BUILDERS SUPPLY CORPORATION vs. THE UNION OF INDIA REPRESENTED BY THE COMMISSIONER OF INCOME-TAX, WEST BENGAL AND OTHERS

CIVIL APPEAL No. 824/1963Supreme Court[1965] 2 S.C.R. 28930 November 1964Bench: 5 JudgesAuthor: P.B. GAJENDRAGADKAR, M. HIDAYATULLAH, J.C. SHAH, S.M. SIKRI, R.S. BACHAWAT21 pages
AI SummaryDismissed

What were the facts?

The appellant, Builders Supply Corporation, obtained a decree for Rs. 12,275-9-0 against Respondent No. 2. Respondent No. 2 had a Rs. 50,000 security deposit with the Superintending Engineer, Calcutta. The appellant attached a sum equivalent to its decree from this deposit. The Union of India (through the Commissioner of Income-tax) intervened, claiming that the judgment-debtor owed over Rs. 5,000 in income tax arrears for which a certificate under Section 46(2) of the Income-tax Act, 1922, had been issued, initiating proceedings under the Public Demands Recovery Act. The Union of India asserted its priority over the appellant's unsecured debt. The Executing Court accepted this claim. The appellant's revision petition to the High Court failed, leading to this appeal to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the Union of India was entitled to claim priority for its tax dues over the unsecured debt of the appellant. Firstly, the Court affirmed that the Common Law doctrine of priority of Crown debts had been applied and upheld in British India prior to the Constitution and that such rules of Common Law adopted by judicial decisions amounted to 'law in force' under Article 372(1), meaning the Union's position was not altered by the Constitution. Secondly, the Court reasoned that the fundamental justification for government debt priority is the State's necessity to function as a sovereign entity, which relies on taxation. Thirdly, the Court found that neither Section 46 of the Income-tax Act, 1922, nor the Public Demands Recovery Act displaced the doctrine of priority. Section 46 deals with the recovery of tax arrears as land revenue, and the Recovery Act provides the procedure for recovering public demands, but neither directly addresses or supersedes the principle of priority of tax dues over private debts. Therefore, the High Court was correct in allowing the Union of India's claim.

What were the issues?

1. Whether the Common Law doctrine of priority of Crown debts was wrongly applied by the High Court in this case, given that the Union of India's claim was based on it. 2. Whether the Common Law doctrine of priority of Crown debts constituted a 'law in force' in India at the commencement of the Constitution under Article 372(1), and if its operation could continue post-Constitution. 3. Whether the doctrine of priority of Crown debts was displaced or superseded by the provisions of Section 46 of the Indian Income-tax Act, 1922, and the relevant provisions of the Public Demands Recovery Act. Assessee's Contentions: (1) The High Court erred in holding that the Common Law doctrine of priority of Crown debts applied. (2) Even if applicable, it was not a 'law in force' under Article 372(1) and could not continue post-Constitution. (3) The doctrine was superseded by Section 46 of the Income-tax Act and the Recovery Act. Revenue's Contentions: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 46(2)

AI-generated summary — verify with the full judgment below

B c D G H BUILDERS SUPPLY CORPORATION v. TIIE UNION OF INDIA REPRESENTED BY IBE COMMIS· SIONER OF INCOME-TAX, WEST BENGAL AND OTHERS.

November 30, 1964 [P. B. GAJENDRAGADKAR, C.J., M. HIDAYATULLAH, J. C. SHAH, S. M. SIKRI AND R. S. BACHAWAT, JJ.] DOC(rine of priority of Crown Debts under Common Law-WheJher applicable to India.

Income-tax arrears due to Union Government-Recovery thereof-Whet- her has priority above claims of unsecured creditors of common debtors- Doctrine of priority af Crown Debts in relation to tax dues-Whether a 'law in force' in India at cotnn1encen1ent of Constitution--Constitution of India Art. 372(1).

Indian Income Tax Act 1922, s. 46, and provision of Public Demand.< Recove~y Act whether displace doctrine of priority of Government Debts.

The appellant filed a suit against Respondent No. 2 and secured a decree against him for Rs. 12,275-9-0. The Judgment-debtor had a sum of Rs. 50,000 in deposit with the Superintending Engineer, Calcutta, by way of security for the due execution of a contract. The Executing Court at the instance of the appellant attached a sum equivalent to the decretal amount from the aboYe security deposit, and the

The order continues below.

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