KALYAN MILLS LTD. versus UNION OF INDIA & ORS.

Citation: [1987] 1 S.C.R. 362 · Decided: 21-11-1986 · Supreme Court of India · Bench: O. CHINNAPPA REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
B 
. KALYAN MILLS LTD. 
v. 
UNION OF INDIA & ORS. 
NOVEMBER 21, 1986 
[O. CHINNAPPA REDDY AND G.L. OZA, JJ.] 
INCOME TAX ACT, 1961-Section 46(2) & 46(5A)-Tax dues 
recoverable from· assessee company-Assessee company informing that 
amount can be recovered by Union of India from the amount owed by 
Appellant Company-Suit for recovery of tax' dues by Union of India against 
C appellant company-Validity of such claim. 
, 
The Union of India-Respondent No. l, had to recover certain arrears of 
taxes from the assessee-company-Respondent No. 2. The assessee-company 
informed the Union oflndia that the tax dues recoverable from it he recovered 
0 
from the amount which was owed by the appellant-company to it. The debt due 
by the appellant-company to the assessee-company was shown to the credit of 
assessee-company in the accounts of the appellant-company. The 
E 
· appellant-.,ompany acknowledged and :•dmitted its liability to the assessee-
company and promised the Union of India to pay the amount of tax dues 
against the debt due by it to the assessee-company. 
Notices under s. 46(2) ands. 46(5A) of the Income Tax Act were issued to 
the appellant-company for the recover:r of the said amount. 
The Union of India filed a suit seeking a decree against the appellant-
company and four other defendants. The appellant-company set up a false 
F 
theory that the assessee-company itself was liable to pay the appellant-
company and; theN{ore, it was not liable to pay tax dues of the assessee-
company. 
G 
The trial court decreed the suit holding that the ·union of India was 
entitled to a .money decree against the appellant-company. 
The appeal preferred by the appullant-company was dismissed by the 
High Court. 
In the appeal to this Court on behalf of the appellant-company it was 
contended that a suit as filed by the respondent and the decree granted by the 
H 
trial court was not permissible in law because proceedings for appointment of 
362 
.- .. ~. 
KALY AN MILLS v. UNION OF INDIA [OZA, J] 
363 
, y 
receiver can only be contemplated in execution proceedings of a decree against 
A 
the original debtor. 
-
Dismissing the appeal the Court, 
HELD: 1. The High Court has rightly maintained the decree by coming 
to the conclusion that the amount of commission earned by the assessee-
B 
company was admittedly with the appellant. It was withheld by. the appellant 
under the pretext that it had a counter-claim against the assessee Under s, 46(2) 
.of the Income Tax Act, a prohibitory order attaching' the said money of the 
assessee-company was issued and the machinery under S.46(5A) of the Act 
was no longer effective as the appellant set up a counter-claim against the 
assessee and there was no option for the Union of India but to obtain 
C 
adjudication from the civil court. [365H -
366B J 
2. No money decree could be pasSed against the appellant-company 
except for the money lying in the deposits with them for tho assessee-company 
and it is for that purpose that the decree for appointment of receiver was made 
so that the amount be recovered and paid to the plaintiff-Union of India, 
D 
(366C-D] 
' 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 447(N) of 
1973. 
)>-. 
From the Judgment and Decree dated 18/ 19.4.1972 of the Gujarat High 
E 
,_ 
·Court in First Appeal No. 184-of 1964. 
V.A. Bobde and A.G. R_atnaparkhi for the Appellant. 
S.C. Manchanda, Ms. A. Subhashini and K.C. Dua for the 
Respondents. 
F 
j 
. The Judgment of the Court was delivered by 
OZA, J. This appeal arises out of a certificate granted by this Court. The 
facts necessary for the disposal of this appeal are that the respondent No. 1 
Union of India filed a suit against the petitioner. The petitioner is a public 
limited company. Respondent No. 2 which is also a public limited company G 
was the assessee company and the Union of India, respondent No. 1 had to 
recover a sum of Rs 1,32,400.87 p. from the said assessee company on account 
of arrears of income tax, excess profit tax, business profit tax. To recover this 
amount a suit was filed on 15.2.58 impleading therein besides the present 
appellant said assessee company and others as defendants. It was alleged that 
the assessee company by its letter dated 4.10.48 informed the plaintiff Union of H 
364 
SUPREME COURT REPORTS 
[1987] I S.C.R. 
A 
India that the arrears due from it be reco·1ered from the petitioner on account of 
y 
its commission. It was alleged that for recovery of the said amount no

Excerpt shown. Read the full judgment & AI analysis in Lexace.