CHAMPA KUMARI SINGm & ORS.

~· THE MEMBER BOARD OF REVENUE, WEST BENGAi,

AND OTHERS February 2, 1970 (M .. HiDKYATULLAH, C.J.,

J. C. SHAH,

K. S. HEGDE, A. N. G, ROVER, A. N. RAY AND I. D. DuA, JJ.] ' .

Indian Income.Tax Act (ll of 1922), ss. 46 and 47-Liability agreed to be .id by instclments, and in default of single instalment entire balanc:e. exigible-Asressment orders in terms. of agreement-Demand noticesissu£'d-Default in instahnent-Recovery proceeding after more than one year of the default but before the last instalment due-Whether claint bcrred.

An agreement was signed between the Revenue and the assessees fix ... ing the assessees' income-tax liability for several past years, and fixing instalments for its payment.

The last instalment was payable on March 31, 1957. It was also stipulated that on the breach of a single instalment the whole amount would become exigible. The Income-tax Officer made the assessment orders in acco'rdance with the agreement.

These orders and demand notices to pay the amount by March 31, 1953 were sent to the assessees in September 1952 with letters stating that if there was no default in payment of the instalment due on March 31, 1953, further extension of time for paying the balance will be granted.

The assessees filed revisions under s. 23-A of the Income-tax Act, 1922 against the orders of assessment.

The Commissioner held the assessments were properly made as they were made in accordance with the settlement after the assessees' disclosure.

Later the earlier agreement for payment by instalments was varied. The main variation in the second agreement was that the penalty was reduced and smaller instalments were fixed. In March 1956 certificate's under s. 46(2) of the Act were issued and notices under the Bengal Public Demands Recovery Act, 1913 were served.

On the question whether the certificates were barred by limitation under s. 4 7 (I) Indian Income-tax Act, 1922 this Court,

HELD : (Per Hidayatullah, C. J., Shah, Grover, Ray and Dua, JI.) The certificates were not barred by time.

The assessment order reproduced the agreement as part of it and the agreement therefore became the assessment order.

Under the assss ment order a notice of demand was sent to pay the money of the first ms-- talment by March 31, 1953.

On breach of it the whole, amount was said to be exigible and the demand in respect of that was also made. The assessees, therefore, became defaulters on the failure to pay the first instalment.

S:nce instalments were 2ranted, cl. (iY) Of the proviso to S. 47(7) applied.

That clause does not mention about the exigibility of the whole amount or exigibility of any particular instalment.

It only says that if instalments are granted time of one year ending w.ith the end of the financial year is to be calculated from .the date on wh.ich the last instalment is payable.

The language of cl. (1v) of the proy1~0 was unfortunate in expressing this intent and has now been C<?_rrectet; I. tn th~ new tnco1ne-tax Act but the intention was always obvious.

Even tn. !he second agreement which replaced the agreement the same cond1llon

468 SUPREME COURT REPORlS

(1970) 3 S.C.R.

obtained.

There was a concession 3hown in the matter of penalty and A smaller instalments ,.vere fixed.

But the revenue had stipulated even then that the concession mentioned above would only be -available if the revised scheme of payment was strictly followed.

Jn other words. p, ayment was to be made by instalments and this , concession therefore~ attracted the provisions of cl. (iv). The Government copld always ac'Cept any instalment even if paid late without having to worry about the period of limitation of one year from the date of den1and. since cl. (iv J of the B first provisogave them an option to wait till the last instalment was payable. The scherr1e of instalments took the maller out of the main p;;1rt of sub-s. (7) and brought it within the proviso to clause (iv). [476 G-

477 DJ

(Per Hegde, J. dissenting)- ;--,.]f an assessee fails to comply with the demand made in aC'.cordance with the provision in s. 45 within the time mentioned therein then he is 'defaulter' within the meaning of the Act.

Unless the assessee is a defaulter, no action can be taken again.st him C under s. 46.

Non-fulfilment of the terms of the agreement does not amount to a defauh under s. 45.

Sub-section (7) of s. 46, clearly says that no proceedings for recovery of any sum payable under the Act can be commenced after the expiration of one year from the last day of the financial year in "'hich any demand is made under the Act.

Under sub

cl. (iv) of the prmiso to s. 47(7) where the sum payable is allowed to be paid in instalments, the one year prescribed in s. 46(7) will be com- D puted from the date;~ on which the last of such instalments was due. The expression "was due" can only mean "is due" under the Act.

The expression does not appear to be grammatically correct; this correction has been made in the new Act, but that correction is immaterial for the present purpose.

For finding out "'hen the sum claimed 'was due', one must go to s. 45. and cannot fall back on the agreement.

Chapter V of the Act has nothing to do 'With the agreement between the assessees and the re venue.

The expression "was due" in s. 46(7) has reference to the tax B which is due in acc:ordance with the provisions in ss. 45 and 46.

In view of the demand_ notices issued in September 1952 .the sum became due when lhc assessees became dcfaultc:rs, and therefore the re convey proceedings under the Act should have been initiated he'fore March

1954. The same having not been initiated before that date, the proceed ings in question mw; t be held to have been barred. [478 A-G; 479 F-H]

CIVIL APPELJCATE JURISDICTION : Civil Appeals Nos. 564 to r 571 of 1968.

Appeals by special )eave ; from the judgments and orders dated December 10, 1963 and November 24, 1964 of the Calcutta High Court, in appeals from Original Orders Nos. 139 to 142 of

1~~ G

M. C. Chagla, P. N. Tiwari, I. B. Dadachanji. 0. C. Mathur and Ravinder Narain, for the appellants (in all the appeals).

Jagadish Swarup, Solicitor-General, R. Gopalakrishnan and R. N. Sachthey, for the respondents (in all the appeals).

The Judgment of M. HIDAYATULLAH, C.J., J. c. SHAH, A. N.

GROVER, A. N. RAY and I. D. DUA, JJ. was delivered by HIDAYA- TULLAH, C.J., K. S. HEGDE, J. gave a dissenting opinion.

CHAMPA v. RE'IFNUE BOARD (Hidaya1ullah, CJ.) 469

Hidayalullah, C.J.-This judgment shall dis~ of Civil Appeals 564-571 of ! 968. Of these, four are against the common judgmem and order of a Division llench of the Calcutta High Court, December 10, 1963, dismissing 4 appeals (139-142 of

1959) from the order of a lc.1rned single Jud11e, April 23, 1959 in Writ Petitions 159-162 of 1958. The remaining four appeals are against the order, November 24, 1964, refusing to certify the case as Iii for appeal to this Court under Art. 133(1) of the Constitution.

The facts are as follows : One Dalchand Singhi held a prospecting license in the erstwhile Koree 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 Rs. 1.000 each).

Bahadur Singh divided equaily the 2400 shares bdwecn himself and his 3 sons Rajendra Singh Sin)!, hi, Nafln.lrn Singh Sing.hi ana Birendra Singh Singhi.

In 1943 the colliery business and its asseN 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 will-Letters of Administration with the will annexed were granted in 1945.

The register of Jhagrakhand Collieries Ltd. was reetified and showed thereafter 900 shares in the name of Narendra Singh Singhi and Rajendra Singh Singhi and 6600 shares in the mime of Birendra Singh Singhi. Birendra Singh Singhi died on December 12, 1950 leaving a widow Smt. Champa Kumari and two minor sons Ashok Kumar Singhi, Chandn1 Kumar Singhi and also a minor daughter.

These minors have now attained majority.

Under what is known as the 'Tyagi Scheme' announced on May 19, 1951 a voluntary disclosure was made by the Jhagrakhand Collieries Ltd. and the shareholders. The time limit for such disclosure was August J I, 1951.

Before this the Incometax Officer 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 ol Rs. 42.52.50 I during the years 1945 to 1948.

On November 28, 1951 the Commissioner of Income-tax offered to withdraw prosecutions if the Company and the shareholders agreed to pay taxes due on a total income of Rs. 90,00,000 to be distributed over the years 1945-1950 (both inclusive) together with a penalty of 20% and interest at 3% p.a. on unpaid tax.

There were certain other cotnditions with which we need not concern ourselves. Certain representations followed and L 7 S:1p. Cl (NP)/70-ll

finally on Decc111ber 26, 1951 it was agreed that the parties A 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 following instalments :

(a) By December 31, 1951 ..

lb) By March JI, 1952

(c) By March 3L 1953

(r/) By March 31, 1954

(e) By March 31, 1955 (() Bv March 31, 1956

Rs. 7,50,000 Rs. 5,00,000

Rs. 9,50,000

. .

Rs. 9,50,000 . . Rs. 9,50,000

. . Rs. 9,50,000

(g) Bv March 3J, 1951 . . the hala11ce

On the faill!re of any of the instalments the whole sum of Rs. 67,48,34l/l l tog.ether with interest would become due. A deed of Agreement, Guarantee and Equiiable Mortgage showing the total income and total net tax liability of each share holder were shown.

They were · -

1947/48 t•> 1951/52

Smt. Champa Kumarj's hut-and ..

Rajendra Singh Singhi Narendra Singh Singhi Jhagrakhand Collieries Ltd.

f"olt1/ lax

Rs. 5,28,817-11

Rs. 9,30,498-03

Rs. 9,93,816-15

Rs. 43,99,712-11

The Company paid th.e followmg sums by way of tax : E

Feruary I, Jq,52 Aprill, 1952 ..

April 2'.!, 1952

Rs. 1.50,000

Rs. 90,000

Rs. 1,22,000

Narendra Singh Singhi paid the following sums by way of tax :

February I, 1952 April I, 1952

. .

Rs. 1,50,000

. .

Rs. 60.000 April 22, 1952 . .

Rs. 48,000

Smt. Champa Kumari paid the following sums by way of tax :

April 1, 1952 . .

Rs. 1,00,000

April I, 1952 . . . .

Rs. 40,000 April 22, 1952 Rs. 32,000

Rajendra Singh Singhi paid the following sums by way of tax :

April 1, 1952 April I, 1952 Rs. f,5J,000

Rs. 60,000 April 22, 1951 Rs. 48,000

On April 22, 1952 they signeJ the agreement. By that date the position in the payment of instalments had reached item ( c) above showing Rs. 9,50,000 lll> due on March 31, 1953.

CHAMPA V. REVE1'UE BOAiD (Hidaya1:,;;,./1, C.J.) 471

On August 29, 1952 the Income-Tax Officer made several assessment orders in respect of the asscssrnen• yean; 1947-48 to 1951-52. Each.such order included the following:

"In accordance with <he tcnns of the Agreement dated 22nd April 1952, executed in connection with the petitions dated 18th July, 1951 filed by the assessce and others under .:onccssional scheme for the settlement of disclosures am, ounced by the Government of India, the assessment is made as under ; "

and then follows the computation of total income, the computation of tax and the total amount demanded.

On September 22, 1952 the Income-tax Officer (Companies District I), Calcutta sent the following Jetter to each asses see.

The one sent to Smt Champa Kumari Singhi may alone be quoted here as an example :

"'From:

Sri V. Satyamurti, M.A., B.L..

Income Tax Officer, Companies District L Calcutta.

Smt. Champa Kumari Singhi, 49 Garishat Road, Calcutta.

E Madam,

I am sendin~ today by separate post ( Regd. with AID) copies of Assessment orders.

Penalty Orders Demand notices and challans etc. in regard to the amount of taxes. and penalties payable by you in accordance with the tenns 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 cha1la11S, 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 inrest due thereon by 31st March, 1953) further extension of time for payment of the balance will be granted by me.

Yours faithfully, Sd/- Illegible Income Tax Officer." Dt. 22-9-52. l 7SupCl(NP)7G-6

With this Jetter were forwarded the assessment orders and notices of demand under s. 29 of the Income-tax Act,

1922. These notices of demand reached the several appellants on 24 September

1952. Similar notices of demand for excess Profits Act and Business Profits Tax were also served calling upon the assessee to pay the dues on or before March 31, 1953.

On March 25, 1953 the appellants filed applications for revision under s. 33-A of the Income Tax Act against the orders of assessment and application of s. 23-A of the Income-tax Act.

The Commissioner held the assessments to be proper as they were made in accordance with the settlement after the appellants' disclosures.

The appellants next a:sked 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 appropriat ed towards the current liability for the current financial year.

In February 1954, the Commissioner after hearing the appel !ants, promised reference to the Board of Revenue for a variation of the agreemenit of April 22, 1952. The main variation was to be that the penalty would be reduced to half and the appellants would have to pay Rs. 5,60,000 on March 31, 1954, and similar instalments each year for six years. The aJ!reement was revised on December 27. 1954. The company sent a cheque for Rs. 5.60,000 on March 31. 1954 earmarking it as the said payment but it was appropriated towards the demand on the company for 1947-48.

On March 14. 1956 certificates under s. 46(2) o( the Indiain Income-tax Act. 1922 were issued and notices under s. 7 of the Bengal Public Demands Recovery Act, 1913 were served on the appellants in May. 1956. Jn June 1956 the appellants filed several petitions under s. 9 of the Recovery Act contending inter a/ia that the proceedings were barred by limitation. This

obj, ction was overruled on January 5, 1957.

The appellants appealed to the Commissioner under s. 51 of the Recovery Act and the ob.iection that the certificates were barred by limitation under s. 46(7) of the Indian Income-tax Act, 1922 was accepted and the certificates were cancelled. The G Union of India thereupon filed several revisions before the Board of Revenue under s. 53 of the Public Demands Recovery Act. against the order of the Commissioner. They were allowed lzy a common order dated June 27. 1958. The appellants were again called upon to pay the amount on pain of distress warrants.

The above facts were necessary to understand the background of the dispute from which the petitions under Art. 226 of the Constitution arose.

The appellants filed Writ Petitions

CHAMPA v. REVENUE BOARD (Hidayatullah, CJ.) 473

159-162 of 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 beard by Sinha J, and were dismissed on April 23, 1959. The recovery proceedings were held not barred by limitation.

The awellants then filed appeals in the High Court against the judgment and order of Sinha, J. (Nos. 139-142 of 1959). These appeals were heard by Mookerji and Sen, JJ who, by the common judgment now under appeal in four of tbes.: appeals, dismissed them.

The applications for certificate under Art. 133(1) of the Constitution were also rejected and have given rise to the other four appeals before us:

Mr. Cbagla who argued these appeals submitted the question of Iimitatiltn at the forefront and then attempted to argue the merits such as the interpretation of the agreements and the re liance placed on them in the High Court and distribution pro rata of the amounts paid on March 31, 1954. These points were not allowed to be raised by us. These questions were not raised before Sinha, J.

The Divisional Bench also did not allow these poinJs to be raised.

The short question, therefore, in one of limitation applicable in this case. We are concerned in answering this question with s. 46 of the Indian Income Tax Act, 1922. We are not re quired to consider the entire section but only sub-ss. 1 and 7 which are reh:vant. They read :

"46. Mode and time of recovery.-

( 1) When an asessee is in default in making a payment of income-ta~. the Income-tax Officer niay in his discretion direct that in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty."

"(7) Save in accordaru:e with the provisions of sub-section ( 1) of section 42, or to the proviso to section 45, no proceedings for the recovery of any sum payable under this Aci

shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act:

SIJPREME COURT REPORTS

[1970) 3 S.C.R.

Provided that the period of one year herein referred to shall- A

(iv) where the sum payable is allowed to be 8 paid by instalments, from the date on which the last of such instalments was due: Provided further that nothing in the foregoing proviso shall have the effect of reducing the period within which proc:<:edings for recovery can be commenced, namely, aftt:r the expiration of one year from tile last day of the financial year in which the demand is made.

Exp/anation.-A preceding for the recovery of any sum shall be deemed to have commenced within. the meaning of this section, if some action is taken to to recover the whole or any part of the sum within the period hercinbefore referred to, apd for the removal of doubts fr is hereby declared that the several modes of recovery specified in this section are neither mutually exclusive, nor affect in any way any other law for the time being in force relating to the recovery of debts due 10 Government. and it shall be lawful for the Incometax Officer, if for any special reasons to be recorded he so thinks fit, to have recourse to any such mode of recovery notwithstanding that the tax due is being re-.

ovcred from an assessee by any other mode."

The contention of the appellants is that we have to find out when 1hey could be treated as defaulters within the first sub-section and whether under the main part of sub-s. (7) the proceedings for 1he recovery of the tax with penalty could be commenced. after

the expiration of one year from the last day of the financial year in which the demand was made.

The argument of the Department is 1hat the matter is covered by clause (iv) of the first proviso which allows limitation of one year to be calculated from the date on which the last instalment was due in the present case.

To be~ 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 these H words is obvious from the way in which the first three clauses are worded.

Supplying those words because they were inadverrnntly omitted it is clear that one of two limitations is applicable

CHAMPA v. REVENUE BOARD (Hidayatullah, C.J.) 475

to the present case, according to the circumstances of the case If it is to be considered under the main clause of sub-s. ( 7), then we have to find out wherther 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 c, n 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 Rs. 67,48,841/11/-. This was payable in different instalments, from 1952 to 31st March, 1957.

It was, however, provided as follows :

" ...... provided however 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. 67,48,841/-11/-.

The 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 than 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 doc

and payable with interest at the rate aforesaid and Government w:ill (in addition to all rights for enforcement oi this document) be entitled to take ail steps to enlorce payment induding issue of certificate under Section 46(2) of tl1e Income Tax Act and proceedings under the West B1:ngal Public Demands Recovery Act and Revenue Recovery Act."

The .contention of the appellants is that the letters of the 22nd September, 1952 (one of which has been reproduced above as a sample) were accompanied by the notices of demand and on the breach of the payment of the instalment of Rs. 9,50,000/- on 31st March, 1953, the appellants became defaulters within the meaning of the Act in respect of the whole amount of tax.

Therefore recovery proceedings could only commence within the end of a financial year commencing from 31st March, 1953 since the payment of the instalment was co-terminus with the end of the financial year. This, according to them, was provided in the agreement itself in the extract just reproduced from the agreements above.

The other side contends that cl. (iv) of the proviso to s. 46, sub-s. ( 7) takes no account of the exigibility of the whole amount under a scheme of payment by instalments. Whenever instalments are granted the period of limitation counts from the last instalment and here it would be one year from March 31,

1957. The ddault could be taken note of earlier also because the whole amount remained exigible the moment the first default was made. In the present case the certificate was issued on March 14, 1956 and, therefore, it was well within the period of limita<ion.

The learned single Judge in the case (Sinha J.) very rightly pointed out that under the agreements two things were done. Firstly, the total liability of the parties was calculated and each party became jointly and severally liable for the whole sum. Then instalments were fixed and on the breach of a single instalment the whole of the amount became exigible. The assessment order reproduced the agreement as part of it and the agreement therefore became tl1e assessment order.

Under the assessment order a notice of demand was sent t<J pay the money oftbe first instalment of Rs. 9,.50,000/- by March 31, 1953. On breach of it the whole amount was said to be exigible and the demand in respect of that was also made. The appellants therefore, rightly concluded the Judge, became defaulters on the failure to pay the first instalment.

Since instalments were granted, cl. (iv) of the proviso to sub-s.

(7) of s. 46 applied to the case. This conclusion is correct. That clause does noi: mention about the exigibility of the whole amount or exigibility of any particular instalment. It only says that if

CHAMPA v. REVENUE BOARD (Hegde, J.) 477

instalments are granted time of one year ending with the end ot the tmancial years is to be calculated from the date on winch

the last instalment is payable.

The language of cl. (iv) of the proviso was untortunate in expressing this intent and has now been corrected in the new Act but the intention was always obvious. Even in the second agreement which replaced the first agreement the same condition obtained. There was a concession snown in the matter of penalty and smaller instalments were fixed.

But the Central Board of Revenue had stipulated even then that the concession mentioned above would only be available if the revised scheme of payment was strictly followed. In other words, payment was to be made by instalments an.d this concession therefore attracted the provisions of cl. (iv). The Government could always accept any instalment even if paid late without having to worry about the period of limitation of one year from the date of demand, since cl. (iv) of the first proviso gave them an option to wait till the last instalment was payable.

The scheme of the instalments took the matter out of the main part of su\>.s.

(7) and brought it within the proviso to clause (iv).

We are, 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 have failed.

The remaining four appeals against order refusing certificate are accordingly dismissed as infructuous with no separate order as to costs.

Hegde, J.-These appeals should be allowed, as in my opinion the impugned certificate is barred under sub-s. (1) of s. 46 of the Indian Income Tax Act, 1922 (in short 'the Act').

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.

Under the agreement entered into between the assessees and the department, if the assesees fail to pay any one or more of the instalments fixed, the entire tax became recoverable forthw!th.

Ad!Uittedly the assessees failed to pay the instalments as stipulated m 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 quetiQII is not relevant for considering the true

scope of sub-s. (7) of s. 46.

Section 46 creates a special machinery for the recovery of arrears of tax.

Section 46 is found in Ch. IV of the Act which deals with recovey of tax and penalties.

Section 45 prescribes, when an assessee becomes a defaulter.

The main part of that section says :

"Any mnount specified as payable in a notice of demand under sub-section (3) of section 23A or under section ~9 or an order under section 31 or section 33, shall be paid within the time, at the place and to the person men1ioned 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 undef section 30, the Income-tax Officer. may in his discretion treat the assessee as not being in default as long as such appeal is undisposed of."

(The proviso to that section and the explanation are not relevant for our present purpGse).

For finding out whether an assessee is a defaulter or not, all that we have to see is whether he has failed to comply with the

proviions of s. 45. If he has.Uild to comply with the demand made in accordance with the provisions in s. 45 within the time mentioned therein then he is 'defaulter' within the meaning of 'the Act'. Unless the assessee is a defaulier, no action can be taken against him under s. 46.

Non-fulfLment of the terms of the agreement does not amount to a default under s. 45. Therefore 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 s. 29 had bee!Drissued

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.

This takes .. us to s. 46.

Sub-s. (1) of s. 46 says : . "When an assessee is in default in making a payment of income-tax, the Income-tax Officer may in his discretion dimct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered f:rom the assessee by way of penalty."

The default referred fo in this sub-section is necessarily a default under s. 45.

That much is obvious froin the scheme of Ch. VI.

Now let us read sub-s. (7) of s. 46. It is as follows :

CHAMPA v. REVENUE BOARD (Hegde, J.) 479

"Save in accordance with the provisions of sub-section (1) of section 42 or to the proviso to section 45, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act :

Provided that the period of one year herein referred to shall ~

(iv) where the sum payable is allowed to be paid by instalments, from the date on which the last of such instalments was due".

If we read the impugned sub-s. (7) of s. 46, it is clear that no proceedings for the recovery of any sum payable under the Act can be commenced after the expiration of one year froI!l the last day of the financial year in which any demand is made under the Act. In the instant case, the demands in question were made on September 22, 1952. Therefore the recovery proceeding's should have been commenced before 31st March 1953 but actually. they were commenced on March 14, 1956.

Hence they are prime. facie barred.

This talces us to sub-cl. (iv) of the proviso to sub-s. (7) of s. 46.

Under that proviso where the sum payable is allowed to be paid by instalments, the one year prescribed in sub-s. (7) of s. 46 will be. computed from the date on which the last of such )nstalments

was due.

The expression "was due" does not appear. to be grammaticalfy correct. It should have been "is due".

This correction has been made in the corresponding provision of the 1961 Indian Income• Tax Act; but that error is immaterial for our present purpose.

The words "was due" can only mean "is due" even under the Act. For finding out when the sum claimed 'was due', we must again go back to s. 45.

In view of the demand notices issued in September 1952 and sum became due when the assessees became defaulters and therefore the recovery proceedings under the Act should have been initiated before March, 1954.

The same having not been initiated before that date, the proceedings .in question must be held to have been barred.

In my opinion for finding out the date on which the last instalment was due, we cannot fall back on the agreement between the assessees and the revenue.

Chapter V of the Act has nothing to do with the agreement between the assessees and the revenue.

The expression "was due'~ in s. 46(7) has reference to the tax which is due in accordance with the provisions in ss. 45 and 46,

For the reasons mentioned above I allow these appeals. A

ORDER

In accordance with the opinion of the majority, Civil Appeals Nos. 564, 566, 568 and 570 of 1966 (arising from the common judgment and orde:r of the Division Bench of the Calcutta High a Court, December 10, 1963) are dismissed with costs.

The other appeals are also dismissed as infructuous with no separate order as to costs.

Y.P.