JUDGMENT <NAME>, J.

1. In this appeal a point of significance on which there is divergence in the views expressed in judicial pronouncements has to be considered, and as the matter relates to the jurisdiction of courts we shall discuss it with some fulness of detail.

2. The appellant before us is <ORG> and the respondent is the Official Receiver of Ramnad district. The contest is between an official on the one side and a quasi-Government department on the other. One <NAME> was adjudged an insolvent in I. P. No. 1 of 1947 on the file of <ORG> and all his estates became vested in the Official Receiver of Ramnad. The insolvent was the president of a certain <ORG> as well as a director of <ORG>. The <ORG> was a debtor to <ORG> in a large sum of money and the insolvent executed a security bond to the bank for that sum. The bank later on applied to the Deputy Registrar of <ORG> to an award, A. R. C. No. 87/1947-48 for a sum of Rs. 83000 and odd against the insolvent, to be recovered by the sale of the properties hypothecated by him under the security bond and after getting that award the bank filed E. P. No. 95 of 1947-48 before the same Deputy Registrar for execution of the award and realisation of the amounts due by sale of the mortgaged property and that application is now pending. The Official Receiver in whom the equity of redemption has vested filed I. A. No. 47 of 1949 to annul the security bond under Section 53 of the Provincial Insolvency Act on the ground that it is a voluntary transfer and as such not valid and binding so far as the Official Receiver was concerned. Pending that application, the Official Receiver has also filed I. A. No. 48 of 1949 for a temporary injunction restraining the bank from proceeding with the execution of the award before the Deputy Registrar. The learned District Judge of Ramnad issued the injunction prayed for and against that order the present appeal has been filed.

3. Mr. <NAME> for the appellant contests the jurisdiction of <ORG> to issue an Injunction restraining the proceedings taken by a secured creditor in due furtherance of his rights and states that in view of Section 28 , Sub-section (6) of the Provincial Insolvency Act , the secured creditor has an unfettered right of exercising his rights for the realisation of the amount due to him. Section 28 , Sub-section (6) reads as follows: "Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed". On the very wide terms of this section, the argument is put forward that if a secured creditor has taken steps to realise the money due under his security or otherwise dealt with it, then it is in no way affected by the insolvency of the debtor and that the secured creditor could proceed as if Section 28 had nut been in force. In other words an insolvency court can issue no process against a secured creditor curtailing his unrestricted right of enforcement of a security. In such circumstances where the bank has taken steps to realise the security, the order of injunction issued by the insolvency court is 'ultra vires' and without jurisdiction. We have therefore to see how far this argument is well founded.

4. Great reliance is placed upon a judgment of this court in the -- ' <CITATION> ', AIR 1925 Mad 1051 (A), where it is held that an insolvency court has no jurisdiction to stay a mortgage suit pending in another court under Section 10 , Civil P. C., in a case where the insolvency court is seized of an application under Section 53 , Provincial Insolvency Act to set aside a mortgage as void against the creditors which mortgage is Itself the subject of adjudication in another civil court. There are observations in the judgment of <NAME> which are sufficiently wide to justify an argument that an insolvency court cannot even prevent a secured creditor from enforcing his remedies under the mortgage or other security in the ordinary civil courts. If we examine the facts and arguments in that case closely, it is clear that what was argued there was that a civil court is deprived of its jurisdiction to proceed with a suit for the enforcement of security by a secured creditor of the insolvent on account of the pendency of an application before the insolvency court under Section 53 or the Provincial Insolvency Act . The reason alleged was that if the insolvency court declares the mortgage void and not binding on the estate of the insolvent, then the property could vest in the Official Receiver to be disposed of in favour of the general body of creditors, and such being the case the mortgagee secured creditor would not be in a position to bring the property to sale on the strength of his mortgage as soon as the transaction is declared void. But it is one thing to say that a civil court is not deprived of its jurisdiction by reason of the pendency of an application under Section 53 of the Insolvency Act and another to say that if the insolvency court considers it better it can stay the hands of the person who invokes the jurisdiction of the civil court to realise the monies due under his security. At page 758 <NAME> observes as follows: "No <ORG> has power to sell the property of an insolvent if it is vested in the Official Receiver excepting the Official Receiver himself .... ....

But till such a declaration is made by <ORG> under Section 53 , the transaction is good and the mortgagee could proceed with the suit or with the execution of his decree against the insolvent's property. The Official Receiver's right to proceed under Section 53 is not taken away either by the institution of a suit by the mortgagee or the passing of a decree in his favour or even by his realising the amount due to him by the sale of the property; for the Official Receiver could apply to the insolvency court for a declaration that the transaction is void, and if he succeeds the property of the insolvent would vest in him before sale in execution of the mortgage decree."

5. At page 1057 <NAME> speaks in the following strain:

"There is no reason, therefore, why the mortgagee's suit should be stayed because proceedings under Section 53 are filed or pending. The result of such proceedings would affect only the execution of the decree in the mortgage suit, since the mortgagee cannot be permitted to sell the property for himself if there is an adverse order under Section 53 . The real conflict in the two proceedings does not materialise until the question arises; who is to sell the property? Then the decision in the proceedings under Section 53 will bind the mortgagee by force of Section 4 of the Provincial Insolvency Act and the sale will be by the Official Receiver and the proceeds must be primarily held at the disposal of the Official Receiver. As the Official Receiver is already a party 'ex hypothesl' to the mortgage suit, there will be no trouble about that. It would be the duty of the court executing the mortgage decree to give effect under Section 4 of the Provincial Insolvency Act to the decision in the insolvency enquiry. The principle that the interest of the particular creditor must give way to that of the general body of creditors is thus not in danger."

In our opinion the decision in -- 'AIR 1925 Mad 1051 (A)', cannot be said to prevent a court from taking into consideration various relevant factors which would show that it is open to the insolvency court to see that the interest of the general body of creditors fare not jeopardised by a secured creditor prosecuting his remedy in other proceedings. Some of the considerations are the following: (1) Whereas the mortgagee secured creditor has no interest in getting any amount more than what is due to him by the sale of the property, the Official Receiver should very much be on the alert in getting the maximum price by the sale of the properties on behalf of the general body of creditors; (2) where the Official Receiver is to sell the property, he need not conclude the sale until a bid which according to him would be an adequate price, whereas in court sales the sale has to be concluded even though the price fetched was not sufficient; and (3) that if the properties are sold in auction in execution of a decree, complications might arise in the form of a purchaser coming on the scene. The really crucial point is how best to safeguard the interest of the general body of creditors who will have no say in the proceedings by the secured creditor in the ordinary civil court. We may remark here that so far as the proceedings in question are concerned, there is no difference between an execution of a mortgage decree by a civil court for the realisation of the mortgage money and the proceedings under Section 57 A of the Madras Co-operative Societies Act for the realisation of the amounts due under an award.

6. How far the learned Judges who decided --'AIR 1925 Mad 1051 (A)', are correct in laying down that even if there are sufficient and valid grounds for staying the proceedings in a civil court or the execution of a mortgage decree by a civil court, still the insolvency court has no jurisdiction to prevent by means of an injunction actions which might turn out to be detrimental to the interests of the general body of creditors may now be considered.

7. The observations contained in the standard works on Bankruptcy Law as well as the decisions of English Courts are not uniform on this subject. In Halsbury's Laws of England, Hailsham's Edn. Vol. II, at page 91, paragraph 106, the learned author expresses the following opinion:

"The right of a secured creditor to realise or otherwise deal with his security is unaffected by the presentation of a Bankruptcy petition or the making of a receiving order. Thus the court has no jurisdiction to restrain a mortgagee of the bankrupt's property from selling the property; nor will it restrain a mortgagee from proceeding with an action to enforce his security."

In support of these observations 'Re <NAME>; Ex parte General Public Works and Assets Co. Ltd.', (1894) 2-Q. B. 302 (B), and other cases are cited. Section 28(6) of the Provincial Insolvency Act which we have quoted above is practically in the same form as Section 7(2) of the English Bankruptcy Act, 1914 and 1926. The language of Section 7(2) of the English Bankruptcy Act is as follows:

"But this section shall not affect the power of any secured creditor to realise or otherwise deal with his security in the same manner as he would have been entitled to realise or deal with it if this section had not been passed."

8. With regard to the power of restraining secured creditors, the Law in England is stated at page 85 of Williams on Bankruptcy:

"The court will not ordinarily restrain a mortgagee or other secured creditor in the exercise of his legal remedies. But a mortgagee whose title there is substantial ground for impeaching may be restrained by the court, not under the powers of this section but in the exercise of its powers as <ORG> in any case where an injunction is necessary for the preservation of the property. In practice, receivers showing sufficient prima facie grounds for impeaching the title of mortgagees have obtained such injunctions until the appointment of a trustee."

9. The power of the insolvency court to decide questions arising in insolvency is contained in Sections 4 and 5 of the Provincial Insolvency Act which are very wide in their scope and import. The corresponding provision in the English Act is contained in Section 105 and in the commentary to that section at page 470 of Williams on Bankruptcy there are observations which are helpful for the present discussion.

"Although, as has been seen, a secured creditor would not be restrained from enforcing his security in courts other than the court of bankruptcy, unsecured creditors, and indeed, secured creditors, have always been restrained from bringing action for their debts against the bankrupt, and this is the necessary consequence of the provisions of Section 7(1) , that after receiving order no creditor shall have any remedy except by proof against the property or person of the debtor, saying the power to realise or deal with securities. The injunction, however, is discretionary .................."

10. It is seen from these observations that there is a discretion vested in the court in the matter granting injunctions and not that there is an absolute prohibition against the grant of injunction. Though in 'Ex parte Bayly, In re Hart', (1880) 15 Ch. D. 223 (C), the court refused to grant the injunction, still observations in the judgment of <NAME> at pages 226 and 227 do not negative the power inherent in the court to issue the injunction in suitable cases. At page 227 we have the following statement by the learned Judge:

"Under such circumstances if the court saw that there was a reasonable case to be tried at the hearing, it would interfere and keep the property 'in medio' until at the hearing the rights of the parties could be decided."

11. It is therefore clear that it cannot be said as an abstract proposition of law that the insolvency court in England never had that power. In India also there are judicial pronouncements as well as views of text books writers which do show the existence of such a power. Paragraph 74, at page 56 of the Law of Insolvency by <NAME> is to the following effect:

"Injunction. Though the court will not restrain a mortgagee or other secured creditor in the exercise of his legal remedies under Section 18 (sic.) of the Act, it may, it seems, restrain him under Order 39 Rule 1 C. P. C., 1908, if there are substantial grounds for impeaching its title."

12. The question was discussed in -- 'Ally Mohomed v. M. M. Bham', AIR 1928 Rang 241 (D), by <NAME> and <NAME> who, without referring to any of the English decisions, were of opinion that under Section 5 of the Provincial Insolvency Act the insolvency court, since it has some powers as a civil court, could, under justifiable circumstances, grant an injunction preventing a creditor from selling the insolvent's property which right is disputed by the other creditors in the insolvency court. We do not find any reference made to --'AIR 1925 Mad 1051 (A)', at all in the above quoted case. Nor have the learned Judges followed any observations of the English courts.

13. That Section 4 of the Provincial Insolvency Act empowers a court to direct a secured creditor to prove his claim and to issue against him an injunction restraining him from selling the secured property is clear from -- ' <CITATION> ', AIR 1928 Cal 60d (E). The learned Judges rely upon the very wide powers conferred upon the insolvency court by Section 4 , Provincial insolvency Act. But it has to be remembered that the creditor in that case had not yet resorted to the ordinary forum of the civil court for the recovery of his money. The proper way of looking at the question is this: When the equity of redemption in the secured property has vested in the Official Receiver then no proceedings undertaken by a court without the Official Receiver being made a party would bind him and such being the case in the proceedings before the Deputy Registrar in the present case the Official Receiver ought to have been impleaded and he not having been impleaded it is open to the Official Receiver to see that the rights of the secured creditors are safeguarded by means of an injunction. See the observations of <ORG> in -- 'Kalachand Banerji v. Jagannath', AIR 1927 PC 108 (F). Dealing with Sub-section (5) of Section 16 , Provincial Insolvency Act , 1907, which is equivalent to Section 28(6) of the present Act, their Lordships of <ORG> observe as follows:

"The learned Judges of <ORG> interpret this clause as inferring that the secured creditor is entitled to deal with the security as though there had been no vesting in the court or the receiver. Their Lordships are clearly of opinion that this construction of the clause cannot be supported. That the rights of the secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. The latter alone is entitled to transact in regard to it, and he and not the insolvent, has the sole interest in the subject matter of the suit. To him, therefore, must be given the opportunity of redeeming the property. The contrary view would encourage collusive arrangements between the secured creditor and the insolvent and might involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the unsecured creditors of the insolvent with whose Interests the receiver is charged."

As against these decisions supporting the view that under Ss. 4 and 5 of the Act, the insolvency court has very wide powers, learned counsel for the appellant has invited our attention to a few cases, the first of them being -- ' <CITATION> ', AIR 1927 Mad 201 (G). Apart from referring to -- 'AIR 1925 Mad 1051 (A)', there is no observation in that case which could help the appellant. Similarly in the -- ' <CITATION> ', AIR 1927 Mad 684 (H), the learned Judges have relied upon certain observations in -- 'AIR 1925 Mad 1051 (A)'. Even here we do not find any dicta, much less any clear decision on the present point in dispute supporting the contention of the appellant. But learned counsel placed some reliance on a decision of <ORG> in -- '<NAME> firm v. <NAME>', AIR 1935 Rang 92 (I), where; Page C. J. discussing the various cases held that a secured creditor of an insolvent is entitled, notwithstanding the vesting of the property in the Official Receiver, under Section 28(2) , Provincial Insolvency Act , to realise his security by filing a suit or otherwise in accordance with law, without obtaining the leave of the court in that behalf. Granting that the secured creditor has such a right, there is nothing in the judgment to show that <ORG> cannot restrain the secured creditor from proceeding with the suit or other proceeding by means of a proper injunction.

The question is whether the circumstances are such as would justify the issue of an injunction. If the secured creditor has instituted legal proceedings in respect of immoveable property situated, in a foreign country belonging to the mortgagor, then even though the mortgagor company is in the course of winding up in England, <ORG>, will not restrain by an injunction the secured creditor from prosecuting sucn proceedings especially when the party seeking to restrain can appear before <ORG> and assert his rights. See the observations in -- '<NAME> v. <ORG>', (1879) 10 Ch. D. 681 (J). Mr. <NAME> relies upon the observations of <NAME> in this case. The learned Master of the Rolls, at page 690 bases his decision mainly upon the nature of International law and the rights of the <ORG> to interfere in the proceedings before the foreign tribunal and he gives the following reasoning:

"Prima facie this court cannot interfere to restrain that proceeding. The court of the country must be assumed to know more about the law of its own country than the court of a foreign country and the risk of miscarriage in this court if it undertook to administer Italian law would be much greater than in the courts of Italy, who are, of course, more familiar with their own law, and as all parties can appear in that court and have their rights finally settled, it appears to me it would be in the highest degree inconvenient for this court to interfere at all, more specially when, to use an English phrase, <ORG> first had seisin of the matter, and have had seisin of it for some 2 or 3 years now past."

14. We are unable to see how the appellant can get any help at all from these observations. In our opinion, the observations in -- 'A. I. R. 1925 Mad 1051 (A),' are too widely stated and the principle is correctly stated in paragraph 74 of Mulah's Law of Insolvency. In these circumstances we have no doubt that <ORG> is empowered to issue the injunction in proper cases.

15. How far the learned Judge was justified in issuing the injunction has not been seriously disputed before us. On the facts it is clear that all the immoveable properties belonging to the insolvent have been the subject of the security bond & were being brought to sale before the Deputy Registrar and it was expedient in the interest of the-

general body of creditors to get an adjudication from <ORG> as to how far the mortgage was binding. If in the meanwhile the properties are sold by the Deputy Registrar and purchased by third parties innumerable complications are likely to arise impeding the realisation of the-

just dues of the various creditors. We are there fore of opinion that the learned District Judge act ed rightly in issuing the Injunction restraining <ORG> from proceeding with the sale of the properties. The civil miscellaneous appeal is therefore dismissed, in the circumstances with out costs. The Official Receiver will have his costs out of the estate.


PETITIONER: C.I.T., U.P. Vs. RESPONDENT: <NAME> (DEAD) BY L.R.S. DATE OF JUDGMENT21/01/1971 BENCH: <NAME>, J.C. (CJ) BENCH: <NAME>, <NAME>, K.S. GROVER, A.N. CITATION: 1971 AIR 2270 1971 SCR (3) 406 ACT: Income tax Act, 1922, s. 12B(1) Partition of assets of a firm on dissolution--Assets of firms valued -Outgoing - partner paid value of his share-Whether transaction amounts to sale resulting in capital gain. HEADNOTE: The respondent who was the karta of his Hindu undivided family entered into partnership with one D to carry on the business of manufacturing and selling pharmaceutical products etc. On July 27, 1946 the partnership was dissolved. The assets of the firm which included goodwill, machinery, furniture etc. were valued on the date of dissolution at Rs. 2,50,000 and the respondent was paid the sum of Rs. 1,25,000 in lieu of his share and the business together with the goodwill was taken over by D. The question in income-tax proceedings was whether the transaction was one of sale liable to capital gains tax under s. 12B(1) of the Income-tax Act. 1922. The assessing and appellate authorities held against the respondent. <ORG> in reference, however, held in his favour. The revenue appealed. HELD : There was no clause in the partnership agreement providing for the method of dissolution of the firm or for winding up of its affairs. In the course of dissolution the assets of the firm may be valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying money value equivalent thereof. This is a recognised method of making up the accounts of the dissolved firm. In that case the receipt of money by a partner is nothing but a receipt of his share in the distributed assets of the firm. The respondent received the money value of his share in the assets of the firm; he did not agree to sell, exchange on transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the respondent under the arrangement of his share was therefore not consequence of any sale, exchange or transfer of assets. [408 <CITATION> , 39 I.T.R. 123 and <CITATION> , 68 I.T.R. 240, distinguished. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1223 of 1967. Appeal from the judgment and decree dated March 5, 1964 of <ORG> in Income-tax Reference No. 71 of 1959.

<NAME>, <NAME>, <NAME> and <NAME>, for the appellant.

<NAME> and <NAME>, for the respondent. The Judgment of the Court was delivered by <NAME>, <NAME> The respondent who is <NAME> of a Hindu Un- divided Family entered on behalf of the family into a partnership with one <NAME> to carry on the business of manufacturing and selling pharmaceutical products and literature relating thereto. On July 27, 1946 the partnership was dissolved . The assets of the firm which included goodwill, Machinery, furniture, medicines, library and copyright in respect of certain publications were valued at the date of dissolution at Rs. 2,50,000/-. The respondent was paid a sum of Rs. 1,25,000/- in lieu of his share and the business together with the goodwill was taken over by <NAME>.

In proceedings for assessment of the respondent for the year 1947-48 the Income-tax Officer sought to bring an amount of Rs. 70,000/- to tax as capital gains. The contention raised by the respondent that no part of the amount of Rs. 1,25,000/received by the respondent represented capital gains was rejected by the Income-tax Officer, Appellate Assistant Commissioner and <ORG>. The <ORG> however reduced the amounts capital gains brought to tax to Rs. 65,000/-. The <ORG> referred the following question to <ORG> under s. 66(1) of the Indian Income-tax Act, 1922 "Whether on a true interpretation of sub-section (1) of section 12-B of the Income-tax Act, the sum of Rs. 65,000/- has been correctly taxed as capital gains". <ORG> answered the question in the negative. Against that order, with certificate granted by <ORG>, this appeal has been preferred.

Section 12-B(1) , insofar as it is relevant provides "The tax shall be payable by an assessee under the head "Capital gains" in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March 1946 . . . and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place Provided. . .

Provided further. . . Provided further that any transfer of capital

assets . . . . . . . . on the dissolution of a firm or other association of persons............. shall not for the purposes of this section, be treated as sale, exchange or transfer of the capital assets;

Liability to pay capital gains arises under S. 12-B(1) if there be a sale, exchange or transfer of capital assets. There was no sale or exchange of his share in the capital assets of the firm by the respondent to <NAME>. Nor did he transfer his share in the capital assets. The assets of the firm included the goodwill, machinery, furniture, medicines library and the copyright in respect of certain publications. A large majority of the assets were incapable of physical division, and the partners agreed that the assets be taken over by <NAME> at a valuation, and the respondent be paid his share of the value in money. Such an arrangement, in our judgment, amounted to a distribution of the assets of the firm on dissolution. There is no clause in the partnership agreement providing for the method of dissolution of the firm or for winding up of its affairs. In the course of dissolution the assets of a firm may be valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying the money value equivalent thereof. This is a recognized method of making up the accounts of a dissolved firm. In that case the receipt of money by a partner is nothing but a receipt of his share in the distributed assets of the firm. The respondent received the money value of his share in the assets of the firm; he did not agree to sell, exchange or transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the respondent under the arrangement of his share was therefore not in consequence of any sale exchange or transfer of assets.

To persuade us to take a different view, reliance was placed on behalf of the <ORG> upon <CITATION> (1). In that case the assessee held a power of attorney from the executor of a deceased person, in the course of the administration of his estate. He sold certain shares and securities belonging to the deceased for distribution among the legatees. The excess realized by sale was treated by <ORG> as Capital gains. The contention of the assessee that since the sale of the shares and securities fell within the purview of the third proviso to s. 12-B -(1) it could not be treated as a sale of capital assets within the meaning of s. 12-B(1) was rejected by this Court. This Court observed that the object of the third proviso to s. 12-B(1) , in providing that "any distribution of capital assets under a will" shall not be treated as sale, exchange or transfer of capital assets for the purpose of s. 12-B was that as long as there was distribution of capital assets in specie and no sale, there was no transfer for the purposes of that section, but if, there was a sale of the capital assets and profits or gains arose therefrom, the liability to tax (1) 39 I.T.R. 123.

<NAME>

arose, whether the sale was by the administrator or executor or a legatee, and that the expression "distribution of capital assets" in the third proviso to s. 12-B(1) meant distribution in specie and not distribution of sale proceeds. That case has no application. There was no distribution of capital assets between the legatees : the assessee had pursuant to the authority reserved to him from the executor of the deceased person sold the shares and securities, and from the sale of shares and securities capital gains resulted. In the case in hand there is no sale and payment of price, but payment of the value of share under an arrangement for dissolution of the partnership and distribution the assets. The rights of the parties were adjusted by handing over to one of the partners the entire assets and to the other partner the money value of his share. Such a transaction is not in our judgment a sale, exchange or transfer of assets of the firm. <CITATION> (1) in dealing with the meaning of the expressions "Sale" and "sold" as used in s. (10) (2) (vii) of the Income-tax Act , 1922, this Court observed that the expression "sale" in its ordinary meaning is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer for a price. In that case the assets were distributed among the partners and it was contended that the assets must in law be deemed to be sold by the partners to the individual partners in consideration of their respective shares, and the difference between the written-down value and the price realised should be included in the total income of the partnership under the second proviso to s. 10(2) (vii). This Court observed that a partner may, it is true, in an action for dissolution insist that the assets of the partnership be realised by sale of its assets, but property allotted to a family in satisfaction of his claim to his share, cannot be deemed in law to be sold to him.

We therefore agree with <ORG> that the question referred must be answered in the negative. The appeal fails and is dismissed with costs.

G.C. Appeal dismissed. (2) 68 I.T.R. 240


PETITIONER: COMMISSIONER OF SALES TAX, U.P. Vs. RESPONDENT: <NAME> OF COMMERCE, ALLAHABAD. DATE OF JUDGMENT10/04/1986 BENCH: <NAME>, <NAME> (J) BENCH: <NAME>, <NAME> (J) SINGH, K.N. (J) CITATION: 1986 AIR 1556 1986 SCR (2) 430 1986 SCC (3) 50 1986 SCALE (1)1068 CITATOR INFO : RF 1990 SC 313 (23) R 1992 SC 96 (14) ACT: Uttar Pradesh Sales Tax Act, 1948, s. 2(h) , 7-F and 29 Sales Tax - Refund of - Tax paid under provision of law subsequently held unconstitutional - Liability of <ORG> to refund tax - Limitation period for claiming such refund. Indian Contract Act 1872, s. 72 - Money paid under mistake of law - Liability to return/refund. HEADNOTE: The proviso to s. 29 of the U.P. Sales Tax Act 1948 provides that no claim to the refund of any tax or other amount paid under the Act shall be allowed unless it was made within 24 months from the date on which the order for assessment was passed or within 12 months of the final order passed in appeal, revision or reference in respect of the order of assessment whichever Period is later. The respondent-assessee had been taxed on the basis of sale of forward contracts for the assessment year 1949-50 and for subsequent years. After coming to know of the decision of <ORG> in Sales Tar officer, <CITATION> ,  1 S.C.R. 243 that the provision for taxation of sales tax on forward contract was ultra vires, the respondent-assessee filed a Revision in 1955 for quashing the assessment order for the relevant year 1955 i.e. within a year of the assessment order. me revision was dismissed in September 1958 on the ground that it had been filed after a long delay and was barred by limitation. m e assessee there after made a formal application before the Sales Tax Officer for refund of the amounts which were deposited in accordance with various assessment orders under mistake. The Sales Tax Officer dismissed that application as barred by period of limitation prescribed under Article 96 of the First Schedule of the Indian Limitation Act 1908. The assessee then filed a revision to the court of Additional Judge (Revision) Sales Tax, U.P. against the order of the Sales Tax Officer. Relying 431 upon the decision of <ORG> in <CITATION> , 1959 S.T.C. 57, the Additional Judge (Revision) held that there was no period of limitation and ordered refund of sales tax of Rs.3535.3 for 1948-49, Rs.9,205.12 for 1949-50, Rs.3,653.8 for 1950-51 and Rs.5,014.3.3 for 1951-52. <ORG> also upheld the order of the Additional Judge (Revision) in a reference at the instance of the revenue. It held: (a) that the period of limitation under Article 96 of the Limitation Act could not be taken into consideration by <ORG> in refusing to allow refund; and (b) that the Additional Judge (Revisions) Sales Tax, U.P. was legally justified in entertaining the revision application after the lapse of several years from the date of the assessment order and that the sums deposited by respondent-company towards sales tax for the year 1949-50 and onwards were refundable to the company. Dismissing the appeal of the appellant-revenue, this Court, ^ HELD: 1.(i) Article 265 of the Constitution enjoins that no tax shall be levied or collected except by authority of law. Therefore, when moneys are paid to the <ORG> which the <ORG> has no legal right to receive, it is ordinarily the duty of the <ORG> subject to any special provisions of any particular statute or special facts and circumstances of the case, to refund the tax of the amount paid. [437 D-H] 1.(ii) Where indubitably there is in the dealer legal title to get the money refunded and where the dealer is not guilty of any latches and where there is no specific prohibition against refund, one should not get entangled in the cobweb of procedures but do substantial justice. [445 F- G] Suresh Chandra Bose v. <ORG> of West Bengal, 38 S.T.C. 99 and <CITATION> , 45 S.T.C. 118, approved. 2.(i) The rights and the obligations of the parties must be found within the four corners of the Act and <ORG> in an appeal under an Act must act under the four corners of law, but in interpreting the relevant procedural provisions, fairness and justice should be the approach and 432 even in a fiscal statute, equity should prevail wherever language permits. [438 H; 493 A] 2.(ii) Section 7-F of the Act is significant in the sense that it proceeds on the basis that refund had to be made in certain cases. The section enjoins that notwithstanding anything contained in the Act, no tax, fee, interest or penalty under the Act shall be recovered and no refund shall be allowed if the amount involved for any assessment year was less than five rupees. It recognises liability and the obligation of refund if the amount is more than rupees five. Sub-section (5) of section 9 stipulates that if the amount of tax assessed, fee levied or penalty imposed was reduced by the appellate authority under sub- section (3), he shall order the excess amount of tax, fee or penalty, if realised to be refunded. Section 29 stipulates that the assessing authority shall, in the manner prescribed, refund to a dealer any amount of tax, fees or other dues paid in excess of the amount due from him under the Act. Sub-section (3) of section 29 provides certain embargo against refund in certain cases. Therefore, it is apparent that the obligation to refund in cases of excess realisation or excess payment by <ORG> of the dues from the seller as well as from the assessee is recognised in the scheme of the Act. [439 G-H; 440 A-B; E-F] 3.(i) Section 72 of the Indian Contract Act, 1872 recognises that a person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it. Money paid under a mistake of law comes within 'mistake' in section 72 of the Indian Contract Act, and there is no question of estoppel when the mistake of law is common to both the assessee and the taxing authority. [440 G; 443 D] 3.(ii) If law of limitation is applicable then section 5 of the Limitation Act is also applicable and it is apparent that the application originally was made within time before two years as contained in the proviso. Article 96 of the First Schedule of the Limitation Act, 1908 prescribes a period of limitation of three years from the date when the mistake becomes known for filing a suit. If that principle is also kept in mind, the assessee had made the application in 1955, and it was not beyond time, since the judgment came to be known in May. 1954. [445 D-F] 433 In the instant case, the mistake indubitably was there. There was no dispute that the tax was not due and had been collected wrongly. There is no dispute that the assessee is entitled to the same. There is no dispute that the assesee made application within a year of the knowledge of the mistake. There is no dispute therefore that had a suit been filed under Article 96 of the Limitation Act , 1908 or an application made under section 29 of the Act, the claim would have been allowed but the revision was dismissed on the ground that it was belated. The revision of The assessment order was wrong but the consequential relief of refund could have been granted. The order of the Additional Judge (Revision) was correct and the assessee was entitled to refund. [443 G-H; 444 A-B] Gannon Dunkerley and Co.'s case, 9 S.T.C. 353 and <CITATION> ., 16 S.T.C. 689, relied upon. <CITATION> , 1959 S.T.C. 57; <CITATION> .., 100 I.T.R. 698; <ORG> v. <ORG> of Rajasthan & ors.,  1 S.C.R.276 at 297; <CITATION> , 30 S.T.C. 41; <CITATION> , 17 S.T.C. 343; Commissioner of Income Tax, West Punjab v. <ORG>, Lahore, 16 I.T.R. 214; <CITATION> , 17 S.T.C. 418; <CITATION> , 5 S.T.C. 216; <CITATION> in Council, 74 I.A. 50 = 15 I.T.R. 332; <CITATION> ., 9 S.T.C. 747 and <CITATION> , 59 I.T.R. 73, referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 874- 876 of 1974.

From the Judgment and Order dated 19.1.1973 of <ORG> in Sales Tax Reference No. 763, 764 and 765 of 1970.

<NAME> for the Appellant.

<NAME> and <NAME> for the Respondent. The Judgment of the Court was delivered by <NAME>, J. These appeals by special leave arise from the decision of <ORG> of Allahabad. Under Section 11(3) of the U.P. Sales Tax Act, 1948 as amended from time to time the following questions were referred to <ORG> for opinion at the instance of the Commissioner of Sales Tax and statement of the case was submitted.

"1. Whether, the observations (subject, however, to the question of estoppel, waiver, limitation or the like) made by their Lordships of <ORG> in the case of <CITATION> , (1958 STC p. 747), imply that the provisions of the Indian Limitation Act are applicable to cases under the U.P. Sales Tax Act and whether these observations are inconsistent with the view taken by <ORG> in the case of Sales Tax Commissioner, U.P. v. <NAME>, (1959 STC p. 57) ?

2. Whether, in these cases in which refund was claimed on the principle of section 72 of the Indian Contract Act the period of limitation under Article 96 of the Limitation Act could be taken into consideration by the <ORG> authorities in refusing to allow refund?

3. Whether under the circumstances of this case as stated above, the Addl. Judge (Revisions) Sales Tax was legally justified in holding that the sums deposited by the Company towards sales tax for the year 1949-50, was refundable to the company?

4. Whether, the Addl. Judge (Revisions) Sales Tax was legally justified in entertaining the revision application in question of the aforesaid Company - after the lapse of several years from the date of the assessment order particularly when the appeal and the revision application of the Company in respect of the assessment year were dismissed?

The questions relate to the assessment year 1949-50 and for subsequent years. In view of the decision of <ORG> in <CITATION> which was in respect of the assessment year 1948-49 reported in 30 STC page 41, <ORG> was of the opinion that question No. 1 aforesaid need not be answered, question No.2 aforesaid should be answered in the negative, question No.3 aforesaid in the affirmative and question No.4 aforesaid in the affirmative.

The main question involved is the question of refund of sales tax paid in respect of forward contract.

<CITATION> . Budh Prakash Jai Prakash,  1 S.C.R. 243 = 5 S.T.C. 193 this Court held on 3rd May, 1954 that section 2(h) of the Uttar Pradesh Sales Tax Act, XV of 1948, enlarging the definition of "sale" so as to include forward contracts must, to that extent, be declared ultra vires. A bench of five learned judges of this Court held that there was a well-defined and well-established distinction between a sale and an agreement to sell. m e words 'Taxes on the sale of goods' in entry No. 48, List II, Schedule VII of the Government of India Act, 1935, conferred power on <ORG> to impose a tax only when there had been a completed sale and not when there was only an agreement to sell. For the same reason explanation III to section 2(h) of the said Act which provided that forward contract 'shall be deemed to have been completed on the date originally agreed upon for delivery' and section 3B of the Act also must be held to be ultra vires.

As a consequence, the assessee in this case filed a revision in 1955 for quashing the order for this year. It may be mentioned that the assessee had been taxed on the basis of sale of such forward contracts. The revision was dismissed in September, 1958 on the ground that it had been filed after a long delay and was barred by limitation.

The assessee subsequently filed an application before the Sales-tax Officer for refund of the amount which was deposited in accordance with the assessment order for the year and the subsequent years under mistake. This claim of refund was again made on 24th May, 1959. The Sales-tax Officer dismissed that application as barred by period of limitation prescribed under Article 96 of the First Schedule of the Indian Limitation Act, 1908. m e assessee thereafter filed revision to <ORG> against the order of the Sales-tax Officer rejecting the claim for refund.

<ORG> directed refund of sales-tax of Rs.3,535.3 for 1948-49, Rs.9,205.12 for 1949-50, Rs.3,653.8 for 1950-51 and Rs. 5,014.3.3 for 1951-52. It may be mentioned that prior to 1st April, 1959, there was no section dealing with any period of limitation for refund. Section 29 was added by U.P. Sales Tax (Amendment) Act VII of 1959 and came into force with effect from 1st April, 1959. The first proviso to section 29 is as follows :-

"Provided that no claim to the refund of any tax or other amount paid under this Act shall be allowed unless it was made within 24 months from the date on which the order for assessment was passed or within 12 months of the final order passed in appeal, revision or reference in respect of the order of assessment whichever period is later."

It appears that the claim for refund in the instant case was made after 1st April, 1959. At the time when the taxes were paid and the assessment was made, there was no limitation. m e Additional Judge (Revision) Sales Tax U.P. held that there was no period of limitation and ordered refund as mentioned hereinbefore. The said Additional Judge placed reliance upon the decision of <ORG> in <CITATION> 1959 S.T.C. 57 The said officer at the instance of the revenue referred the four questions indicated above for the opinion of <ORG> under section 11(3) of the Act.

The main question therefore is : are these diverse amounts refundable to the assessee?

It is undisputed that the tax was collected from the assessee and the assessee paid the tax on the belief that tax was due and payable. It was subsequently found that the provision for taxation of sales-tax on forward contract was ultra vires. Therefore the levy and collection of sales tax on forward contracts was ultra vires. In other words, the <ORG> had no right to that money. The assessee was not liable to pay that money. This position in law came to the knowledge of the parties only on this <ORG>'s decision being rendered on 3rd May, 1954. The assessee filed a revision as appears from the statement of case for quashing the assessment for the relevant year in 1955 i.e. within a year which was dismissed in 1958 on the ground that it had been filed after a long delay and was barred by limitation. The assessee thereafter made a formal application for refund on 24th May, 1959. That was dismissed on the ground of claim being barred by limitation on the principles of article 96 of First Schedule of Indian Limitation Act, 1908.

Article 265 of the Constitution enjoins that on tax shall be levied or collected except by authority of law. Tax in this case indubitably has been collected and levied without the authority of law. It is therefore refundable to the assessee. The question is : is there any machinery for refund of that tax to the assessee and if so, is there any limitation for refund of the tax collected without the authority of law? If <ORG> collects because of its powers moneys not due to it, can it be directed to refund? If so, then is there any period of limitation?

Though not in this context but in a different context, the question whether tax collected by the <ORG> without authority of law can be directed to be refunded without any period of limitation was considered in a writ application by <ORG> in <CITATION> , 38 S.T.C. 99. This decision of the single judge of <ORG> was approved by the Division Bench of that High Court in <CITATION> , 45 S.T.C. 118. me court under Article 226 of the Constitution directed refund in that case. The court emphasised that when moneys are paid to the <ORG> which the <ORG> has no legal right to receive, it is ordinarily the duty of the <ORG> subject to any special provisions of any particular statute or special facts and circumstances of the case, to refund the tax of the amount paid.

This Court in <CITATION> ., 100 I.T.R. 698 had to consider from the point of view of the Income-tax Act this aspect. This court was dealing with the question of limitation in granting relief in the background of Article 226 of the Constitution of India. But this Court observed that any legal system, especially one evolving in a developing country, might Permit judges to play a creative role and innovate to ensure justice without doing violence to the norms set by legislation. But to invoke judicial activism to set at nought legislative judgment is subversive of the constitutional harmony and comity of instrumentalities.

Here in the instance case we have to find out within the four corners of the provisions of U.P. Sales Tax Act, 1948 whether there is any prohibition prohibiting the assessee from getting the refund as claimed for. If the original claim of 1955 is accepted as sum claimed for refund, then it cannot be Disputed that there was denial of a rightful claim.

We might in this case bear in mind certain observations, though we are conscious that the same were rendered in a different context, of this Court in <ORG> v. State of Rajasthan & Ors., [1979] 1 S.C.R. 276 at 297 Where directing payment of certain sales tax collected from the assessee, this Court observed that though there was no legal liability on <ORG> but as we are living in a democratic society governed by the rule of law and every Government which claims to be inspired by ethical and moral values must do what is fair and just to the citizen, regardless of legal technicalities, this Court hoped and trusted that <ORG> would not seek to defeat the legitimate claim of the assessee for reimbursement of sales tax in that case on the amount of freight by adopting a legalistic attitude but would do what fairness and justice demanded.

It is true that this is an appeal from a reference under section 11(3) of the U.P. Sales Tax Act, 1948. The rights and the obligations of the parties must be found within the four corners of the Act and this <ORG> in an appeal under an Act must act under the four corners of law but in interpreting the Relevant procedural provisions, fairness and justice should be the approach and even in fiscal statutes equity should prevail A wherever language permits. With this background, let us examine the actual provisions of the Act.

As mentioned in the order of <ORG>, the order under appeal was passed by <ORG> relying on the order of <ORG> of that High Court for the assessment year 1948-49 in <CITATION> , 30 S.T.C. 41. On a difference of opinion between the two learned judges, the matter was disposed of by the opinion of third learned judge. m e year involved was the assessment year 1948-49. Four identical questions were referred to <ORG>. <NAME>, <NAME> (as his Lordship then was of <ORG>) expressed the view that the first question had been framed in the abstract without relevance to the facts of the present case and therefore need not be answered. With this view the other learned judge, Gulati <NAME> agreed. We are also of the same opinion. The facts before <ORG> were identical with the facts of the present case.

In order to appreciate the contentions raised in this case, it is necessary to bear in mind the relevant provisions of the U.P. Sales Tax Act, 1948 (hereinafter called the 'Act'). Section 3 of the Act enjoins that subject to the provisions of the Act, every dealer shall, for each assessment year, pay a tax at the rates provided by or under section 3-A or section 3-D on his turnover of sales or purchases or both as may be which shall be determined in such manner as may be prescribed. It is not necessary for the present purpose to deal in detail with the said provisions.

Various sections of the Act deal with the various stages of taxation. It is not necessary to deal with these in detail.

Section 7-F deals with recovery or refund of petty amounts to be ignored. The section is significant in the sense that it proceeds on the basis that refund had to be made in G certain cases. The section enjoins that notwithstanding anything contained in the Act, no tax, fee, interest or penalty under the Act shall be recovered and no refund shall be allowed if the amount involved for any assessment year was less than five rupees. It recognises liability and the obligation of refund if the amount is more than rupees five. Section 8 deals with payment and recovery of tax. Section 8- A deals with registration of dealers and realisation of tax by dealers. The other sections are not very material except that section 9 deals with appeal and sub-section (5) of section 9 stipulates that if the amount of tax assessed, fee levied or penalty imposed was reduced by the appellate authority under sub-section (3), he shall order the excess amount of tax, fee or penalty, if realised, to be refunded. Section 10 is not material for our present purpose. Section 11 deals with revision by <ORG> in special cases, and section 11(8) enjoins that <ORG> shall, after hearing the parties to the revision, decide the questions of law involved therein, and where as a result of such decision, the amount of tax, fee or penalty is required to be determined afresh, <ORG> may send a copy of the decision to the <ORG> for fresh determination of the amount and the <ORG> shall thereupon pass such orders as are necessary to dispose of the case inconfirmity with the said decision.

Section 5 of the Limitation Act has been made applicable. The other material section for our present purpose is section 29 which was added in the Act on 1st April, 1959 provided for refund. Section 29 stipulates that the assessing authority shall, in the manner prescribed, refund to dealer any amount of tax, fees or other dues paid in excess of the amount due from him under the Act. Then there is provision for payment of interest if there is delay in refund with which we are not concerned. Sub-section (3) of section 29 provides certain embargo against refund in certain cases. In the instant case, we are not concerned with the same. Therefore, it is apparent that the obligation to refund in case of excess realisation or excess payment by the taxing authority of the dues from the seller as well as from the assessee is recognised in the scheme of the Act.

Section 72 of the Indian Contract Act, 1872 recognises that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. In this case it is not disputed that mistake of law is also a mistake covered by the provisions of section 72 of the Indian Contract Act. If the law declared by this court in <NAME> case (supra) is correct, as it must be, then the payment of tax by the dealer, the respondent herein, was under a mistake of law and realisation by the revenue authorities was also under a mistake. Therefore such sum should be refunded. This is recognised in the provisions of the Act as we have noted before. The principle of section 72 of the Indian Contract Act has been recognised.

This was the view expressed by <ORG> on this aspect. We are in respectful agreement. But the learned judge was unable to find in the provisions of the Act any authority for directing the refund without a suit. The question therefore arises whether in a case where assessment order determining the liability was void, but the same was not set aside, can the sales tax authorities grant refund of the tax assessed thereunder? The learned judge posed this question and answered it by saying that if the assessment could be said to have been under the Act, no such power could be exercised by the sales tax authorities. The learned Judge relied on the observations of this Court in The State of Madhya Pradesh (now <CITATION> , 17 S.T.C. 343. There this Court was dealing with section 13 of the C.P. and Berar Sales Tax Act, 1947 (prior to its amendment by Act 20 of 1953) and the Court said that the refund might be granted only of the amount which was not lawfully due, and whether a certain amount was lawfully due or not must be determined by the officer in making the order of assessment or re-assessment. Until the order of assessment was set aside by appropriate proceedings under the Act full effect must be given to the order even if it be later found that the order was erroneous in law. It was held by a bench of three learned judges that an application for refund of sales tax paid under an order of assessment made by the Assistant Commissioner of Sales Tax could not be entertained by that officer on the plea that the order was made on an erroneous view of the law unless the order was set aside in appropriate proceedings. There the assessee had paid that amount of tax assessed on him by the Assistant Commissioner of Sales Tax on his turnover from his business in yarn for the period 13th November, 1947, to 1st November, 1948, and then applied to that officer under section 13 for an order refunding an amount on the plea that in the turnover were included dyeing charges which were not taxable. It was held that the application was not maintainable under section 13 (as originally passed). There this Court after referring to <ORG> decision in Commissioner of Income- tax, West Punjab v. <ORG>, Lahore, 16 I.T.R. 214 held that such an order by the taxing authority was not possible but it has to be borne in mind that in this case the imposition of the tax was really without authority of law as contemplated under Article 265 of the Constitution. Therefore from the beginning the realisation was illegal and a right of refund was embedded in the fact of payment.

<CITATION> , 17 S.T.C. 418 this <ORG> had occasion to deal with the problem similar to this. The appellant company there was carrying on the business of building contractors and was assessed to sales tax under the Madras General Sales Tax Act, 1939, during the years 1948-49 to 1952-53 on the basis that the contracts executed by them were works contracts. On 5th April, 1954, <ORG> held in <CITATION> , 5 S.T.C. 216 that the relevant provisions of the Act empowering the State of Madras to assess indivisible building contracts to sales tax were ultra vires the powers of <ORG>. The appellant issued a notice to the State of Madras under section 80 of the Code of Civil Procedure claiming refund of the amounts collected from them, and, as the demand was not complied with, filed a suit in <ORG> on 23rd March, 1955, for recovery of the amount of taxes illegally levied and collected from them. The relevant provisions of the Act empowering <ORG> to impose sales tax on indivisible building contracts were unconstitutional and void and <ORG> had not jurisdiction to assess the appellant in respect of the transactions and the appellant having paid the amounts under a mistake of law was entitled to a refund of the same. Following the decision of <ORG> in <CITATION> in Council, 74 I.A. 50 = 15 I.T.R. 332 <ORG> held inter alia that the suit was not maintainable under section 18-A of the Act, and <ORG> upheld that decision. On appeal this <ORG> by a majority held that on the facts, that the assessments were made on the appellant in respect of indivisible works contracts, and that this <ORG> in <NAME> Co.'s case 9 S.T.C. 353 had held that the provisions of the Act in so far as they enabled the imposition of tax on the turnover of indivisible building contract were ultra vires the powers of <ORG>, and, therefore, void, <ORG> had acted outside the Act and not under it in making the assessment on the appellant on the basis of the relevant part of the charging section which was declared ultra vires by this <ORG> and therefore it was held that section 18-A of the Act was not a bar to the maintainability of the suit. <NAME> and <NAME>, JJ., however, took a different view. But if the realisation of the tax and the collection of tax on forward contract was an act beyond the authority and ultra vires then money retained by the taxing authority should be refunded to the citizen concerned. There is no express prohibition against that refund.

<CITATION> ., 16 S.T.C. 689 this Court reiterated that money paid under a mistake of law comes within 'mistake' in section 72 of the Indian Contract Act, and there was no question of estoppel when the mistake of law was common to both the assessee and the taxing authority. Where the assessee did not raise the question that the relevant sales were outside the taxing <ORG> and were therefore exempt under Article 286(1)(a) of the Constitution (as it then was), the Sales Tax Officer had no occasion to consider it, and sales tax was levied by mistake of law, it was ordinarily the duty of the <ORG>, subject to any provision of law relating to sales tax, to refund the tax. If the refund was not made, remedy through court was open, subject to the same restriction and also to the bar of limitation under Article 96 of the Limitation Act , 1908. But this Court reiterated that it is the duty of the <ORG> to investigate the facts when the mistake was brought to its notice and to make a refund if the mistake was proved and the claim was made within the period of limitation. In the instant case before us as we have noted mistake indubitably was there. There was no dispute that the tax was not due and had been collected wrongly. There is no dispute that the assessee is entitled to the same. There is no dispute that the assessee made an application within a year of the knowledge of the mistake. There is no dispute therefore that had a suit been filed under Article 96 of the Limitation Act , 1908 or an application made under section 29 of the Act, the claim would have been allowed but the revision was dismissed on the ground that it was belated. The revision of the assesment order was wrong but the consequential relief of refund could have been granted. In that view of the matter we should construe the provisions in such manner as there is no contra indication which will ensure justice to the party and not denied to it and hold that the order of the Additional Judge (Revision) was correct and the assessee was entitled to refund.

<CITATION> ., 9 S.T.C. 747 the contention was raised on behalf of <ORG> to urge that the procedure laid down in U.P. Sales Tax Act by way of appeal and revision against the assessment order in question ought to have been followed by a dealer and not having done so, the dealer was debarred in Civil Court from obtaining refund of tax paid by it. This Court overruled that contention by reason of the categorical statement made by the Advocate-General before <ORG>. This Court clearly laid down that when an amount has been recovered as tax by an authority in exercise of the constitutionally permissible amount, a suit of such amount would lie notwithstanding the provisions in the statute barring a suit in respect of the order made. This decision was rendered in <CITATION> ., 59 I.T.R. 73.

As we read this order in the instant case, when the assessee or dealer made an application for revision, the Additional Judge (Revision) could direct refund because money was being illegally retained by the revenue. If mistake either of law or of fact is established, the assessee is entitled to recover the money and the party receiving these is bound to return the same irrespective of any other consideration. In this case there is no delay in making the application for claiming the refund as set out hereinbefore. It is apparent that the assessment order and the realisation of the money was based on the ultra vires provisions of the Act. This should have been and ought to have been ignored. On that basis the present application was made.

It is true that except special provisions indicated before, there is no specific provision which prescribes a procedure for applying for refund in such a case. But the rules or procedures are hand-maids of justice not its mistress. It is apparent in the scheme of the Act that sales tax is leviable only on valid transaction. If excess amount is realised, refund is also contemplated by the scheme of the Act In this case undoubtedly sales tax on forward contracts have been illegally recovered on a mistaken view of law. The same is lying with the Government. The assessee or the dealer has claimed refund in the revision. In certain circumstances refund specifically has been mentioned. There is no prohibition against refund except the prohibition of two years under the proviso of section 29 . In this case that two years prohibition is not applicable because the law was declared by this Court in <NAME> case on 3rd May, 1954 and the revision was filed in 1955 and it was dismissed in 1958 on the ground that it had been filed after a long delay. Thereafter the assessee had filed an application before the Sales Tax Officer for refund. The refund was claimed for the first time on 24th May, 1959. The Sales Tax Officer had dismissed the application as barred by limitation under Article 96 of the First Schedule of the Indian Limitation Act, 1908.

The assessee filed revision before the court of Additional Judge (Revisions) rejecting the claim for refund. If law of limitation is applicable then section 5 of the Limitation Act is also applicable and it is apparent that the application originally was made within time before two years as contained in the provisio. Article 96 of the First Schedule of the Limitation Act, 1908 prescribes a period of limitation of three years from the date when the mistake becomes known for filing a suit. If that principle is also kept in mind, then when the judgment came to be known in May, 1954, then in our opinion, when the assessee had made an application in 1955, it was not beyond the time.

Where indubitably there is in the dealer legal title to get the money refunded and where the dealer is not guilty of any latches and where there is no specific prohibition against refund, one should not get entangled in the cobweb of procedures but do substantial justice. The above requirements in this Case, in our opinion, have been satisfied and therefore we affirm the direction of the Additional Judge (Revisions), Sales Tax for refund of the amount to the dealer and affirm <ORG> judgment on this basis.

In the view we have taken, we are of the opinion that question No. 1 need not be answered. So far as question no. 2 is concerend, we are of the opinion that in the view we have taken on question No. 3, this question also need not be specifically answered. We are in agreement with the majority view of the learned judges that question No. 3 should be answered in the affirmative and that really disposes of the controversy between the parties. So far as question No. 4 is concerned, in the way we read the facts of this case, we are of the opinion that there has not been any lapse of several years from the date of the assessment order and we are further of the opinion that in the facts of this case, the Additional Judge (Revision), Sales Tax was justified in entertaining the application in question. The question is answered accordingly.

The appeals accordingly fail and are dismissed with costs.

M.L.A. Appeals dismissed.