1955 Supreme(Cal) 29

HIGH COURT OF CALCUTTA
P. B. Mukharji
MURLI TAHILRAM - Appellant
Versus
T. ASOOMAL AND CO. - Respondent
Suit 2674  Of  1953
Decided On : FEBRUARY 11, 1955

The State's claim for priority in payment of debts owing to it out of the property of its debtor will very often be met by this plea of infringement of the citizen's fundamental right to hold property wherever such citizen is another creditor of the same debtor and who has by attachment, charge or mortgage or other means acquired an interest in the property of the debtor.

Headnote:

TAX - SALES TAX - PRIORITY - STATE CLAIM FOR UNPAID SALES TAX - COMPETITION BETWEEN STATE AND PRIVATE CITIZEN - STATE CLAIM FOR PRIORITY OVER PRIVATE CREDITOR - WHETHER STATE ENTITLED TO PRIORITY - CONSTITUTION OF INDIA, ART. 19(1)(F), 372 - BENGAL PUBLIC DEMANDS RECOVERY ACT, 1941 - CIVIL PROCEDURE CODE, 1882, SS. 60, 73(3).

Fact of the Case:

The State of West Bengal claimed priority over a private creditor in respect of certain funds in the hands of a Receiver and by specific order of Court ear-marked for payment to the creditor who is the decree-holder. The State was a stranger to the suit in which the decree was passed and the order for payment to the decree-holder was made. The State's claim was for unpaid sales tax against the defendant Judgment-debtor.

Finding of the Court:

1. The Bengal Public Demands Recovery Act and the Statutory Rules made thereunder do not give priority to the State or allow preferential payment to the State of its dues in respect of arrears of Sales tax out of the moneys in the hands of a Receiver appointed by the Court and directed to be paid by the Court to the decree-holder prior to any intervention by the State. 2. Sections 60 and 73 (3), Civil P. C. , do not create such priority. 3. The State's claim for priority cannot be allowed to defeat the subject's right to acquire that property and hold it. 4. The State's claim for priority in payment of debts owing to it out of the property of its debtor will very often be met by this plea of infringement of the citizen's fundamental right to hold property wherever such citizen is another creditor of the same debtor and who has by attachment, charge or mortgage or other means acquired an interest in the property of the debtor. 5. The origin and the cause of this constitutional doctrine of priority for State debts is the necessity of the State to collect revenue for the purpose of its administration. 6. The republican character of the Constitution of India does not and cannot do away with the necessity of this constitutional doctrine of priority for State debts. 7. It is only the revenue claims of the State which have the priority, and not the claims which arise in favour of the State while it carries on its activities in competition with citizens. 8. Subject to the constitutional rights under the Constitution and subject to the provisions of Article 372 of the Constitution and subject to the special Statutes relating to the recovery of taxes, Indian taxes and State taxes have the precedence over private claims.

Issues: 1. Whether the State of West Bengal is entitled to priority over a private creditor in respect of certain funds in the hands of a Receiver and by specific order of Court ear-marked for payment to the creditor who is the decree-holder? 2. Whether the Bengal Public Demands Recovery Act and the Statutory Rules made thereunder give priority to the State or allow preferential payment to the State of its dues in respect of arrears of Sales tax out of the moneys in the hands of a Receiver appointed by the Court and directed to be paid by the Court to the decree-holder prior to any intervention by the State? 3. Whether Sections 60 and 73 (3), Civil P. C. , create such priority? 4. Whether the State's claim for priority cannot be allowed to defeat the subject's right to acquire that property and hold it? 5. Whether the State's claim for priority in payment of debts owing to it out of the property of its debtor will very often be met by this plea of infringement of the citizen's fundamental right to hold property wherever such citizen is another creditor of the same debtor and who has by attachment, charge or mortgage or other means acquired an interest in the property of the debtor? 6. Whether the origin and the cause of this constitutional doctrine of priority for State debts is the necessity of the State to collect revenue for the purpose of its administration? 7. Whether the republican character of the Constitution of India does and cannot do away with the necessity of this constitutional doctrine of priority for State debts? 8. Whether it is only the revenue claims of the State which have the priority, and not the claims which arise in favour of the State while it carries on its activities in competition with citizens? 9. Whether subject to the constitutional rights under the Constitution and subject to the provisions of Article 372 of the Constitution and subject to the special Statutes relating to the recovery of taxes, Indian taxes and State taxes have the precedence over private claims?

Ratio Decidendi: 1. The State's claim for priority cannot be allowed to defeat the subject's right to acquire that property and hold it. 2. The State's claim for priority in payment of debts owing to it out of the property of its debtor will very often be met by this plea of infringement of the citizen's fundamental right to hold property wherever such citizen is another creditor of the same debtor and who has by attachment, charge or mortgage or other means acquired an interest in the property of the debtor. 3. The origin and the cause of this constitutional doctrine of priority for State debts is the necessity of the State to collect revenue for the purpose of its administration. 4. The republican character of the Constitution of India does not and cannot do away with the necessity of this constitutional doctrine of priority for State debts. 5. It is only the revenue claims of the State which have the priority, and not the claims which arise in favour of the State while it carries on its activities in competition with citizens. 6. Subject to the constitutional rights under the Constitution and subject to the provisions of Article 372 of the Constitution and subject to the special Statutes relating to the recovery of taxes, Indian taxes and State taxes have the precedence over private claims.

Final Decision: The State of West Bengal's prayer for injunction restraining the decree-holder from realizing the amount of the sale proceeds without payment of sales tax and also its prayer for directing the Official Receiver to make payment out of the sale proceeds to the State first is refused. The State is given leave to attach in execution of the said certificate proceeding the balance of the sale proceeds, if any, that may be left in the hands of the Official Receiver after payment of his costs, charges and expenses and after payment of the plaintiff decree-holder's dues.