1964 (12) TMI 7 - SC - Income Tax

Whether there should be a prior adjudication existing before a set-off can be allowed under section 49E? Whether there is any other condition which is necessary to be fulfilled before the section becomes applicable? Held that - There must be a subsisting obligation to make the payment of refund before a person is entitled to claim a set-off under section 49E. In this case, in view of the orders of the Commissioner and the Central Board of Revenue mentioned above, there was no subsisting obligation to pay, and, therefore, the claim of the appellant must fail. Therefore, agreeing with the High Court, we hold that section 49E of the Act is of no assistance to the appellant and that the petition was rightly dismissed by the High Court. The appeal accordingly fails and is dismissed

Summary

Issues:
1. Interpretation of section 49E of the Indian Income-tax Act, 1922.
2. Validity of prior adjudication requirement for claiming set-off under section 49E.
3. Obligation of the Income-tax Officer to make payment of refund before set-off under section 49E.
4. Applicability of section 49E in the context of final orders by the Commissioner and Central Board of Revenue.

Detailed Analysis:
1. The judgment concerns the interpretation of section 49E of the Indian Income-tax Act, 1922. The appellant sought a refund under the Act and requested a set-off against tax demands. Section 49E allows for the set-off of refunds against tax payable. The High Court held that a prior adjudication in favor of the appellant was necessary for claiming a set-off under this section.

2. The appellant argued that a prior adjudication was not required to claim a set-off under section 49E. The Income-tax Officer could decide refund eligibility upon application. However, the court noted that the orders rejecting the refund application were final and valid. It was emphasized that the term "found to be due" in section 49E implied a pre-existing adjudication in favor of the claimant.

3. The judgment delves into the obligation of the Income-tax Officer to make a payment of refund before allowing a set-off under section 49E. The court clarified that the expression "in lieu of payment of the refund" indicated a subsisting obligation on the Officer to make the payment. If a claim was barred by a final order, there was no obligation to pay, thus disqualifying the claimant from seeking a set-off.

4. The court addressed the applicability of section 49E in light of final orders by the Commissioner and the Central Board of Revenue. It was established that if a refund was due under the Rules made under the Act, it would be considered a refund due under the Act. However, the judgment concluded that the appellant failed to demonstrate a subsisting obligation for payment of the refund, as per the final orders, leading to the dismissal of the appeal.

In conclusion, the Supreme Court upheld the High Court's decision that section 49E did not assist the appellant in this case. The appeal was dismissed, and no costs were awarded.