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income-tax Officer Companies Circle Hyderabad Vs. Vemulapalli and Sons (Private) Ltd. and Others. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCompany Petition No. 7 of 1965
Reported in[1967]66ITR331(AP)
Appellantincome-tax Officer Companies Circle Hyderabad
RespondentVemulapalli and Sons (Private) Ltd. and Others.
Excerpt:
- - 6,395.15. the regular assessment for year 1958-59 was, however, made on march 20, 1963, on the best judgment under section 23(4) of the act on an income of rs. the financial condition of the company began to deteriorate and there was no prospect of any success in the venture for which the company was formed. no creditor has complained of the voluntary winding up. the income-tax officer concerned is presumed to have granted adjournments for good and sufficient reason. it is brought out clearly that the assessment also was made after the final accounts of winding up were registered by the registrar of companies......vemulapalli and sons (private) ltd., suryapet, nalgonda, was void.the petitioner is the income-tax officer, companies circle, hyderabad. the material facts alleged are these : m/s. vemulapalli and sons (private) ltd., suryapet, hereinafter to be referred to as the company, was a private company, which was formed on september 25, 1956, with the object of doing business in iron ore. the shareholders of the company were sri vemulapalli bhaskara rao, each of them holding 50 shares of rs. 100 each. the total paid up capital was rs. 20,000. the first years accounts were closed on december 31, 1957. the company was an assessee and as such field a return of its income for the assessment year 1958-59 on february 27, 1959. under section 23b of the income-tax act, 1922, a provisional assessment was.....
Judgment:

This is petition under section 559 of the Companies Act, 1956 (Act 1 of 1956), seeking a declaration that the dissolution of the company, M/s. Vemulapalli and Sons (Private) Ltd., Suryapet, Nalgonda, was void.

The petitioner is the Income-tax Officer, Companies Circle, Hyderabad. The material facts alleged are these : M/s. Vemulapalli and Sons (Private) Ltd., Suryapet, hereinafter to be referred to as the company, was a private company, which was formed on September 25, 1956, with the object of doing business in iron ore. The shareholders of the company were Sri Vemulapalli Bhaskara Rao, each of them holding 50 shares of Rs. 100 each. The total paid up capital was Rs. 20,000. The first years accounts were closed on December 31, 1957. The company was an assessee and as such field a return of its income for the assessment year 1958-59 on February 27, 1959. Under section 23B of the Income-tax Act, 1922, a provisional assessment was made on the basis of the return and the assessee made payments aggregating Rs. 6,395.15. The regular assessment for year 1958-59 was, however, made on March 20, 1963, on the best judgment under section 23(4) of the Act on an income of Rs. 80,000 as against the returned income of Rs. 13,753 by the assessee-company. A demand was made for the balance of the tax payable on April 11, 1963. But meanwhile it transpired that at a special meeting of the shareholders, a resolution was passed for the voluntary winding up of the company on May 16, 1960. Bhaskara Rao was appointed as liquidator to wind up the affairs of the company. The Registrar of Companies intimated the Income-tax Officer, Nalgonda, about the company being voluntarily liquidated and V. Bhaskara Rao having been appointed a liquidator. The said intimation was addressed to the Income-tax Officer, Nalgonda, by a letter dated December 17, 1960, which is said to have reached the concerned Income-tax Officer on January 23, 1961. The said Bhaskara Rao field income-tax returns for the assessment years 1959-60 and 1960-61. For 1959-60 the return pertained to the period prior to the resolution for the winding up of the company, and for the year 1960-61 he filed as liquidator. The return for 1959-60 showed a loss and in the return for 1960-61 he stated that the company did not carry on any mining operations but merely purchased and sold iron ore and that there was a net profits of Rs. 72. Thereafter he filed a final statement of account of the winding up before the Registrar of Companies under section 509. The Registrar, on receiving the account, registered it on March 15, 1963. Under section 509(5), as it read before the amendment of 1965, the company shall be deemed to be dissolved on the expiration of three months from the date of the Registrar registering the account. So, the dissolution came into effect from June 15, 1963.

This petition was field on June 14, 1965, alleging that the company acted fraudulently. The relevant allegations are that with a view to defraud the creditors in general and the applicant-department, i.e., the income-tax department in particular, the company went into voluntary liquidation. The liquidator or the directors had not made any provision for income-tax demand against the company. In paragraph 5 of the petition it is alleged that the evasive and non-co-operative attitude of the liquidator in respect of the pending assessments and in expediting the steps to have the company dissolved established the mall fide and fraudulent intention. It was further alleged that the department was deliberately kept in the dark about the proceedings for liquidation. The liquidation proceedings went on behind the back of the department. Unless the dissolution was declared void, the department stood to suffer hardship and irreparable loss.

Bhaskara Rao, the liquidator, filed a counter-affidavit that the company was registered on September 27, 1956, as a private limited company and that its main object was to purchase, take on lease or otherwise acquire mines or mining rights and to carry on the business of buying and selling minerals, etc. Within a year of the formation of the company, complications arose not only on account of the litigation regarding the mines, but also by reason of the establishment of the State Trading Corporation. The financial condition of the company began to deteriorate and there was no prospect of any success in the venture for which the company was formed. It was, therefore, decided at the meetings of the shareholders and the creditors of the company to wind up the company voluntarily and he was appointed as liquidator. On the date of the winding up, viz., May 16, 1960, he and respondents Nos. 4 to 6 were the creditors of company to the extent of Rs. 70,337.37. The company had no assets except certain debts due to it to the extent of Rs. 58,558.04. The company had been running at a loss during the accounting years ending with December 31, 1958, and December 31, 1959. As regards the assessment year 1958-59, the company returned a profit of Rs. 13,754 and a tax of Rs. 6,395.15 was paid on the basis of the provisional assessment, under section 23B of the Act. The full amount of the tax on the actual income of the company for the assessment year 1958-59 having been paid, it was impossible for the liquidator to imagine that a fantastic demand of tax would be raised several years later by the Income-tax department. The liquidation proceedings took nearly three years to be completed. The notices and the notifications required by the Companies Act at be published in the Official Gazette were duly published. He repudiated the allegations of mala fides and fraudulent intention on the part of the liquidator or the directors in winding up the company. He questioned the locus stands of the department to present the petition as a creditor. He questioned the locus stand of the department to present the petition as a creditor. He denied the allegation that the liquidation proceedings went on behind the back of department. He further questioned the petitioners right to relief under section 559 of the Companies Act as more than two years had elapsed from the date of the dissolution.

Respondents Nos. 3 to 6 adopted the counter of Bhaskara Rao.

The 2nd respondent, the Registrar of Companies, field an affidavit stating that the date of incorporation of the company was December 17, 1956. The shareholders of the company were respondents Nos. 3 to 6, each holding 50 shares of Rs. 100 each. The paid up capital was Rs. 20,000. The company was taken into creditors voluntary winding up and a special resolution was passed on May 15, 1960. The record of the company disclosed that the resolution was passed by the creditors on May 16, 1960. The notice of the appointment of the liquidator was published in the Andhra Pradesh Gazette dated June 16, 1960. The company filed the statutory returns, viz., special resolution for voluntary winding up, notice of resolution passed by creditors and the notice by the liquidator of his appointment under sections 192, 501 and 516, respectively, of the Act with the respondent. The department was not shown as a creditor. The fact of taking the company into liquidation was duly intimated to the Income-tax Officer, Nalgonda, by the Registrar of Companies by his letter dated December 17, 1960. The final return with the statement of account filed by the liquidator was registered on March 15, 1963, and the company was considered to have been dissolved on June 15, 1963, under section 509(5) of the Act.

The Income-tax Officer filed a reply putting the liquidator to proof of his allegations and affirming the allegations made in the petition.

The points, which arise for consideration, in the application are :

1. Whether the department is a creditor and the application is maintainable ?

2. Whether the application for relief under section 559 of the Act is barred by time ?

3. Whether the company was wound up to defraud the creditors in general and the applicant-department in particular ?

4. Whether the directors have not made any provisions for income-tax demand against the company before the company went into voluntary liquidation ?

5. Whether the liquidator was evasive and non-co-operative in respect of the pending assessment and acted with a mall fide and fraudulent intention ?

6. Whether the department was deliberately kept in the dark about the liquidation proceedings ?

7. Whether the department-petitioner is entitled to have the dissolution declared void under section 559 of the Act ?

Point 1. - The application contemplated under section 559 of the Act is to be by the liquidator of the company or by any other person who appears to the court to be interested. The Income-tax Officer, Companies Circle, is the petitioner. He could maintain the application as a creditor, because a creditor is certainly a person interested : vide In re Spottiswoode, Dixon and Hunting Ltd. The regular assessment order for the assessment year 1958-59 was passed on March 20, 1963. The application was made on June 14, 1965. The application is maintainable.

Point 2. - The learned counsel relies on the language of the section in support of the contention that the court can give relief under section 559 by way of declaring the dissolution to be void only within two years of the date of dissolution and not thereafter. The words of the section may be appropriately read here :

'559. (1) Where a company has been dissolved, whether in pursuance of this part or of section 394 or otherwise, the court may at any time within two years of the date of the dissolution, on application by the liquidator of the company or by any other person who appear to the court to be interested, make an order, upon such terms as the court thinks, fit, declaring the dissolution to have been void; and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.'

The section has been interpreted to mean that only the application should be made within two years and that the court could pass an order at any time thereafter : vide In re Scar Ltd. In the case the corresponding section of the English Companies Act (section 294) came up for interpretation. The reasoning of the learned judge was :

'It appears to me that, if one reads the section against the background on which the court necessarily acts, and has regard to the fact that neither litigant can control the date at which the court makes its order, the period of two years referred to is to be decided by taking the period between the date of the dissolution of the company and the date when the application under section 294 is made. Therefore, I hold that there is jurisdiction to make the order in the case.'

I adopt the reasoning of the learned judge and find that the interpretation put by the learned counsel cannot be acceded to. The relief prayed for under section 559 of the Act is, therefore, not barred by time.

Point 3. - The special resolution voluntarily winding up the company dated May 16, 1960, is as follows :

'A special meeting of the shareholders of M/s. Vemulapalli and Sons (Private) Ltd., held on 15th May, 1960 at 10 a.m. at the registered office of the company at Suryapet, resolved to wind up the company voluntarily due to financial position with effect from the above date.

Sd/-

V. Bhaskar Rao,

Suryapet. Managing Director

for Vemulapalli & Sons Pvt. Ltd.'

The resolution of Vemulapalli and Sons (private) Ltd., Suryapet, at a meeting of the creditors dated November 5, 1962 shows the creditors and the debts owing to them and the realisable debts of the company. The amounts owing were shown as Rs. 70,337.37 and the debts releasable were shown as Rs. 58,558.04. In the counter the debts owing and the debts realisable were also shown as above. It was also stated in the counter that provisional income-tax of Rs. 6,359.15 was paid under section 23B for the year in question, i.e., 1958-59. That payment was made in three installments prior to the company going into voluntary liquidation. It dies not appear that on the date of winding up there was any demand as such as for income-tax payable for the year in question. No creditor has complained of the voluntary winding up. It is difficult to find support for the allegation that, with a view to defraud the creditors in general and the income-tax department in particular, the company went into voluntary liquidation. The point is held against the petitioner-department.

Point 4. - The regular assessment for the year in question, 1958-59, was made on March 20, 1963, raising a demand of Rs. 34,804.85 giving credit to the tax already paid. Under section 509 a final account of the winding up was sent by the liquidator to the Registrar of Companies on November 26, 1962, and the said account was registered by the Registrar on March 15, 1963. These facts are also confirmed by the Registrar in his affidavit.

The learned counsel has not been able to tell me where the omission occurred, i.e., the omission of the not nothing the income-tax demand for the relevant year before the special resolution for voluntary winding up does not, therefore, arise.

Point 5. - The only argument pressed before me on behalf of the petitioner is that adjournments were asked for before the Income-tax Officer from time to time and obtained and that, in so much as the company became dissolved statutorily after the expiry of three months from the date of registration of the final account by the Registrar, these adjournments must be deemed to have been asked for and obtained with an ulterior motive to make the demand ineffective. The learned counsel would say that the intention to defraud the income-tax department has to be inferred from the circumstances.

It is difficult to accede to this contention. The Income-tax Officer concerned is presumed to have granted adjournments for good and sufficient reason. It is not possible to presume that the Income-tax Officer concerned was defrauded every time he had granted an adjournment. The petitioner has not placed before me any particulars of the adjournments granted. It will be seen in the discussion under the appropriate issue that the Income-tax Officer was intimated of these liquidation proceedings. It is brought out clearly that the assessment also was made after the final accounts of winding up were registered by the Registrar of Companies. The dissolution followed under the statutory provision after the expiry of three months thereafter. I do not, therefore, consider that any fraud could be attributed to the liquidator as alleged by the petitioner.

Point 6. - The Registrar of Companies has specifically stated in his affidavit that he intimated the fact of the company going into liquidation to the Income-tax Officer, Nalgonda, by letter dated December 17, 1960. The learned counsel for the department argued that there was no Income-tax Officer at Nalgonda in charge of the companies and this intimation was, therefore, ineffective. The letter produced by the department has been perused by me and it bears the endorsement thereon that it was directed to the concerned office. The reply of the petitioner is that it reached the concerned officer on January 23, 1961. In the face of these facts, it is difficult to accept the petitioners allegation that the department was deliberately kept in the dark about the liquidation proceedings.

Point 7. - One of the accepted grounds for setting aside the dissolution is fraud. But the fraud alleged has to be strictly proved. That is the accepted position, though, the section itself does not state so : vide In re Pinto Silver Mining Company, In re London and Caledonian Marine Insurance Co. and Coxon v. Goriest. Inasmuch as the fraud alleged has not been proved as found by me under point 3, the petitioner is not entitled to the relief prayed for.

In the result, the petition is dismissed, but in the circumstances, without costs.


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