Tax refund set-off remains valid despite time-bar on recovery proceedings where underlying liability continues to subsist.

A refund due under the Income-tax Act could be adjusted against earlier tax arrears because the limitation on summary recovery proceedings did not extinguish the underlying liability. Section 46 was treated as a recovery mechanism only, while Section 49-A permitted set-off of any refund against tax remaining payable; the set-off was therefore valid even though coercive recovery under Section 46 was time-barred. The civil court bar also did not apply because the claim challenged only the legality of the adjustment of an admitted refund, not an attempt to set aside or modify an assessment. The adjustment was upheld and the suit was not barred.

---

---

Issues: (i) Whether the Income-tax Officer could set off an amount found refundable against an earlier assessment which was no longer recoverable by proceedings under the recovery provision of the Act; (ii) whether the suit was barred by the statutory exclusion of civil court jurisdiction.

Issue (i): Whether the Income-tax Officer could set off an amount found refundable against an earlier assessment which was no longer recoverable by proceedings under the recovery provision of the Act.

Analysis: The refund was adjusted under Section 49-A of the Indian Income Tax Act, 1922, which permits set-off of any refund due against tax remaining payable. The limitation in Section 46(7) was held to govern only proceedings under Section 46 and not to extinguish the underlying liability. Section 46 was treated as a summary recovery provision and not an exhaustive code. Once tax was assessed, it remained a debt due to the Crown, and the arrears for the earlier year were still payable for purposes of Section 49-A, even though coercive recovery under Section 46 was time-barred.

Conclusion: The set-off was valid and the deduction was upheld.

Issue (ii): Whether the suit was barred by the statutory exclusion of civil court jurisdiction.

Analysis: The plaintiff did not seek to set aside or modify any assessment. The claim was confined to the legality of the adjustment made against an admitted refund. On that footing, the suit did not fall within the statutory prohibition against suits to set aside or modify an assessment, and the civil court bar was not attracted.

Conclusion: The suit was not barred on the ground of civil court jurisdiction.

Final Conclusion: The appeal failed because the adjustment of the refund against outstanding tax was held lawful, and no jurisdictional bar defeated the suit.

Ratio Decidendi: A refund due under the Income-tax Act may be set off against tax that remains payable, even if proceedings under the summary recovery machinery are time-barred, because the limitation on recovery proceedings does not extinguish the underlying liability.

---