Decided on December 03,1976

SATET Respondents


Salil Kumar Roy Chowdhury, J. - (1.)In this matter before me, the only question for consideration is whether the tax dues of the Government of India claiming arrears of income-tax which has been assessed, demand raised and certificate issued, against the company cannot be disputed any longer in any way whatsoever, would have priority over other ordinary creditors of the company. Previously, the matter came up for direction and as to the assessment by the income-tax department in respect of certain years and payment of their dues out of the fund in the hands of the official liquidator; being Mr. S. Acharyya. In this particular case, from time to time, I also made certain orders relying on the relevant decision of the Supreme Court as to the authority of the liquidator vis-a-vis the court to go into the question of assessment of tax liabilities, but now the only point which has been raised and required for consideration and decision by me is whether between the ordinary creditors of the company, the dues of the Union of India in respect of the liabilities of the company should get priority or not.
(2.)The learned Advocate-General, appearing with Mr. Ajit Sengupta for the income-tax authority submitted, relying on the Supreme Court decision in Builders Supply Corporation v. Union of India [1965] 56 ITR 91, that an identical question came up before the Supreme Court and the law on this question has been specifically laid down after considering the common law in England giving priority of Crown debts, the Indian Income-tax Act of 1922, Section 46, and also the relevant Tax Recovery Act and various decisions of the Indian High Courts. The Supreme Court after considering the question has laid down the law that so far as the tax dues of the Government of" India are concerned it will have priority over other ordinary creditors subject to the rights of secured creditors. Here, there is no dispute that there is no secured creditor and as such other creditors are all unsecured creditors of the company in liquidation the list of which is annexed to the petition of the official liquidator filed on the 22nd November, 1976. The observation of Gajendragadkar C.J. in the case of Builders Supply Corporation v. Union of India , considering the effect of the decision in the case of Director of Rationing and Distribution v. Corporation of Calcutta , is in the following terms :
"Therefore, this decision clearly shows that the rules of common law relating to substantive rights which had been adopted by this country and enforced by judicial decisions, amount to 'law in force' in the territory of India at the relevant time within the meaning of Article 372(1)."

(3.)In view of that, the contention of the counsel appearing for the appellant before the Supreme Court that though the English common law doctrine of priority of Crown debts regarding tax dues might have been recognised by judicial decisions in India prior to 1950, there is no sanction for its continued operation after the Constitution came into force, which naturally proceeded on the assumption that the judicial recognition of the relevant common law doctrine cannot claim protection of Article 372(1) of the Constitution of India, was negatived and it has been laid down that the common law priority of tax dues of Crown is to continue as a law in force under Article 372(1) of the Constitution of India. Further, the contention of the counsel before the Supreme Court was that by reason of the provision of Section 46 of the Indian Income-tax Act, 1922, and of the relevant provisions of the Recovery Act, the doctrine of priority of Crown debts in respect of tax has become the subject-matter of the legislative provision and, therefore, the said doctrine cannot be enforced. The said contention was also negatived by the Supreme Court and it was observed by Gajendragadkar C. J. at page 107 in the following terms:
"In making a provision for the recovery of arrears of tax, it cannot be said that Section 46 deals with or provides for the principle of priority of tax dues at all; and so, it is impossible to accede to the argument that Section 46 in terms displaces the application of the said doctrine in the present proceedings."


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