INCOME TAX OFFICER Vs. INDIAN INSURANCE AND BANKING CORPORATION LIMITED
HIGH COURT OF MADRAS
INCOME-TAX OFFICER (CIRCLE I), SALEM
INDIAN INSURANCE AND BANKING CORPORATION LTD., SALEM
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Mack, J. -
(1.) THE point this appeal raises is whether a Crown debt for Income-tax, as it was then for the years 1945 to 1947 due by a mortgagor is, on the application of the Income-tax Officer, payable in priority out of the rents and profits collected by a receiver appointed in a simple mortgage suit filed by the mortgagee. THE learned Subordinate Judge held that the Crown debt was entitled to priority only as against unsecured creditors, taking the view that the rents and profits from the hypotheca constituted part of the mortgaged property upon which the debt due to the mortgagee was secured. This appeal has been filed by the Income-tax Officer concerned.
(2.) THE learned Subordinate Judge was partly guided by a Rangoon decision -- 'Ma Joo Tean v. Collector of Rangoon', AIR 1934 Rang 321 (A) which appears to be the only decision out of several considered by the learned Subordinate Judge which is in point. That was a case in which the Collector of Rangoon claimed Rs. 1029 Court-fee payable by the mortgagor from the funds held by a receiver appointed in a suit on the mortgage. Sir Arthur Page C. J. and Ba U J. held, reversing a decision of Leach J. (as he then was) that the crown was not entitled to payment in priority over the party entitled who was the mortgagee decree-holder. THEy took the view that rents and profits arising out of mortgaged lands in the hands of a receiver were prima facie not sums payable to the mortgagor, but formed part of the mortgaged property upon which the debt due to the mortgagee was secured. I am not bound by this decision, the correctness of which is with great respect open to doubt.
The mortgage in the Rangoon case appears to have been an English mortgage or a mortgage by deposit of title deeds coming within the scope of Section 58(g) and Section 69(1)(a), Transfer of Property Act. In such a case, under Section 69A the mortgagee has a right to exercise a power of sale and is entitled to appoint by writing signed by him on his behalf a receiver of the income of the mortgaged property. Such receiver shall, under this section be deemed to be the agent of the mortgagor.....It is urged before me that a receiver appointed by the Court in a simple mortgage suit is in a similar position and that all that he collects as rents and profits on this form of mortgage must go to the mortgagee in priority to all other creditors.
There is in the first place no doubt about the right of the Crown on mere applications and without any formal attachment to obtain an order of payment in priority over unsecured creditors from funds belonging to the debtor. This has been settled in -- 'Manickam Chettiar v. Income-tax Officer, Madura', AIR 1938 Mad 360 (FB) (B). Section 46, Indian Income-tax Act provides for recovery of arrears of income-tax by the Collector on receipt of an Income-tax Officer's certificate as if it were an arrear of land revenue. It is not disputed before me that Crown dues for land revenue and income-tax are payable in priority over all simple creditors, and that the Income-tax officer would have no priority at all over the amount realised by the sale of the hypotheca, the entire sale proceess being of course the security of the mortgagee which he is entitled to realise in full.
As regards the rents and profits collected from the hypotheca by the receiver appointed in a mortgage suit, the position is different. It is conceded that the Crown or now the Government of India or the State Government is entitled to priority as against simple money creditors over money which is brought to court in execution of money decree. It is however contended by Mr. Nambiar that such a debt, although it is entitled to priority over all simple money debts, has no priority over the mortgagee in respect of rents and profits collected by the receiver. It is true that as between the other simple creditors and the mortgagee, it has been held that the mortgagee was entitled to preferential rights as against the holder of a money decree in respect of profits of the hypotheca in the hands of the receiver. This was decided by Leach C. J. and Madhavan Nair J. in -- 'Khader Mohideen v. Nagubai', AIR 1939 Mad 402 (C). That was again a case of an equitable or English mortgage. Mr. Rama Rao for the Income-tax Officer relies on -- 'Sambasiva Chettiar v. Secy, of State', AIR 1910 Mad 703 (D), a decision by Wadsworth J. which appears to be relevant and in point, which however does not appear to have been placed before the learned Subordinate Judge. That was a case of a simple mortgage in a suit by a mortgagee in which a receiver was appointed. The mortgagor owed Government money in respect of 'Kudimaramath' due under the Madras Compulsory Labour Act. An order by the Subordinate Judge of Chingleput on an application by the Collector that this Crown debt should be paid in priority even over the mortgagee was upheld. I am with respect in general agreement with the reasons given by Wadsworth J. in support of his view that in India at any rate a simple mortgage does not bind the rents and profits of the hypotheca.
The appointment of a receiver in a simple mortgage suit is an equitable remedy granted to the mortgagee in special cases as for instance when the debt which has accrued is in excess of the value of the hypotheca or when interest has not been paid for several years. It was always open to the mortgagee to realise the security by bringing it to sale in which case the Crown and the other simple creditors would be excluded from any share in the security itself. The rents and profits collected by a receiver appointed by a Court cannot strictly be regarded as property charged with the debt. Wadsworth J. took the view that the Court gave preference to the mortgagee over the simple creditors, merely by way of justice and equity, to ensure that the mortgagee shall not be damnified by the protraction of the suit. I find it difficult to accept this as the basis for giving preference to the mortgagee over simple creditors in view of the mortgagee being more often than not responsible for his own difficulties in not suing on his mortgage earlier and his not bringing the property to quick sale. It is not always easy to lay down precise reasons to support every just and equitable principle laid down by the Courts.
Mr. Nambiar urges that if the mortgagee is given a preferential claim to simple creditors a Crown debt which is also in the category of an unsecured debt has no claim to priority. I am unable to agree. A Crown debt is not a secured debt in the sense that there is no specific property charged with its payment. It is given a privileged priority over other debts by judicial decisions and also under statutes. The priority of Crown debts is recognised in Section 73(3), Civil P. C. which lays down that nothing in that section, which relates to a distribution of assets rateably among decree-holders, shall affect the right of the Crown, in the Presidency Towns Insolvency Act, Section 49, and in the Provincial Insolvency Act, Section 61, which require payment of all debts due to the Crown or to any local authority in priority to all other debts. If such priority to Crown debts is safeguarded in insolvency, 'a fortiori' Crown debts should be awarded strict priority as it appears to me in solvency. Crown debts cannot for all purposes therefore be put into the category of unsecured debts. They occupy a special and privileged category of their own. It is only a secured debt, that is, one in respect of a strictly specified security which can have priority over a Crown debt.
I have no hestaition in agreement with Wads-Worth J. in holding that the rents and profits collected by a receiver appointed by a Court in a simple mortgage suit in prosecution of an equitable remedy open to the mortgagee do not constitute part of the security as such. Although such rents and profits can be deemed by the mortgagee in priority to other simple creditors, they cannot be appropriated by the mortgagee in priority over a Crown debt.
(3.) FOR these reasons, the order of the learned Subordinate Judge is reversed and the appeal is allowed with costs. The Income-tax Officer will be paid his claim out of the funds in court deposited by the receiver. I make no order as to interest.
C. R. P. No. 1863 of 1951 is a revision petition by the mortgagee filed, it would appear, by way of abundant caution seeking the same relief. The correct remedy was by way of an appeal and not by way of revision.
The petition is dismissed as unnecessary without any order as to costs.
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