubt because of the decision of this court in Director of Rationing and Distribution v. Corporation of Calcutta. In that case, this court was called upon to consider the question as to whether the decision of the Privy Council in Province of Bombay v. Municipal Corporation of the City of Bombay, which had laid down a certain rule of interpretation, could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or example, a royal prerogative dealing with a substantive right has been accepted by the courts in India as applicable here also, it becomes a law in force which will continue in force under article 372(1) of the Constitution ". Therefore this decision clearly shows that the rules of common law relating to substantive rights which had been adopted by this country and enforced by judicial decisions, amount to " law in force " in the territory of India at the relevant time within the meaning of article 372(1). In that view of the matter, the contention of Mr. Das Gupta that after the Constitution was adopted, respondent No. 1's position in regard to its claim for priority in the present proceedings has been altered, cannot be upheld. At this stage, we ought to make it clear that in the present appeal we are dealing with a very narrow point, and that relates to respondent No. 1's claim that arrears of tax due to it have precedence or priority over money debts due to a private creditor from the same debtor. We think it necessary to emphasise this aspect of the matter, because the basic doctrine of Crown privileges as originally evolved by common law in England may lead to different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, and if the State seeks to recover debts from its debtors arising out of such commercial activities, it may become necessary to consider whether the doctrine of priority can be extended to such transactions. We are referring to some of the difficult problems which may arise in future in regard to the application of this doctrine, because we want to make it clear that our decision in the present appeal should not be taken to deal with any of them. Our conclusion, therefore, is that the claim for priority made by respondent No. 1 in the present proceedings has to be sustained, because it is based on a common law doctrine which had been applied and upheld in that part of India which was known as " British India " prior to the Constitution. The next contention which Mr. Das Gupta has raised is that the doctrine of the priority of Crown debts cannot be enforced because it is specifically provided for and covered by the provisions of section 46 of the Income-tax Act and by the relevant provisions of the Recovery Act. He argues that if it is shown that the particular doctrine has become the subject-matter of legislative provision, it is the legislative provision which will prevail, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppily chosen. I should prefer to say that when such a statute, expressing the will and intention of the King and of the three estates of the realm, is passed, it abridges the Royal Prerogative while it is in force to this extent : that the Crown can only do the particular thing under and in accordance with the statutory provisions, and that its prerogative power to do that thing is in abeyance. In support of the same contention, Mr. Das Gupta has also relied on a decision of the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. In that case, the Federal Court was examining the provisions of section 230 of the Indian Companies Act, 1913 (VII of 1913). Section 230 prescribes the order in which preferential payment should be made in winding up proceedings. Clauses (a) to (f) of section 230(1) lay down the order of preference in which the payments should be made ; clause (a) gives the highest priority in that order to all revenues, taxes, cesses and rates, whether payable to the Government or to a local authority, due from the company at the date hereinafter mentioned and having become due and payable within the twelve months next before that date. Reading t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers in different States. In the City of Bombay it is recovered under section 13 of the Bombay City Land Revenue Act (Bombay Act 11 of 1876). In the rest of the Bombay State it is recovered under section 157 of the Bombay Land Revenue Code, 1879 (Bombay Act V of 1879). In Madras, the relevant provision is section 48 of the Madras Revenue Recovery Act, 1864 (Madras Act II of 1864) In West Bengal, the relevant provision has been prescribed by the Recovery Act. In Punjab, it is section 69 of the Punjab Land Revenue Act, 1887 (Punjab Act 27 of 1887), and in Uttar Pradesh, it is section 148 of the Uttar Pradesh Land Revenue Act, 1901 (Uttar Pradesh Act III of 1901). The argument based on the diversity of the procedures prescribed by these different Acts was repelled, because it was held that though the proedure prescribed by the different Acts prevailing in different States was not uniform or even similar, the classification on which the application of the different statutes rested was justified inasmuch as the grouping of the income-tax defaulters into separate categories or classes Statewise was certainly a territorial classification which is based on an intelligible differentia and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 3(3) a Collector and other officers mentioned in it. A " certificate-holder " under section 3(2) means the Government or person in whose favour a certificate has been filed under this Act, and " certificate-debtor " under section 3(1) means a person named as debtor in a certificate filed under this Act. The effect of the provisions contained in sections 4 to 10 in Part 11 of the Recovery Act, appears that when a Certificate Officer is satisfied that any public demand payable to the Collector is due, he proceeds to sign a certificate in the prescribed form. This certificate is a certificate properly so-called for the purpose of this Act. The certificate issued under section 46(2) of the Income-tax Act is in a sense a public demand, but section 5 of the Recovery Act seems to require that when any requisition is received by the Certificate Officer, he has to examine whether the demand in question is recoverable and whether the recovery by suit is not barred by law. On this prima facie examination, if he is satisfied that further action is justified, he proceeds to sign a certificate stating that the demand is due ; that is the effect of section 6. A certificate so issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 230 of the Companies Act ? In our opinion, the answer to this question has to be in the negative. Broadly stated, the Recovery Act is intended mainly to provide for the procedure to recover public debts. This Act is not directly concerned with the right to recover arrears, or with priority, of tax dues. Arrears of tax fall within the scope of the proceedings contemplated by it, because they attract the provisions of clause (3) of Schedule I. Even a superficial glance at the fourteen clauses of Schedule I to the Recovery Act would indicate that this Act is concerned with public demands of various kinds, and it would not be reasonable to suggest that any of its provisions are intended to deal directly or even indirectly with the principle of law with which we are concerned. These provisions merely indicate the manner in which and the procedure according to which public debts should be recovered. There is no positive provision in respect of respondent No. 1's claim to recover arrears of tax. Rule 22 to which we have referred which corresponds to Order XXI, rule 52, of the Code of Civil Procedure, can no doubt be invoked to recover arrears of tax ; but that is be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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