Govinda Bhat, J.
1. This is an appeal brought on behalf of the official liquidator of the Mysore Spun Silk Mills Ltd. (in liquidation) against the order of the learned company judge (Narayana Pai J.), as he then was, made in Company Application No. 16 of 1967 on 23-1-1968 by which a direction was issued to the liquidator to prepare and file returns before the Income-tax Officer with respect to the income of the company in liquidation derived in the course of the winding-up.
2. In the course of winding-up of the company in liquidation, large sums of money came into the hands of the liquidator which could not be immediately applied for distribution of dividends to the creditors. The result was that he had to invest the same pursuant to the relative provisions of the Companies (Court) Rules. The investments were mostly by way of bank deposits which earned interest in the course of six years from 1960-61 to 1965-66 amounting to Rs. 1,95,364.05. The auditors, Messrs. B. K. Ramadhyani and Company, in their report dated March 3, 1966, observed that the above amounts of interest received by the liquidator would attract liability for income-tax and that, therefore, appropriate steps should be taken to settle the question of such liability in order to avoid the possibility of any excess distribution of dividends.
3. In accordance with the directions of the learned company judge, the liquidator made Company Application No. 16 of 1967 in Company Petition No. 435 of 1968 seeking necessary directions in regard to the question of liability to income-tax of the aforesaid amount of interest. Before the learned company judge it was contended that the company in liquidation is not at all liable to be assessed to income-tax in respect of the receipts by the liquidator in the course of winding-up of the company. It was further contended that under the Income-tax Act, 1961, it is only the 'principal officer' of the company that is competent to make a return and it is only to the principle officer of the company that notices can be issued in proceedings under the Act and the liquidator not being the principal officer of the company he cannot be directed to submit the returns.
4. On the first ground, the learned company judge held that, even after a winding-up order is passed, the company continues to be a person within the meaning of section 4 of the Income-tax Act, and, therefore, any receipt of income in the course of the winding-up which would attract liability to income-tax under its appropriate provisions would be liable to income-tax. At this stage, it is necessary to state that the said view of the learned company judge has rightly not been challenged in this appeal.
5. In regard to the second contention, the learned company judge held that it is the duty of the court to see that all the liabilities of the company are properly met in accordance with the provisions of the law and that the liability to income-tax is one of the liabilities which the court is expected to provide for in the course of winding up, that the duties of the 'principal officer' of the company after the winding up are got performed by the court through the liquidator in the light of the special provisions of the Companies Act and that the Income-tax Act substitutes him for the 'principal officer'. The question whether the liquidator answers the definition of the term 'principle officer' under section 2(35) of the Income-tax Act, however, was not specifically answered.
6. Sri K. Srinivasan, the learned counsel for the appellant, contended that the liquidator of a company in liquidation under the orders of the court does not come within the definition of 'principle officer' under section 2(35) of the Income-tax Act, 1961. Section 2(35) of the Act reads :
'2. Definitions. - In this Act, unless the context otherwise requires, -
(35) 'Principal officer', used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means -
(a) the secretary, treasured, manager or agent of the authority, company, association or body, or
(b) any person connected with the management or administration of the local authority, company, association or body upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer thereof.'
7. When the learned company judge made the order, the Income-tax Officer had not served any notice of his intention of treating the liquidator as the principal officer of the company in liquidation. Therefore, the only question is whether the liquidator comes within the class of persons mentioned in clause (a) of section 2(35) of the Act, namely, the secretary, treasurer, manager or agent of the company. The argument of Sri Srinivasan was that the liquidator is not the secretary, treasurer, manager or agent of the company. Sri Rajashekharamurthy, the learned counsel for the respondent, submitted that the liquidator of a company could be regarded as either the manager or the agent of the company in liquidation.
8. In support of his contention, Sri Rajashekharamurthy relied on the decision in Commissioner of Income-tax v. Official Liquidator of the Agra Spinning and Weaving Mills Co. Ltd. In the said case, after the company in question was ordered to be compulsorily wound-up, two advocates of the court were ordered to be compulsorily who, in the interest of the company, were permitted to carry on the business of the company.
9. The question arose whether the company in respect of the profits earned in the course of winding-up was liable to income-tax. One of the questions canvassed in the said case was that the liquidators do not come within the definition of the expression 'principal officer' found in section 2(12) of the Indian Income-tax Act, 1922. The Allahabad High Court observed that the word 'manager' used in a wide sense and that the liquidator of a company in winding-up would come within the meaning of the word 'manager' found in section 2(12). In any event, it was observed that there would be no difficulty in treating the liquidators as the principal officers of a company of a company if the Income-tax officer serves a notice on them of his intention of treating them as the principal officers of a company if the Income-tax Officer serves a notice on them of his intention of treating them as the principal officers of the company as he had already done in the said case.
10. In Hari Prasad Jayantilal and Co. v. C. S. Gupta, Income-tax Officer, Ahmedabad, the Supreme Court, in dealing with the case of a company in voluntary liquidation, explained the position of the liquidator thus :
'A company which has resolved to be voluntarily wound-up may be dissolved in the manner provided by section 497(5) : till then the company has corporate existence and corporate powers. The property of the company does not vest in the liquidator : it continues to remain vested in the company. On the appointment of a liquidator, all the powers of the board of directors and of the managing or whole-time directors, managing agents, secretaries and treasurers cease (section 491), and the liquidator may exercise the powers mentioned in section 512, including the power to do such things as may be necessary for winding-up the affairs of the company and distributing its assets. The liquidator appointed in a members' winding up is merely an agent of the company to administer the property of the company for purpose prescribed by the statute. In distributing the assets including accumulated profits, the liquidator acts merely as an agent or administrator for and on behalf of the company.'
11. In Knowles v. Scott Romer J. has stated that, in his view, a voluntary liquidator is more rightly described as the agent of the company.
12. In Palmer's Company Law, twenty-first edition, at page 754, the position of a liquidator in winding up by court has been stated as that of an agent employed for the purpose of winding-up the company. The said statement relies on Knowles v. Scott.
13. With regard to the position of the liquidator in voluntary winding-up the position is stated to be same (vide page 798). Therefore, according to the learned author, there is no difference in the legal of the liquidator, whether in a voluntary winding-up or in a compulsory winding up by orders of court.
14. Under the provisions of the Companies Act, the liquidator of a company in liquidation by orders of the court functions subject to the orders of the company court. But the legal position of the liquidator, in our view, whether he is a liquidator appointed in a voluntary winding-up or under the compulsory winding-up by orders of the court, is not different. The liquidator is an officer of the court employed for the purpose of winding-up of the affairs of the company in liquidation. The company on the making of an order of compulsory winding-up does not cease to have its corporate existence. During the course of the winding-up, the company is represented by the liquidator who functions as its agent for the purpose of winding-up. One of the duties of the court, as observed by the learned company judge, is to see that the liabilities of the company are properly met in accordance with the provisions of the law. The liability to income-tax is one of such liabilities of the company are properly met in accordance with the provisions of the law. The official liquidator is the officer employed under the Companies Act for discharge of the said liability also. He can be rightly termed as the agent of the company. Therefore, the liquidator, on an order for winding-up being made, becomes the 'principle officer' of the company within the meaning of section 2(35)(a) of the Income-tax Act, 1961.
15. In that view, the learned company judge was right in requiring the liquidator to file returns before the Income-tax Officer.
16. In the result, this appeal fails and is dismissed, but, in the circumstances, without an order as to costs.