Case: Builders Supply Corporation Vs. The Union Of India Represented By The Commissioner O

the time being in force to be recoverable or realizable as an arrear of revenue or land revenue. That is how the arrears of tax in respect of which a certificate has been issued by the Income-tax Officer attract the provisions of the Recovery Act. A "Certificate Officer" means under S.3 (3) a Collector and other officers mentioned in it. A "certificate-holder" under S. 3(2) means the Government or person in whose favour a certificate has been filed under this Act, and "certificate-debtor" under S. 3(1) means a person named as debtor in a certificate filed under this Act. The effect of the provisions contained in Ss. 4 to 10 in part II 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 S. 46(2) of the Income-tax Act is in a sense a, public demand, but S. 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 S. 6. A certificate so issued is then served on the certificate-debtor under S.7, and S.8 prohibits private transfer of the immovable property of the certificate-debtor after the service of notice of any certificate has been effected on him under S. 7. It is at that stage that the certificate-debtor is empowered to file a petition denying his liability under S. 9; and his objections are heard under S. 10. That, in brief, is the scheme of Part at II with which we are concerned.30. There is one more provision of the Recovery Act to which we ought to refer, and that is S.26. This section deals with the disposal of proceeds in execution, and sub-s.(1) of this section provides that where assets are realized, by sale or otherwise in execution of a certificate, they shall be disposed of in the manner indicated by its clauses (a) to (d). Section 38 provides that statutory rules included in Sch. II shall have effect as if enacted in the body of this Act, until altered or annulled in accordance with the provisions of Part V. Statutory Rule 22 which is relevant for our purpose deals with cases of attachment of property in custody of Court or public officer, it reads thus:--"Where the property to be attached is in the custody of any Court or public officer, the attachment shall be made by a notice to such Court or officer, requesting that such property, and any interest or dividend becoming payable thereon, may be held subject to the further orders of the Certificate-Officer by whom the notice is issued :Provided that, where such property is in the custody of a Court, any question of title or priority arising between the certificate-holder and any other person, not being the certificate-debtor, claiming to be interested in such property by virtue of any assignment, attachment or otherwise, shall be determined by such Court".31. Having thus considered the broad features of the Recovery Act, the question which we have to decide is whether these provisions can be said to amount to a statutory provision in respect of the doctrine of priority of arrears of income-tax due to respondent No. 1 over private debts due from the same debtor. We have already examined the two decisions on which Mr. Das Guptas contention rests. Take, for instance, S. 230 of the Indian Companies Act. Can we say that any provisions of the Recovery Act can be compared to the provisions of S. 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 Sch. I. Even a superficial glance at the fourteen clauses of Sch. 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. ls claim to recover arrears of tax. Rule 22 to which we have referred which corresponds to O. 21, R. 52 of the Code of Civil Procedure, can no doubt be invoked to recover arrears of tax; but that is because the procedure prescribed by the said Rule applies to the recovery of public debts and tax arrears can be treated as public debts inasmuch as by virtue of S. 46(2) of the Income-tax Act they become recoverable as arrears of land revenue, in our opinion, it is difficult to accept the argument that the application of the doctrine of priority of arrears of tax over private debts can be said to be displaced by any of the provisions of the Recovery Act. That being so, we must hold that the High Court was right in coming to the conclusion that respondent No. 1 was entitled to claim priority in the matter of arrears of tax due from respondent No. 2 over the decretal debt due to the appellant from the same debtor.

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

Explanation:
0[ds]We have referred to this aspect of the matter, because if the larger question about the validity of the Crown prerogative in respect of claims other than tax claims falls to be considered in future, it may become necessary to enquire whether a similar doctrine was recognised by Hindu Jurisprudence or not. That enquiry is, however, foreign to the scope of the controversy in the present appeal. So far as respondent No. ls claim in the present appeal is concerned, there is no doubt that this claim has been consistently recognised by all the Indian Highargument naturally proceeds on the assumption that the judicial recognition of the relevant Common law doctrine cannot claim the protection of Art. 372(1). It will be recalled that Art. 372(1) provides, inter alia, for the continuance in force of existing laws. It lays down that notwithstanding the repeal by this Constitution of the enactments referred to in Art. 395 but subject to the 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 1950, can be said to constitute "law it 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 Art. 372(1)? If it is, then by virtue of Art. 372(1) itself, the same law would continue to be in force until it is validly altered, repealed or amended.At this stage, we ought to make it clear that in the present appeal we are dealing with a very narrow point, and that relate to respondent No. ls 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 categories of claims made in different circumstances and by different States in India; and we want to make it clear that our present decision should be confined only to the narrow point with which we are directly concerned. Questions may arise as to whether the relevant Common law doctrine was accepted in some Indian States, if it is shown that it was not, it may have to be considered whether Art. 372(1) would assist the enforcement of the said doctrine in such States. One thing is clear that if the said doctrine was accepted as a part of the law in any part of the country, it will not cease to be operative, because it is included in the expression "law in force" under Art. 372(1), but the position would be different in respect of such parts of the territory of India where the said doctrine was not recognised or applied prior to 1950. Then again, if this doctrine is supposed to be an essential attribute of sovereignty, where does sovereignty reside after the Constitution ? Does it reside in the Union as well as all the constituent States ? If yes, what would be the position if competing claims were made by the States inter se, or by one of the States against the Union ? That is another aspact of the matter which may need careful examination in future.Similarly, the basic justification for the claim for priority made by respondent No. 1 in the present case rests on the well-recognised principle that the State is entitled to raise money by taxation, because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. 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.23. But the same principle may not equally be applicable in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which, no doubt, may be undertaken by the State for achieving socio-economic good. It is wellknown that a welfare State often enters commercial fields which cannot be regarded as an essential and integral part of the basic governmental functions of the State, 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 British India prior to the Constitution.Having thus considered the broad features of the Recovery Act, the question which we have to decide is whether these provisions can be said to amount to a statutory provision in respect of the doctrine of priority of arrears of income-tax due to respondent No. 1 over private debts due from the same debtor. We have already examined the two decisions on which Mr. Das Guptas contention rests. Take, for instance, S. 230 of the Indian Companies Act. Can we say that any provisions of the Recovery Act can be compared to the provisions of S. 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 Sch. I. Even a superficial glance at the fourteen clauses of Sch. 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. ls claim to recover arrears of tax. Rule 22 to which we have referred which corresponds to O. 21, R. 52 of theCode of Civil Procedure, can no doubt be invoked to recover arrears of tax; but that is because the procedure prescribed by the said Rule applies to the recovery of public debts and tax arrears can be treated as public debts inasmuch as by virtue of S. 46(2) of the Income-tax Act they become recoverable as arrears of land revenue, in our opinion, it is difficult to accept the argument that the application of the doctrine of priority of arrears of tax over private debts can be said to be displaced by any of the provisions of the Recovery Act. That being so, we must hold that the High Court was right in coming to the conclusion that respondent No. 1 was entitled to claim priority in the matter of arrears of tax due from respondent No. 2 over the decretal debt due to the appellant from the same debtor.