Case: All India Reporter Ltd., Nagpur Vs. Ramachandra Dhondo Datar

1. Ramchandra Dhondo Datar-hereinafter after referred to as the respondent-was employed by the appellant company in its publications branch. By agreement dated March 23, 1943, the appellant company agreed to pay to the respondent as from April 1, 1943, remuneration per annum equal to 3 1/2% of the gross sales or Rs. 12,000 whichever was greater. The agreement was to remain in operation for ten years from April 1, 1943, in the first instance and was renewable at the option of the respondent for such period as he desired. By notice dated April 19, 1948, served on the respondent on April 22, 1948, the appellant company terminated the employment of the respondent. The respondent then filed a civil suit in the court of the Fifth Additional District Judge, Nagpur for a decree for Rs. 1,30,000 being the amount of compensation for wrongful termination of employment, arrears of salary and interest. On July 17, 1953, the court after giving credit for the amount received by the respondent passed a decree for Rs. 43,359 (which was inclusive of Rs. 36,000 as compensation for termination of employment and Rs. 6,000 as salary in lieu of six months notice and interest) and costs and interest on judgment. The respondent then applied for execution of the decree and claimed Rs. 54,893-12-0 less Rs. 18,501-10-0 decreed against him in a cross suit filed by the appellant company. The Income Tax Officer, Nagpur, served a notice under S. 46 of the Indian Income-tax Act upon the respondent and also gave intimation to the District Judge, Nagpur, that the appellant company be permitted to deduct at source and to pay into the Government Treasury Rs. 15,956-13-0 as income-tax, surcharge and super-tax due on the sum of Rs. 50,972-2-0 awarded to the respondent. The appellant company also applied that the executing court do declare that the appellant company was entitled and in law bound to deduct the tax due on the amount. The learned Judge directed the appellant company to pay to the Income-tax Department Rs. 15,956-13-0 on account of income-tax and super-tax on the amount due to the respondent and directed it to pay the balance in court after filing a receipt for payment of tax from the Income-tax department. In appeal to the High Court of Judicature at Nagpur, the order passed by the District Judge was reversed and execution as claimed by the respondent was directed.

Court's reasoning:
It is undisputed that at the material time, no tax was assessed against the respondent; the Income-tax Officer had accordingly no authority to issue a notice under S. 46(5). Nor could the Income-tax Officer claim to recover tax due by a proceeding in the nature of a garnishee proceeding by applying to the civil court to attach the judgment-debt payable by the company. The application submitted by the Income-tax Officer must therefore be ignored. Undoubtedly, the employer is by S. 18 of the Act liable to deduct from the salary payable by him to his employee the amount of tax at the average rate applicable to the estimated total income; but can it be said that as between the appellant company and the respondent the decretal amount represented salary ? The respondent had filed a suit for a decree for arrears of salary, compensation for wrongful termination of employment and interest. The court having passed a decree on that claim, it became a judgment-debt. It may have been open to the appellant company in the suit to apply to the court for making a provision in the decree for payment of income-tax due by the respondent, but no such provision wasour view, this case has no application to the facts of the present case. In the case before us, there is a decree passed in favour of the respondent; under the scheme of the Civil Procedure Code, that decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code. There was no tax liability which the respondent was assessed to pay in respect of this amount till the date on which the appellant company sought to satisfy the alleged tax liability of the respondent. As between the appellant company and the respondent, the amount did not represent salary; it represented a judgment-debt and for payment of income-tax thereon, no provision was made in thewas held that the claim for income-tax was entitled to priority in payment and the court had inherent power to make an order on the application for payment of money due as income-tax. Tax had admittedly been assessed, and proceedings substantially for recovery of the tax so assessed were adopted by the Income-tax Officer. It was held in the circumstances that the court had jurisdiction to direct recovery of tax out of the amount standing to the credit of the decree-holder. The principle of that case can have no application to the facts of the present case.7. The respondent had not appeared before us, but we have been assisted by Mr. Rajagopala Sastri and we are indebted to him for placing the evidence and the various aspects of the case on a true appreciation of which the question in issue fell to be determined.