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

2. It appears that 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 the 18th April, 1949, the appellant obtained an order for attachment before judgment of Rs. 5,000 out of the aforesaid security deposit of Rs. 50,000. This deposit was lying with the Superintending Engineer, Calcutta Central Circle No. 1. Subsequently, on the 16th June, 1950, the appellants suit was decreed by the 5th Additional Subordinate Judge, 24 Parganas, for a sum of Rs. 12,275-9-0. This decree was put in execution by the appellant on the 14th February, 1952, in the Court of the 7th Sub-Judge and in consequence, Money Execution case No. 9 of 1952 was started. Four days thereafter the Subordinate Judge issued an order for the attachment of a further sum of Rs. 7,275-9-0 out of the aforesaid security amount deposited by respondent No. 2. Whilst writing to the Superintending Engineer in that behalf, the Subordinate Judge asked him to remit to the Court the sum of Rs. 5,000 which had already been attached before judgment. On receiving this communication, the Superintending Engineer placed a further sum of Rs. 7,275-9-0 under attachment, but did not comply with the requisition of the Court to remit Rs. 5,000 to it. On the 30th April, 1952, the Executing Court wrote to the Superintending Engineer and asked him to transmit the whole of the amount of Rs. 12,275-9-0 which was under attachment as a result of the two previous orders passed in that behalf, but this requisition also was not complied with till March 9, 1953.3. Meanwhile, the Certificate Officer of 24 Parganas had addressed a letter to the Subordinate Judge on the 23rd July, 1952, and requested him that if the Superintending Engineer had transmitted any money to his Court, its payment to the appellant should be withheld in order to enable a claim under O. 21, R. 52 of the Civil Procedure Code to be preferred on behalf of the Government. Along with that letter, the Certificate Officer sent a copy of another letter which had been addressed by him to the Superintending Engineer asking him not to make any payment out of the amount deposited by respondent No. 2 but to retain it after deducting the departmental dues. The Superintending Engineer was informed by this letter that arrears of income-tax due from respondent No. 2 exceeded Rs. 50,000 with the result that the whole of the security deposit less departmental dues, was liable to be applied to the satisfaction of the tax debt in respect of which Government had priority over all unsecured creditors.4. 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 14, 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 22 of Schedule II to the Public Demands Recovery Act (hereinafter called the Recovery Act) and asked the Court to hold the amount subject to further intimation from him. This letter was received by the Executing Court on June 24, 1953, and in consequence, the Executing Court passed an order withholding payment to the appellant until further orders. Finally, on July 15, 1953, respondent No. 1 made an application to the Executing Court in which it claimed that the tax amount due to it from respondent No. 2 had a priority over the judgment debt due to the appellant from the same debtor, and so, the whole of the amount under attachment ought to be paid to it towards partial satisfaction of the said incometax dues. A similar application was made on the 11th September, 1953, and this application gave material details in respect of the income-tax demand against respondent No. 2. In both these applications, it was alleged that a certificate under S.46(2) of the Income-tax Act 1922 (No. 11 of 1922) had been duly forwarded to the Collector, 24 Parganas, and thus proceedings under the Recovery Act had already been commenced in that behalf.5. The Executing Court set down these applications for hearing and elaborate arguments were urged before it by the appellant and respondent No. 1 in support of their respective contentions. In the result, the Executing Court upheld respondent No. ls plea that the tax amount due to it from respondent No. 2 had a priority over the decretal amount due to the appellant from the same debtor and in consequence, it issued a direction that the amount of Rs.12,275-9-0 lying in its custody under attachment should be paid to respondent No. 1.6. This order was challenged by the appellant before the Calcutta High Court by a revision application under S. 115 of the Code. The proceedings taken before the Executing Court were initiated by the two applications made by respondent No. 1 under S. 151 of the Code. Apparently, the Executing Court passed its order in favour of respondent No. 1, purporting to exercise its jurisdiction under the said section. It was urged before the High Court as a preliminary point that the Executing Court was in error in allowing its jurisdiction under S. 151 of the Code to be invoked in the present proceedings. The High Court has held that it was unnecessary to consider whether S. 151 was properly invoked or not, because in its opinion the claim made by respondent No. 1 could be sustained under Rule 22 of the Statutory Rules framed under the Recovery Act. This rule corresponds to O. 21, R. 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 R. 21 read with O. 21, R. 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.

Reasoning:
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.