Limitation for tax recovery proceedings may run from the last instalment due date where instalment payment is recognised

Recovery proceedings under section 46(7) of the Indian Income-tax Act, 1922 were held to be within limitation where the tax liability had been permitted to be paid by instalments under an arrangement recognised in the assessment and demand process. The majority treated the assessee as a defaulter upon non-compliance with the section 29 demand notices, but construed the proviso to section 46(7) as making limitation run from the date the last instalment fell due. On that basis, the certificate proceedings commenced in March 1956 were timely. The dissent considered default to arise on the demand notices themselves and would have treated the recovery as time-barred.

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Issues: Whether recovery proceedings under section 46(7) of the Indian Income-tax Act, 1922 were barred by limitation notwithstanding that the tax liability had been structured to be paid by instalments under a settlement with the department.

Analysis: The majority held that the assessee became a defaulter when the demand notices under section 29 were not complied with, and that the instalment arrangement brought the case within the proviso to section 46(7). The proviso was read as providing that, where payment of the sum is allowed by instalments, limitation runs from the date on which the last instalment is due. On that construction, the certificate proceedings initiated on 14 March 1956 were within time. The dissent held that default under the Act had to be tested by the statutory demand itself, not by the private settlement, and that the proceedings were barred.

Conclusion: The recovery proceedings were not barred by limitation and the challenge failed.

Dissenting Opinion: Hegde J. held that the demand notices in September 1952 made the assessees defaulters, and that the recovery proceedings, having been commenced only in March 1956, were time-barred under section 46(7).

Ratio Decidendi: Where tax liability is payable by instalments under an arrangement recognised in the assessment and demand process, section 46(7) permits limitation for recovery proceedings to be computed from the date on which the last instalment falls due.

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