1972 (5) TMI 22 - HC - Income Tax

State's Cause of Action Upheld in Tax Suit Appeal

The court held that the State Government had a cause of action to institute the suit as the appellate order was effectively communicated to the defendant. ... U.P. Agricultural Income Tax Act, 1948 - The State of U. P. instituted a suit for the recovery of Rs. 3,02,982.62 as arrears of agricultural income-tax for the assessment year 1952-53 with pendente lite and future interest at twelve per cent. per annum. The learned civil judge, Faizabad, decreed the suit for recovery of Rs. 1,89,364.62 with interest at 41/2 per cent. per annum. Aggrieved Raja Jagdambika Pratap Narain Singh, the defendant, has come up in appeal - Whether U.P. Agricultural Income-tax Act bars suit for recovery of tax and whether interest on arrears of tax can be recovered - In the present case the suit is for realising the statutory demand for tax - interest cannot be, granted on any equitble principle - there being no agreement to pay interest or any provision in any law for award of interest under such circumstances, the plaintiff was not entitled to a decree for past interest. The decree under appeal, in so far as it grants past interest, cannot be sustained - In the result the appeal succeeds and is allowed in part Issues Involved:1. Cause of action for the suit.2. Bar of suit by Section 32(2) of the Agricultural Income-tax Act.3. Bar of suit by the doctrine of res judicata.4. Violation of Article 14 of the Constitution by Section 9, Civil Procedure Code.5. Entitlement to past interest.Issue-wise Detailed Analysis:1. Cause of Action for the Suit:The appellant argued that the State Government had no cause of action for instituting the suit as the appellate order was not communicated to the defendant. The court examined the evidence and found that the appellate order was pronounced in open court on the day of the hearing, and the defendant's knowledge of it must be presumed. The court held that the order was effectively communicated to the assessee on 25th November 1953, or at the latest by 1st March 1958 when the defendant obtained a certified copy. Therefore, the suit was not premature, and the cause of action had arisen.2. Bar of Suit by Section 32(2) of the Agricultural Income-tax Act:The appellant contended that the suit was barred by Section 32(2) of the Act, which limits the commencement of recovery proceedings to one year from the due date of the last installment. The court agreed with a previous Division Bench decision that 'proceedings' in Section 32(2) referred to recovery actions under the Act, not civil suits. The court held that the right to recover money due is a civil right, and the State could institute a suit under Section 9, Civil Procedure Code, which was not barred by the Act. The rule of limitation in Section 32(2) did not apply to civil suits, and the suit was within the 60-year limitation period under Article 149 of the Limitation Act.3. Bar of Suit by Doctrine of Res Judicata:The appellant argued that the suit was barred by res judicata due to a previous writ petition decision. The court noted that the writ petition quashed a notice of demand based on limitation but did not address the current suit's basis. The court found no res judicata as the present suit was not based on the quashed notice and the writ petition did not decide on the maintainability of a civil suit for tax recovery.4. Violation of Article 14 of the Constitution by Section 9, Civil Procedure Code:The appellant claimed that Section 9, Civil Procedure Code, violated Article 14 by allowing the State to choose between a stringent special procedure and a civil suit. The court rejected this argument, stating that the special procedure under the Act was more stringent and provided immediate recovery methods like arrest and property attachment, whereas a civil suit allowed more time for payment. The court found no invidious discrimination and upheld Section 9.5. Entitlement to Past Interest:The appellant challenged the award of past interest, arguing that the claim did not arise from any contract and the statute did not provide for interest. The court agreed, citing precedents that interest could not be awarded as damages or under equitable principles unless provided by law or contract. The court held that the plaintiff was not entitled to past interest as there was no legal or contractual basis for it.Conclusion:The appeal was allowed in part, dismissing the suit for past interest from 25th November 1953 to 23rd January 1959. The rest of the decree for the principal tax amount was maintained. The connected writ petition was allowed, quashing the appellate order's clause requiring payment in four equal installments fixed in a fresh notice of demand. The parties were to bear their own costs for the writ petition, while costs in both courts were to be paid and received proportionally to their success and failure.