Case Note & Summary
The dispute arose after the respondent firm, Soorajmull Nagarmull, obtained decrees against the Union of India for refund of excess customs duty levied on spindle oil imports. The trial court had directed the Union of India to refund Rs. 43,723 and Rs. 75,925 with interest. At the same time, the firm owed substantial income tax and super-tax arrears. The Income Tax Officer, invoking Section 46(5A) of the Indian Income Tax Act, 1922, issued a notice to the Collector of Customs requiring him to pay the decree amounts towards the firm’s tax dues. The Collector complied, depositing the money into the Reserve Bank, which issued receipts crediting the sums against super-tax. The Collector then applied under Order 21 Rule 2 of the Code of Civil Procedure, 1908 to have the decrees adjusted by these payments. The High Court, both at single judge and division bench level, refused to record satisfaction on three grounds: first, the decrees were against the Union of India, not the Collector; second, the sums were held by the Collector on behalf of the Union, not the firm; and third, the notice was defective because it mentioned income-tax and penalty whereas the receipts were for super-tax. The Supreme Court found these objections to be unduly technical. It held that the Union of India operates through departments, and the Collector’s payment was on behalf of the Union, thus payment by the judgment debtor. The Court explained that a notice under Section 46(5A) is akin to a garnishee order, and the money held by the Collector was properly diverted. It further held that super-tax is a species of income tax, so the notice was not defective. Addressing an additional argument that Order 21 Rule 2 requires voluntary payment, the Court distinguished the cited authorities and ruled that the rule does not demand voluntariness; a garnishee payment, though involuntary, is sufficient for certification of satisfaction. The appeals were allowed, and the Court directed that the decrees be recorded as satisfied.
Headnote
A) Civil Procedure – Payment Out of Court – Adjustment of Decree – Identity of Judgment Debtor – Code of Civil Procedure, 1908, Order 21 Rule 2; Income Tax Act, 1922, Section 46(5A) – The decrees were against the Union of India, but the Collector of Customs paid the amount under a garnishee notice; the Union operates through departments, and payment by the Collector on behalf of the Union was payment by the judgment debtor – Held that the objection that the decrees were not against the Collector was a highly technical plea and could not defeat the adjustment (Paras 125, 126 A). B) Taxation – Garnishee Notice – Section 46(5A) – Recovery of Tax – Income Tax Act, 1922, Section 46(5A) – The Income Tax Officer’s notice under Section 46(5A) is a kind of garnishee order requiring a person holding money for the assessee to pay the tax; the money held by the Collector was due to the firm and could properly be diverted to the Tax Officer – Held that the notice was validly issued and the payment was in discharge of the assessee’s liability (Paras 126, 127 B-D). C) Taxation – Super-tax as Income-tax – Validity of Notice – Income Tax Act, 1922, Section 46(5A) – The notice mentioned income-tax and penalty, but the payment was credited against super-tax; super-tax is a species of income tax – Held that the notice was not defective merely because it used the term ‘income-tax’ instead of ‘super-tax’, following the established principle that super-tax is a kind of income tax (Paras 127, 128). D) Civil Procedure – Voluntary Payment – Garnishee Payment – Adjustment of Decree – Code of Civil Procedure, 1908, Order 21 Rule 2 – Order 21 Rule 2 does not require that the payment be voluntary; a garnishee order, by its nature, leads to an involuntary payment, yet such payment is sufficient for certification and adjustment of the decree – Held that the payment under Section 46(5A) satisfied the requirement of payment out of court and the decree must be recorded as adjusted (Paras 127 G-128 B).
Issue of Consideration
Whether payment by the Collector of Customs under Section 46(5A) of the Income Tax Act, 1922, in respect of a decree against the Union of India, amounts to a payment by the judgment debtor that can be certified and adjusted under Order 21 Rule 2 of the Code of Civil Procedure, 1908; Whether the notice issued under Section 46(5A) was defective because it mentioned income-tax and penalty instead of super-tax; Whether the payment made under a garnishee-type order can be considered a voluntary payment for the purpose of Order 21 Rule 2 CPC.
Final Decision
The Supreme Court allowed the appeals, holding that the payment by the Collector of Customs under Section 46(5A) of the Income Tax Act, 1922 amounted to payment by the judgment debtor (Union of India) and was sufficient for certification under Order 21 Rule 2 CPC. The Court directed that the satisfaction of the decrees be recorded, reversing the High Court’s refusal.
Law Points
- Legal points not extracted
- Order 21 Rule 2 CPC does not require voluntary payment
- garnishee order leads to adjustment of decree
- payment under Section 46(5A) is in nature of garnishee payment
- Union of India operates through different departments
- notice to Collector of Customs is proper
- super-tax is a kind of income tax
- payment by a department on behalf of Union is payment by judgment debtor
