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Mysore Electro Chemical Works Ltd. Vs. Income-tax Officer, Circle-1, Bangalore - Court Judgment

LegalCrystal Citation
SubjectCompany;Direct Taxation
CourtKarnataka High Court
Decided On
Case NumberCompany Application No. 1751 of 1981 in Company Petition No. 5 of 1971
Judge
Reported in[1982]52CompCas32(Kar); [1982]133ITR330(KAR); [1982]133ITR330(Karn); 1982(1)KarLJ83; [1982]9TAXMAN195(Kar)
ActsCompanies Act, 1956 - Sections 392 and 394
AppellantMysore Electro Chemical Works Ltd.
Respondentincome-tax Officer, Circle-1, Bangalore
Appellant AdvocateA.G. Holla, Adv.
Respondent AdvocateS.R. Rajashekara Murthy, Adv.
Excerpt:
.....in the property which resulted in miscarriage of justice. - 9. it is interesting to note that the petitioner-company soon after assuming charge of the management of the company for reconstruction after the sanction by this court obtained from the foreign collaborators a waiver of the past collaboration fees due to them. 392 to issue directions should cover matters which fall clearly outside the working of the scheme sanctioned by the court for reconstruction......paragraph 5 of annexure 'b' shall be numbered as paragraph 4.' 8. long after the sanction of the scheme, annexs.'d' and 'd1' have been issued by the respondent to the petitioner herein as agent of m/s. accumulatoren fabric and m/s. samperit, austria, respectively, demanding certain amounts of income-tax due by the said firms for the assessment years 1967-68, 1968-69 and 1969-70 (in respect of the second-mentioned company for assessment year 1969-70 only). it is essential to state that annexs. d and d1 relate to assessments already concluded and have reached a finality in the composite orders made by the commissioner of income-tax, karnataka, in revision petitions nos. 199 to 201 of 1973 on his file for the 3 years in so far it relates to the first-mentioned foreign firm. it is.....
Judgment:

Chandrakantaraj Urs, J.

1. This petition is filed by M/s. Mysore Electro Chemical Works, Ltd. Yeshwanthapur, Banglore, by its secretary under s. 392 of the Companies Act seeking a declaration from this court that no income-tax is due and payable in respect of the know-how fees payable under the collaboration agreement between the petitioner-company and its collaborators in West Germany and Austria. Further, to direct the respondent, the XIIth Income-tax Officer, CIrcle-I, Banglore, from enforcing the demand made as per Annexs.'D' and 'D1' to the petition.

2. The respondent has entered appearance and filed his objections. The respondent has raised a preliminary objection as to the maintainability of the petition in regard to the prayers, under s. 392 of the Companies Act, 1956 (hereinafter referred to as the 'Act').

3. To appreciate the arguments advanced on both the sides it is necessary to set out some of the facts which are not in dispute.

4. The petitioner-company was ordered to be wound up under s. 433 of the Act, by this court on February 11, 1972, in Company Petition No. 5/71. However, this court subsequently sanctioned a scheme of reconstruction on April 13, 1973, on the application of one Ganesh Narayan Jatia, under s. 391 read with s. 394 of the Act.

5. The company had continuously incurred losses till it was wound up and, therefore, in the scheme of reconstruction at para. IV of Part B of the scheme it was stated as follows :

'IV. There are no income-tax dues from the company, on account of losses suffered by the company. In case of any income-tax liability arising in respect of the period prior to 16th February, 1972, the persons who were the directors for the company prior to that date will indemnify the new management and will also undertake to give all explanations, required or necessary, in respect of past accounts and assessments of the company as and when such explanation is called for by the authorities.'

6. We are not concerned with the rest of the contents of Part B of the scheme.

7. This court while approving the scheme in regard to the payment of liabilities by the propounder of the scheme directed as follows :

'With regard to the arrears payable by the company under the Employees' Provident Funds Act, Employees' State Insurance Act and Income-tax act, it is ordered that the payments may be made in accordance with Annexure 'B' of the scheme. The paragraphs in Annexure 'B' shall be re-numbered. Paragraph 4 in Annexure 'B' shall be deleted as the matter dealt with in that paragraph has been disposed of otherwise earlier in the course of this order. Paragraph 5 of Annexure 'B' shall be numbered as paragraph 4.'

8. Long after the sanction of the scheme, Annexs.'D' and 'D1' have been issued by the respondent to the petitioner herein as agent of M/s. Accumulatoren Fabric and M/s. Samperit, Austria, respectively, demanding certain amounts of income-tax due by the said firms for the assessment years 1967-68, 1968-69 and 1969-70 (in respect of the second-mentioned company for assessment year 1969-70 only). It is essential to state that Annexs. D and D1 relate to assessments already concluded and have reached a finality in the composite orders made by the Commissioner of Income-tax, Karnataka, in Revision Petitions Nos. 199 to 201 of 1973 on his file for the 3 years in so far it relates to the first-mentioned foreign firm. It is submitted from the bar tht in respect of the other firm also a revision partition was filed and that came to be dismissed and that assessment also, therefore, has reached a finality by the order of the Commissioner in a revision under s. 264 of the I. T. Act.

9. It is interesting to note that the petitioner-company soon after assuming charge of the management of the company for reconstruction after the sanction by this court obtained from the foreign collaborators a waiver of the past collaboration fees due to them. Obviously this was not the position when the assessments on the foreign collaborators were concluded by the aforementioned assessment orders and, therefore, not available to the company for urging as a ground for not taxing the said two companies as the know-how fees due and payable to them for the period prior to the sanctioning of the scheme had not actually been paid. In other words, the foreign collaborators were assessed in a representative capacity as if they had received the collaboration fees on the basis of the returns filed by the company as their resident agent.

10. Shri A. G. Holla appearing for the petitioner-company contended that the demands made at Annexs. D and D1 are contrary to para. IV of Part B of the scheme sanctioned by the court as the company is not liable to pay the income-tax. Admittedly, he has laid emphasis on the opening sentence of the paragraph which has been earlier set out. Therefore, his argument that the court sanctioned the scheme noticing that the company was not liable to pay income-tax, and, as such, such demands made at Annexs. D and D1 are matters arising out of the working of the sanctioned scheme.

11. Alternatively, he has argued that the company is entitled to a declaration and injunction as prayed for, as the demand is made contrary to the provisions of s. 231 of the I. T. Act.

12. As pointed out by the learned counsel appearing for the respondent, the demand of tax is not in relation to the liability of the company in regard to its income. The demands relate to the foreign collaborators who have been assessed in the hands of the company in its representative capacity as their agent. No taxes are due by the company in respect of its income. Taxes are due by the agent of the foreign collaborators and, therefore, it is not a matter covered in any way by the scheme sanctioned by the court under s. 392 of the Act for this court to assume jurisdiction to give any directions or declaration as prayed for.

13. Shri A. C. Holla, learned counsel for the petitioner-company, has drawn my attention to the decision of this court in the case of Narayanadas Ramakrishna Karwa v. V. P. Kittur, Joint Official Liquidator [1969] 2 KLJ 365. In the said decision justice Narayana Pai J. (as he then was) had occasion to consider the scope of s. 392 and the power of the court to issue directions. The relevant portion of the judgment may be extracted and it is as follows :

'The statute recognizinging the difficulty of making any specific provisions in respect of the third or the anomalous situation has refrained from making any such provision and left the matter to directions by the court either under section 392 or under section 394. These sections have set at rest the old controversy as to whether a court sanctioning a scheme retains jurisdiction thereafter to issue any directions.'

14. On the basis of the above said ruling, the learned counsel has argued that this court under s. 392 has still retained jurisdiction to issue directions in regard to the matter in issue in this petition, because the company is yet to pay off its creditors and be free of the liquidation proceedings. That, as a fact, may be so. But the question is whether the jurisdiction under s. 392 to issue directions should cover matters which fall clearly outside the working of the scheme sanctioned by the court for reconstruction. As already pointed out, the liability under Annexs. D and D1 is the liability of the foreign collaborators. If under the provisions of the I. T. Act the assessments concluded on the foreign collaborators for the relevant assessment years have become final, it will be too far fetched to depend on para. IV, Part B, of the scheme, to consider it as the liability of the company itself, when it has only acted as agents of others, who are liable to be assessed on the relevant date.

15. In any event. I am of the view that s. 392 of the Act does not empower this court to issue directions which do not relate to either the sanctioned scheme itself, or its working in relation to the company which the scheme seeks to reconstruct. The demands under Annexs. D and D1, as already pointed out by me, do not form part of scheme of reconstruction.

16. In the result, the first of the contentions of the petitioner is liable to be rejected, and it is so rejected.

17. The alternative contention that the demands under Annex. D and D1 are contrary to the limitations imposed on the respondent under s. 231 of the I. T. Act is concerned, the company should seek its remedy under the provisions of any other law, and not under s. 392 of the Companies Act, as the company court cannot assume corrective jurisdiction to set aside regular assessments under the I. T. Act.

18. Hence, the petition is rejected, upholding the preliminary objection raised.

19. There will be no order as to costs.


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