Union Of India vs Bibhuti Bhusan Sen, And Ors.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Not extracted

Decision Date: 8 May 1963

Coram: A.K. Sarkar, B.P. Sinha, K.C. Das Gupta, K.N. Wanchoo, S.K. Das

In this case the Court explained that the appeals arose from an order of the High Court of Calcutta dated 3 April 1953, in which the High Court refused to grant an application made on behalf of the appellant for leave to attach and sell, through the Certificate Officer at Alipore, the property and assets of Messrs Sen Brothers and Co. that were in the possession of a receiver appointed by the High Court, for the purpose of recovering arrears of income‑tax owed by the firm. The Court noted that the factual background was limited and set out those facts succinctly.

The Court recorded that a partition suit was pending between certain members of the Sen family, and one of the properties involved in that suit was the business known as Messrs Sen Brothers and Co. A preliminary decree in that suit had been passed by a court located at Alipore, and an appeal against that decree was lodged before the High Court of Calcutta. In the course of that appeal the High Court ordered that receivers be appointed to manage the affairs of the firm. From the year 1945 through the year 1953 the receivers appointed were two of the Sen brothers themselves, namely Balai Lal Sen and Bibhuti Bhusan Sen.

The Court further detailed that income‑tax assessments were made against the two receivers in their capacity as receivers for the firm’s income for the assessment years 1945‑46, 1949‑50, 1950‑51, 1951‑52 and 1952‑53. The assessment for the year 1949‑50 was later cancelled. Because the Income‑Tax Department could not recover the tax from the receivers, it initiated certificate proceedings to recover the dues under each of the four remaining assessments. While those certificate proceedings were still pending, the two Sen brothers ceased to hold the office of receiver.

According to the judgment, the receivership was then transferred to Sisir Kumar Basu and Kanai Lal Sen on 5 February 1954. Subsequently, on 23 December of the same year, Sisir Kumar Basu became the sole receiver. On 6 February 1955 the Union of India, represented by the Commissioner of Income‑Tax for West Bengal, filed an application before the High Court seeking two specific reliefs. The first prayer was for leave to attach and sell, through the Certificate Officer at Alipore, the property and assets of Sen Brothers and Co. that were in the possession of the receiver, Sisir Kumar Basu, and to apply the proceeds of such a sale to the recovery of arrears of income‑tax due from both the firm and the receiver. The second prayer was for leave to serve a notice under section 46(5 A) of the Income‑Tax Act on the receiver, namely Sisir Kumar Basu, and to pursue any further proceedings that the said section authorized.

The Court observed that a rule was subsequently issued on the basis of that application by Judges P.N. Mookherjee and Renupada Mukherjee in accordance with the prayers made. While the rule was still pending, the Court noted that the receiver Sisir Kumar Basu resigned, and a new receiver, M.K. Sen, was appointed in his place.

M. K. Sen was appointed as the receiver following the resignation of the previous receiver, Sisir Kumar Basu. Subsequently, an application was filed requesting that M. K. Sen be substituted as the receiver, and the court allowed this substitution. The rule then proceeded to be heard as a rule directed against the newly substituted receiver. The hearing was conducted by Justices S. C. Lahiri and S. K. Sen, who ultimately discharged the rule. They observed that neither the Indian Income‑tax Act, 1922 nor the Bengal Public Demands Recovery Act authorised replacing a receiver who had been assessed for the firm’s income with another receiver who had not been assessed. Moreover, because no assessment had been made against the firm, the judges held that it would be inappropriate to permit the court’s sanction to proceed against assets held by the subsequent receiver, M. K. Sen. M. K. Sen was not an assessee and had not been presented before the Certificate Officer for any assessment. The appellant’s original application to the High Court directly raised the question of the Union’s right to proceed against the successor to the assessed receiver. The appellant relied on sub‑section (2) of section 41 of the Indian Income‑tax Act and on section 43 of the Bengal Public Demands Recovery Act. After examining those provisions, the judges concluded that they did not justify granting the appellant leave to proceed against the assets of Messrs. Sen Brothers and Co. Those assets were in the possession of a receiver who had not been assessed and could not be substituted for the assessed receiver. The appellant has not presently pressed before this Court the second prayer, namely the issuance of a notice under section 46(5A) against the receiver who was then in possession. When the appellant sought a certificate from the High Court, it was stated that no notice under section 46(5A) could be issued against the receiver then in possession. The only matter for which a certificate was requested, and subsequently granted, concerned the correct interpretation of sub‑section (2) of section 41 of the Indian Income‑tax Act. That sub‑section reads: “Nothing contained in sub‑section (1) shall prevent either the direct assessment of the person on whose behalf income, profits or gains therein referred to are receivable, or the recovery from such person of the tax payable in respect of such income, profits or gains.” The learned Chief Justice, sitting with Justice Lahiri, delivered the certificate and observed that the first part of the sub‑section authorises direct assessment of the owners of property held by a receiver and, by implication, authorises recovery of tax imposed by such assessment. He further explained that the second part deals solely with recovery and does not explicitly require an assessment of the owners as a condition precedent to recovery.

In this case, it was argued that although the tax assessments had been made against the former receivers, the tax liability arising from those assessments could be recovered from the owners of Sen Brothers and Co. It further contended that because the assets of the firm were now in the possession of a receiver rather than the owners, the recovery could be directed against the receiver. The learned judges of the Court rejected this argument, observing that although sub‑section (2) of section 41 contains two clauses separated by the word “or”, the second clause was intended. It permitted recovery of tax from the proprietors only when a direct assessment of those proprietors had been made, even though a receiver held the estate. The Union of India’s main contention, which it intended to raise before the Supreme Court, was that this interpretation of the second clause of section 41(2) was erroneous. The point raised presented some difficulty, and in light of the provisions of section 65 of the Income‑tax Act, the question could arise whether a proceeding for tax recovery could be instituted against the successor to the assessed receivers. Such a proceeding might be contemplated even though no assessment had been made against the owners of the firm. Fortunately, the appeals could be disposed of on the simple basis that Bibhuti Bhusan Sen had been appointed as receiver in place of M. K. Sen by an order of the High Court dated 28 March 1958. Bibhuti Bhusan Sen, as one of the receivers, had been made the assessee for assessments concerning the firm’s income for the years 1945‑46, 1950‑51, 1951‑52 and 1952‑53, and these assessments were the ones for which the appellant sought recovery of tax. Because Bibhuti Bhusan Sen himself had been the assessed person, there was no issue of a later substitution of a receiver, and it was unnecessary to examine the effect of sub‑section (2) of section 41. Accordingly, the Court allowed the appeals, permitted the appellant to proceed against Bibhuti Bhusan Sen in his capacity as receiver of the assets of Messrs. Sen Brothers and Co., and ordered that no costs be awarded in this Court.