Case: Hindustan Construction Co. Ltd Vs. Income Tax Officer (Companies Circle) Bombay &amp; Another

the Central Board of Revenue dated December 31, 1958. It was indeed contended by Mr. S. P. Mehta, the learned counsel for the appellant before the High Court that the appellant was not challenging the orders of the Income-Tax Officer rejecting his application for refund, but was only challenging the orders made by them rejecting its application for grant of set off.Mr. Viswanatha Sastri, the learned counsel for the appellant first urged that as compliance with r. 5 of the Indian States Rules, 1939 was physically impossible, r. 5 did not apply, and consequently the refund due to the appellant notwithstanding r. 5. But we cannot go into the question whether r. 5 was rightly or wrongly applied by the Income- Tax authorities. The orders dated August 23, 1958 and December 31, 1958, cannot be attacked in these proceedings. Therefore, we must proceed on the basis that those orders were validly passed. We-express no opinion whether the view of the Income-Tax authorities that r. 5 was applicable in the circumstances of the case was correct or not.5. This takes us to the construction of s. 49E. Section 49E reads thus : "49E. Power to set off amount of refunds against tax remaining payable. Where under any of the provisions of this Act, a refund is found to be due to any person, the Income-tax Officer, Appellant 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."6. The High Court held that s. 49E of the Act did not give :any assistance to the appellant because, according to it, there , must be prior adjudication in favour of the appellant. The High Court observed that "the expression found to be due" clearly means that there must, prior to the date set off is claimed, be an adjudication where under an amount is found due by way of refund to the person claiming set off."7. Mr. Sastri contends that it is not necessary that there should be a prior adjudication to enable a person to claim set off. He says that the Income-Tax Officer can decide the question whether refund is due or not when an application for refund is made to him. On the facts, he says that it is clear that the appellant is entitled to refund under r. 3 of Indian States Rules, 1939, and the Income-Tax Officer has only to calculate the relief due and then set it off. The learned counsel for the respondent, Mr. Ganapath lyer, on the other hand, contends that the orders of the Commissioner and the Central Board of Revenue having become final, there was no obligation on the Income-Tax Officer to make any payment of refund, and he says that it is a condition precedent to the applicability of s. 49E that the Income- Tax Officer must be under an obligation to make a payment. He points out that the expression "in lieu of payment of the refund clearly indicates that the Income-Tax Officer must be under an obligation to make a payment of refund. He further contends that the refund is not due under the Act but under the said Rules, and therefore, s. 49E does not apply.There is no difficulty in refuting the contention of the learned counsel for the Revenue that the refund, if due, was due under the provisions of the Act. Section 59(5) provides that the rules made under this section shall have effect as if enacted under this Act. This provision thus makes the Indian State Rules, 1939, part of the Act, and consequently if a refund is due under the Rules, it would be refund due under the Act within the meaning, of s. 49E.8. The question then arises as to whether there should be a prior adjudication existing before a set off can be allowed under 49E, and whether there is any other condition which is necessary to be fulfilled before the section becomes applicable. We are of the opinion that it is not necessary that there should be a prior adjudication before a claim can be allowed under s. 49E.There is nothing to debar the Income-Tax Officer from determining the question whether a refund is due or not when an application is made to him under S. 49E. The words "is found" do not necessarily lead to the conclusion that there must be a prior adjudication. But this is not enough to sustain the claim of the, appellant. It must , till show that a refund is due to it. The words "found to be due" in s. 49E may possibly cover a case where the claim to refund has been held barred under r. 5 of the Indian State Rules but that this is not the correct meaning is made clear by the expression "in lieu of payment". This expression, according to us, connotes that payment is outstanding, i.e. that there is subsisting obligation on the Income-Tax Officer to pay. If a claim to refund is barred by a final order, it cannot be said that there. is a subsisting obligation to make a payment. The expression "in lieu of" was construed in Stubbs v. Director of Public Prosecutions(24 Q. B. D. 577). It was held there that where a liability has to be discharged by, A in lieu of B, there must he a binding obligation on B to do it before A can be charged with it. In our opinion, there must be a subsisting obligation to make the payment of refund before a person is entitled to claim a set off under s. 49E. In this case in view of the orders of the Commissioner and the Central Board of Revenue mentioned above there was no subsisting obli- gation to pay, and therefore, the claim of the appellant must fail.9.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds].There is nodifficulty in refuting the contention of the learned counsel for the Revenue that the refund, if due, was due under the provisions of the Act. Section 59(5) provides that the rules made under this section shall have effect as if enacted under this Act. This provision thus makes the Indian State Rules, 1939, part of the Act, and consequently if a refund is due under the Rules, it would be refund due under the Act within the meaning, of s.are of the opinion that it is not necessary that there should be a prior adjudication before a claim can be allowed under s.ng to debar the Income-Tax Officer from determining the question whether a refund is due or not when an application is made to him under S. 49E. The words "is found" do not necessarily lead to the conclusion that there must be a prior adjudication. But this is not enough to sustain the claim of the, appellant. It must , till show that a refund is due to it. The words "found to be due" in s. 49E may possibly cover a case where the claim to refund has been held barred under r. 5 of the Indian State Rules but that this is not the correct meaning is made clear by the expression "in lieu of payment". This expression, according to us, connotes that payment is outstanding, i.e. that there is subsisting obligation on the Income-Tax Officer to pay. If a claim to refund is barred by a final order, it cannot be said that there. is a subsisting obligation to make a payment. The expression "in lieu of" was construed inStubbs v. Director of Public Prosecutions(24 Q. B. D.It was held there that where a liability has to be discharged by, A in lieu of B, there must he a binding obligation on B to do it before A can be charged with it. In our opinion, there must be a subsisting obligation to make the payment of refund before a person is entitled to claim a set off under s. 49E. In this case in view of the orders of the Commissioner and the Central Board of Revenue mentioned above there was no subsisting obli- gation to pay, and therefore, the claim of the appellant must fail.