Case: Champa Kumari Singhi &amp; Ors Vs. The Member Board Of Revenue, West Bengaland Others

2. The facts are as follows: One Dalchand Singhi held a prospecting license in the earstwile Korea State (now in Madhya Pradesh). His son Bahadur Singh Singhi took a mining lease and started a colliery known as Jhagrakhand Colliery. In 1942 a private limited Company called the Jhagrakhand Collieries Ltd. was started with an authorised capital of Rs. 24 Lakhs (2400 shares of Rupees 1000 each.) Bahadur Singh divided equally the 2400 shares between himself and his 3 sons Rajendra Singh Singhi, Narendra Singh Singhi and Birendra Singh Singhi. In 1943 the colliery business and its assets were transferred by the joint family to the Company. In 1944 the father and his 3 sons separated and partitioned the property. Bahadur Singh Singhi died on July 7, 1944 leaving a willLetters of Administration with the will annexed were granted in 1945. The register of Jhagrakhand Collieries Ltd., was rectified and showed thereafter 900 shares in the name of Narendra Singh Singhi and Rajendra Singh Singhi and 600 shares in the name of Rajendra Singh Singhi. Birendra Singh Singhi died on December 12, 1950 leaving a widow Smt. Champa Kumari and two minor sons Ashok Kumar Singhi, Chandra Kumar Singhi and also a minor daughter. These minors have now attained majority.3. Under what is known as the Tyagi Scheme announced on May 19, 1951 a voluntary disclosure was made by the Jhagrakhand Collieries Ltd. and theThe time limit for such disclosure was August 31, 1951. Before this theOfficer had filed a complaint for certain offences and under a search warrant seized the books of account of the company from 1945 to 1950. This was on July 3, 1951. The shareholders and the company then disclosed on July 31, 1951 a concealed income of Rs. 42,52,501 during the years 1945 to 1948.4. On November 28, 1951 the Commissioner ofoffered to withdraw prosecutions if the Company and theagreed to pay taxes due on a total income of Rs. 90,00,000 to be distributed over the years(both inclusive) together with a penalty of 20% and interest at 3% p. a. on unpaid tax. There were certain other conditions with which we need not concern ourselves. Certain representations followed and finally on December 26, 1951, it was agreed that the parties jointly and severally pay Rs. 67,48,841/11. It was also agreed that a sum of Rs. 55,99,832/6 would be accepted in full satisfaction upon the parties paying the amount in the followingBy December 31,b) By March 31,c) By March 31,d) By March 31,e) By March 31,f) By March 31,g) By March 31, 1957On the failure of any of the instalments the whole sum of Rs. 67,48,341/11 together with interest would become due. A deed of Agreement, Guarantee and Equitable Mortgage showing the total income and total net tax liability of each share holder were shown. Theyl taxRajendra SinghNarendra SinghJhagrakhand Collieries5. TheCompany paid the following sums by way ofil 1,il 22,ra Singh Singhi paid the following sums by way ofil 1,Smt. Champa Kumari paid the following sums by way ofil 1,a Singh Singhi paid the following sums by way ofil 1,52 they signed the agreement. By that date the position in the payment of instalments had reached item (c) above showing Rs. 9,50,000 as due on March 31, 1953.On August 29, 1952 theOfficer made several assessment orders in respect of the assessment years2. Each such order included theaccordance with the terms of the Agreement dated 22nd April 1952, executed in connection with the petitions dated 18th July, 1951 filed by the assessee and others under concessional scheme for the settlement of disclosures announced by the Government of India, the assessment is made asthen follows the computation of total income, the computation of tax and the total amount demanded.On September 22, 1952, theOfficer (Companies District 1), Calcutta sent the following letter to each assessee. The one sent to Smt. Champa Kumari Singhi may alone be quoted here as anV. Satyamurti, M. A., B.Officer,Companies District 1, Calcutta.To,Smt. Champa Kumari Singhi,49, Gariahat Road, Calcutta.Madam,I am sending today by separate post (Regd. with A/D) copies of Assessment orders, Penalty Orders, Demand notices and chalans etc., in regard to the amount of taxes and penalties payable by you in accordance with the terms of the Agreement dated 22nd April, 1952 between you and the Government drawn up in connection with the disposal of the disclosure petition filed by you under the concessional scheme.In the Demand notices and chalans, demands have been shown to be payable on or before the 31st March, 1953, when the next instalment of payment under this Agreement falls due. Needless to say if there is no default in the matter of payment of that instalment (viz., Rs. 9,50,000 with all interest due thereon by 31st March, 1953) further extension of time for payment of the balance will be granted by me.Yoursh this letter were forwarded the assessment orders and notices of demand under Section 29 of theAct, 1922. These notices of demand reached the several appellants on 24th September, 1952. Similar notices of demand for excess profits tax and Business Profits Tax were also served calling upon the assessees to pay the dues on or before March 31, 1953.8. On March 25, 1953 the appellants filed applications for revision under Sectiontax Act against the orders of assessment and application of Sectiontax Act. The Commissioner held the assessments to be proper as they were made in accordance with the settlement after appellants disclosures. The appellants next asked that Rs. 1,00,000 be accepted instead of Rs. 9,50,000 payable on March 31, 1953 and they be not treated as defaulters. The amount was appropriated towards the current liability for the current financial year.9. In February 1954, the Commissioner after hearing the appellants, promised reference to the Board of Revenue for a variation of the agreement of22, 1952. TheOn March 14, 1956 certificates under Section 46 (2) of the IndianAct, 1922 were issued and notices under Section 7 of the Bengal Public Demands Recovery Act, 1913 were served on the appellants in May, 1956. In June 1956, the appellants filed several petitions under Section 9 of the Recovery Act contending inter alia that the proceedings were barred by limitation. This objection was overruled on January 5, 1957.11. The appellants appealed to the Commissioner under Section 51 of the Recovery Act and the objection that the certificates were barred by limitation under Section 46 (7) of the IndianAct, 1922 was accepted and the certificates were cancelled. The Union of India thereupon filed several revisions before the Board of Revenue under Section 53 of the Public Demands Recovery Act, against the order of the Commissioner. They were allowed by a common order dated June 27, 1958. The appellants were again called upon to pay the amount on pain of distress warrants.12. The above facts were necessary to understand the background of the dispute from which the petitions under Article 226 of the Constitution arose. The appellants filed Writ Petitionsof 1958 asking for a writ of certiorari to quash the orders of the Board of Revenue and prohibiting the certificate Officer from enforcing the recovery certificates. The writ petitions were heard by Sinha, J., and were dismissed on April 23, 1959. The recovery proceedings were held not barred by limitation. The appellants then filed appeals in the High Court against the judgment and order of Sinha, J., (Nos.of 1959). These appeals were heard by Mookerji and Sen JJ. who, by the common judgment now under appeal in four of these appeals, dismissed them. The applications for certificate under Article 133 (1) of the Constitution were also rejected and have given rise to the other four appeals before us.The facts of the case are fully set out in the judgment of my Lord, the Chief Justice. Hence there is no need to state them over again.20. Under the agreement entered into between the assessees and the department, if the assessees fail to pay any one or more of the instalments fixed, the entire tax became recoverable forthwith. Admittedly the assessees failed to pay the instlments as stipulated in the agreement and therefore it was open to the department to recover the entire arrears of tax. It is true that the default clause in the agreement was intended for the benefit of the department and therefore under the law of contract, it was open to the department to waive that clause and sue for the recovery of the various instalments as and when they fell due. But that aspect of the question is not relevant for considering the true scope of(7) of Section 46. Section 46 creates a special machinery for the recovery of arrears of tax. Section 46 is found in Chapter IV of the Act which deals with recovery of tax and penalties. Section 45 prescribes, when an assessee becomes a defaulter. The main part of that sectionamount specified as payable in a notice of demand under(3) of Section 23A or under Section 29 or an order under Section 31 or Section 33, shall be paid within the time, at the place and to the person mentioned in the notice or order or if a time is not so mentioned, then on or before the first day of the second month following the date of the service of the notice or order and any assessee failing so to pay shall be deemed to be in default, provided that, when an assessee has presented an appeal under Section 30, theOfficer may in his discretion treat the assessee as not being in default as long as such appeal is undisposedproviso to that section and the explanation are not relevant for our present purpose).

Court's reasoning:
15. To begin with there is an error in the fourth clause of the first proviso inasmuch as the words "be reckoned" have been inadvertently left out in that clause. The intention to use those words is obvious from the way in which the first three clauses are worded. Supplying those words, because they were inadvertently omitted, it is clear that one of two limitations is applicable to the present case, according to the circumstances of the case. If it is to be considered under the main clause of(7), then we have to find out whether the whole of the amount was payable by a particular date on which the assessee can be said to have become a defaulter. If, however, the fourth clause of the proviso applies then we have to see whether by reason of the grant of instalments, limitation would only commence to run from the date on which the last of the instalments was payable. In this connection reference has been made by the High Court and the Board of Revenue to the agreements and the letters written sending the assessment orders and the notices of demand. The agreements set out a scheme of payments by instalments and the entire sum payable was RupeesThis was payable in different instalments, from 1952 to 31st March 1957. It was however, provided ashowever that in the event of due and punctual payment of all instalments Government will give up the sum of Rs. 11,49,019/5/with interest thereon, from the last instalment and accept the sum of Rs. 55,99,822/6/with interest thereon in full settlement of the balance due provided further that in the event of any default in payment of any sum on due date therefrom or in the event of it being found that the guarantee hereby given or any part thereof is not enforceable for any reason whatsoever there will be no abatement and the parties of the first and second part will pay the full sum of Rs.monies payable on 31st March, 1953, 31st March, 1954, 31st March, 1955, 31st March, 1956 and 31st March, 1957 shall be applied pro rata towards the tax liability of the party of the first part and the parties of the second part mentioned in Schedule "Y" hereto.The said parties shall however be at liberty to make any part payment at any time towards the said instalments not less that Rs. 10,000 (Rupees ten thousand) at a time.4. In the event of any instalment not being paid within the time mentioned above (such time being deemed to be of the essence of the arrangement) or in the event of it being found that the guarantee hereby given or any part thereof is not enforceable for any reason whatsoever the whole of the balance of the said sum of Rs. 67,48,841/11/will at once become due and payable with interest at the rate aforesaid and Government will (in addition to all rights for enforcement of this document) be entitled to take all steps to enforce payment including issue of certificate under Section 46 (2) of the Income Tax Act and proceedings under the West Bengal Public Demands Recovery Act and Revenue Recoveryrecovery proceedings could only commence within the end of a financial year commencing from 31st March, 1953 since the payment of the instalment waswith the end of the financial year. This, according to them, was provided in the agreement itself in the extract just reproduced from the agreementsare, therefore, satisfied that the High Court was right in holding that the certificates were issued within the period of limitation prescribed by law and were not barred by time. The first four appeals therefore fail and are dismissed with costs. The other appeals need not be considered since special leave was granted against the main order and those appeals themselves havethe assessee is a defaulter, no action can be taken against him under Section 46.of the terms of the agreement does not amount to a default under Sectione the first thing we have to see is when the assessees became defaulters. For deciding that question reference to the agreement is irrelevant. Admittedly demand notices under Section 29 had been issued to the assessees on September 22, 1952 in respect of the entire tax due from them. Therefore they became defaulters as soon as they failed to comply with those demands.