Receiver appointed to recover tax arrears from third-party funds where statutory recovery proved ineffective

Where tax arrears could be realised only from money admittedly due to the assessee and held by a third party, the Supreme Court held that civil relief by way of a receiver could be granted to facilitate recovery. The appellant's asserted counter-claim was treated as a unilateral adjustment, not a bona fide defence to the Revenue's claim. As the recovery machinery under section 46(2) had already been set in motion and section 46(5A) had become ineffective on the facts, recourse to the civil court was considered permissible. The decree was upheld because no ordinary money decree could properly be passed against the appellant except in relation to the assessee's funds in its hands.

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Issues: Whether the Revenue could obtain a civil decree for appointment of a receiver to realise tax arrears from money admittedly due to the assessee and lying with the appellant, where recovery proceedings under section 46 of the Indian Income-tax Act were invoked.

Analysis: The appellant's liability to the assessee in respect of the money in its hands was admitted, and the asserted counter-claim was found to be a unilateral adjustment and not a genuine defence against the Revenue's recovery claim. The recovery machinery under section 46(2) had been set in motion, and section 46(5A) had become ineffective in the circumstances. On those facts, recourse to the civil court for adjudication and for appointment of a receiver to collect the amount from the appellant was held permissible, and the form of the decree was treated as appropriate because no ordinary money decree could be passed against the appellant except in relation to the assessee's funds held by it.

Conclusion: The suit and the decree for appointment of a receiver were upheld; the contention that such relief was impermissible in law was rejected.

Ratio Decidendi: Where tax dues can be realised only out of money admittedly belonging to the assessee and in the hands of a third party, and the statutory recovery process has failed or become ineffective, a civil court may grant appropriate relief, including appointment of a receiver, to enable recovery of the tax arrears.

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