vil Appeal No 211 of 1964
Appeal from the judgment and order dated February 22 1961 of the Bombay High Court in Miscellaneous Application No 352 of 1959
Niren De Additional Solicitor General R Ganapathy lyer and RN Sachthey for the appellants
AV Viswanatha Sastri TA Ramachandran JB Dadachanji OC Mathur and Ravinder Narain for the respondents
The Judgment of the Court was delivered by Sikri J
This appeal is in pursuant to a certificate of fitness granted by the High Court of Maharashtra at Bombay under article 1331cof the Constitution is directed against the judgment of the said High Court in a petition under article 226 of the Constitution filed by the respondent
The India Fisheries P Ltd hereinafter called the respondent was a private limited company and was directed to be wound up by an order of the Bombay High Court dated October 11 1950 and a Court Liquidator was appointed as the Official Liquidator thereof with all powers under section 179 of the Indian Companies Act
1913 VII of 1913 to be exercised by him under section 180 without sanction or intervention of the Court save and except in case of sales 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 873715 
On or about 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 9 12 annas in a rupee and paid to the Income Tax Department a sum of Rs 51883 against the claim made by the Income Tax Officer as an ordinary creditor
Thus a balance of Rs 354912 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 25656 as advance tax
This was paid by the Official Liquidator
On a 681 regular assessment being made for the said year only Rs 11 2612was assessed as payable by the respondent
After adjusting this sum against the advance payment of Rs 25656  Rs 14601became refundable to the respondent inclusive of interest
Instead refunding the said balance to the respondent the Income Tax Officer set off the said amount against the balance of Rs 354912which was still outstanding in respect of the Income tax demand for the year 1948 49
The respondent filed a revision petition to the Commissioner of Income tax but the said petition was rejected by the Commissioner on September 21
holding that the action of the Income Tax Officer was perfectly justified under the provision of section 49E of the Income Tax Act
On November 25 1959 the respondent filed a petition under article 226 of the Constitution and prayed for a writ direction or order for setting aside the orders of the Income Tax Officer and the Income Tax Commissioner
He further prayed for any further writ direction or order restraining the Department 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 873712 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 creditor only in accordance with the provisions of the Company law
No other remedy nor any other method of obtaining satisfaction of 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 873715 which the department had proved in the insolvency of the company and 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 and pass appropriate orders in respect of the said amount of refund under the provisions of section 48 of the Income Tax Act
The learned Additional Solicitor General on behalf of 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 682 does not take away this power
Section 49E is in the following terms Where under any of the provisions of this Act a refund is found to be due to any person the Income tax Officer Appellate Assistant Commissioner or Commissioner as the case may be may in lieu of payment of the refund set off the amount to be refunded or any part of that amount against the tax interest or penalty if any remaining payable by the person to whom the refund is due
 On the face of this provision there is no doubt that this section is not subject to any other provision of law
But it will 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 section 49E is subject to the Insolvency Rules contained in the Companies Act
Section 228 of the Companies Act 1913 provides 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 claims 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 reason do not bear a certain value
 Section 229 provides Application of insolvency rules in winding up of insolvent companies
In the winding up of an insolvent company the same rules shall prevail and be observed with regard to the 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 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 statutory provisions is inter alia that an unsecured creditor must prove his debts and all unsecured debts 683 are to be paid pari passu
Therefore once the claim of the Department has to be proved and is proved in the liquidation proceedings the Department cannot by exercising the right under section 49E of the Income Tax Act get priority over the other unsecured creditors
If we were to read section 49E in the way suggested by the learned Additional Solicitor General it would be defeating the very object underlying sections 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 sections 228 and 229 deal with the proof of debts and their payment in liquidation
In our opinion section 49E can be reconciled with sections 228 and 229 by holding that section 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 section 49E and setting off the refund due
The Commissioner was equally in error in affirming this order
The learned Additional Solicitor General also urged that the application under article 226 was misconceived because the Income Tax Officer had jurisdiction
But if we interpret section 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 article 226
The appeal is accordingly dismissed with costs
Appeal dismissed


Summary:
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 3737 for the year 1948 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 of 912 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 section 49E of the Income Tax Act 1922 set off this amount against the balance of Rs 3549 due for the year 194849
A revision petition filed by respondent in respect of this set off was rejected by the Commissioner of Income Tax
Thereafter a petition under article 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 and 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 provisions 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 section 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
HELDThe Income Tax Officer was in error in applying section 49E and setting off the refund due to the respondent
683C D The effect of sections 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 part passu
Once the claim of the Department has to be proved and is proved in liquidation proceedings it 680 cannot by exercising the right under section 49E get priority over the other unsecured creditors and thus defeat the very object of sections 228 and 229 of the Companies Act
Furthermore 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 in all circumstances sections 228 and 229 deal with proof of does and their payment in liquidation
Section 49E can be reconciled with sections 228 and 229 by holding that section 49E applies when insolpency rules do not apply
682H 683D