Set-off against tax refund fails once the refund claim is finally rejected and no enforceable liability to pay remains.

Section 49E of the Indian Income-tax Act, 1922 permits set-off of a refund against tax payable only where the refund is legally due and there remains a subsisting obligation to pay it. The Income-tax Officer may consider whether a refund is due when the application is made, without a prior adjudication. However, the phrase "in lieu of payment" requires an enforceable refund liability to exist at that time. Where the competent revenue authorities have finally rejected the refund claim, the obligation to refund ceases and set-off is unavailable. The double taxation relief rules, though part of the Act under section 59(5), do not revive a claim that has been conclusively negatived.

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Issues: Whether, under section 49E of the Indian Income-tax Act, 1922, a refund could be set off against tax remaining payable when the refund claim had already been finally rejected and no subsisting obligation to make payment remained.

Analysis: Section 49E permits set-off only where a refund is found to be due and is available in lieu of payment of that refund. The provision does not require a prior adjudication before the Income-tax Officer considers set-off, because the officer may determine whether a refund is due when the application is made. However, the words "in lieu of payment" signify that there must still be an existing obligation to pay the refund. Where the refund claim has been finally barred by the competent revenue authorities, the obligation to pay has ceased. By reason of section 59(5), the double taxation relief rules form part of the Act, but that does not assist the appellant once the claim for refund has been finally rejected.

Conclusion: Section 49E did not apply, because no subsisting obligation to refund existed after the final rejection of the claim; the appellant was not entitled to set-off.

Final Conclusion: The judgment affirms that the statutory power of set-off under section 49E is available only while a refundable liability remains legally enforceable, and not after the refund claim has been conclusively negatived.

Ratio Decidendi: A set-off against tax under section 49E can be claimed only when a refund is legally due and there remains a subsisting obligation to make payment of that refund.

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