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income-tax Officer Vs. Official Liquidator, Swaraj Motors (P.) Ltd. (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany;Direct Taxation
CourtKerala High Court
Decided On
Case NumberM.F.A No. 92 of 1977
Judge
Reported in[1978]48CompCas11(Ker); [1982]134ITR132(Ker)
ActsIncome Tax Act, 1961 - Sections 220(2); Companies Act, 1956 - Sections 446(1) and 446(2)
Appellantincome-tax Officer
RespondentOfficial Liquidator, Swaraj Motors (P.) Ltd. (In Liquidation)
Appellant Advocate P.K. Raveendranatha Menon, Adv.
Respondent Advocate T.V. Ramakrishnan, Adv.
DispositionAppeal dismissed
Cases ReferredS. V. Kondaskar v. V. M. Deshpande
Excerpt:
company - interest - section 220 (2) of income tax act, 1961 and sections 446 (1) and 446 (2) of companies act, 1956 - winding up order passed in regard to company - appellant demanded tax due from company which was paid by official liquidator - delay of seven days in paying tax - for delay appellant levied rs. 6228 as interest - whether demand by appellant of interest levied under section 220 (2) after winding up order not legal proceeding as contemplated by section 446 - section 446 (1) prohibits commencement of any legal proceeding after making of winding up order except with leave of court - question answered in affirmative - appeal dismissed. - - [1946] 14 itr 248; 16 comp cas 71, would apply to a case like that involved in the present appeal......made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. (2) the court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, havejurisdiction to entertain, or dispose of- (a) any suit or proceeding by or against the company ; (b) any claim made by or against the company (including claims by or against any of its branches in india); (c) any application made under section 391 by or in respect of the company; (d) any question of priorities or any other question whatsoever,.....
Judgment:

Narayana Pillai, J.

1. This is an appeal from the order of a learned single judge functioning as a company judge and reported as Official Liquidator v. ITO : [1978]111ITR398(Ker) .

2. After a winding-up order was passed regarding a company, the ITO demanded from it the tax due from it. That was paid by the official liquidator. But there was a delay of seven days in paying it. That was due to the time taken to get the sanction from the liquidation court. For the delay the ITO levied Rs. 6,228 as interest under Section 220(2) of the I.T. Act, 1961. When the demand for that amount was made, the learned single judge passed the order from which this appeal has been filed. By that order after finding that the provisions of Section 446(1) and (2) of the Companies Act, 1956, applied to the levy and demand of interest, the ITO was restrained from enforcing the claim for interest in any manner other than that provided for in those provisions.

3. Now, Section 220 of the I.T. Act, so far as is relevant for the present purpose, reads:

'(1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under Section 156 shall be paid within thirty-five days of the service of the notice at the place and to the person mentioned in the notice :...

(2) If the amount specified in any notice of demand under Section 156 is not paid within the period limited under Sub-section (1), the assessee shall be liable to pay simple interest at twelve per cent, per annum from the day commencing after the end of the period mentioned in Sub-section (1)......'

and Section 446 of the Companies Act:

' (1) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose.

(2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, havejurisdiction to entertain, or dispose of-

(a) any suit or proceeding by or against the company ;

(b) any claim made by or against the company (including claims by or against any of its branches in India);

(c) any application made under Section 391 by or in respect of the company;

(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company ;

whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960....'

4. Section 446(1) of the Companies Act prohibits the commencement of any legal proceeding after the making of a winding-up order except with the leave of the court. There is dispute as to whether the demand by the ITO of interest levied by him under Section 220(2) of the I.T. Act after the winding-up order is not a legal proceeding as contemplated by Section 446 of the Companies Act.

5. In Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248; 16 Comp Cas 71, the Federal Court held that proceeding regarding 'recovery' of income-tax against a company after the making of awinding-up order of that company was a legal proceeding as contemplated .by Section 171 of the Indian Companies Act of 1913, which corresponds to Section 446(1)of the present Companies Act. That decision was followed by theSupreme Court in M.K. Ranganathan v. Government of Madras : [1955]2SCR374 and S. V. Kondaskar v. V. M. Deshpande : [1972]83ITR685(SC) .

6. In 5. V. Kondaskar v. V. M. Deshpande, the decision followed by the learned single judge, the power of an ITO to commence reassessment proceedings against a company after the making of an order of winding-up of that company and without obtaining the leave of the liquidation court arose for consideration. The winding-up order was passed there in 1959. Although the notices proposing to reopen the assessment under Section 148 of the I.T. Act were issued after making the order of winding-up, the reassessment proposed was in respect of the assessment years prior to the year in which the winding-up order was made. The Supreme Court said in that case that in Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248 no objection was raised on behalf of the parties by their counsel at the time of argument before the Federal Court that legal proceedings contemplated by Section 171 of the Companies Act would include assessment proceedings, and that that decision would not apply to assessment and reassessment proceedings. But the Supreme Court took the view that the decision in Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248 is applicable to recovery proceedings regarding tax. This was made clear in the later portions of the decision in S. V. Kondaskar v. V. M. Deshpande : [1972]83ITR685(SC) , wherein the decision of the Mysore High Court in Mysore Spun Silks Mills, In re: Official Liquidator v. CIT : [1968]68ITR295(KAR) , Was discussed and cited with approval. In the Mysore case, it was held that for the purpose of quantification or collection of income-tax, the ITO had to obtain the leave of the winding-tip court.

7. One reason given by the Supreme Court in S.V. Kondaskar v. V. M. Deshpande : [1972]83ITR685(SC) , for holding that Section 446(1) and (2) of the Companies Act did not apply, to reassessment proceedings was that Section 148 of the I.T. Act occurred in Chap. IV of the I.T. Act, which dealt with procedure for assessment and that that was not a legal proceeding.

8. Unlike that section, Section 220(2), which is involved in the present appeal, occurs in Chap. XVII of that Act, which deals with collection and recovery of tax. So, the provisions of Section 446 of the Companies Act would be attracted to the demand for interest under Section 220(2) of the I.T. Act, and the decision of the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248; 16 Comp Cas 71, would apply to a case like that involved in the present appeal.

9. In Union of India v. Seth Spinning Mills Ltd. also cited with approval in S. V. Kondaskar v. V. M. Deshpande : [1972]83ITR685(SC) , after the winding-up order was passed, the ITO imposed a penalty of Rs. 4,000. As leave of the court was not obtained before imposing the penalty, the Punjab High Court held that the claim for Rs. 4,000 could not be entertained.

10. In Union of India v. India Fisheries (P.) Ltd. : [1965]57ITR331(SC) , cited in S. V. Kondaskar v. V. M. Deshpande : [1972]83ITR685(SC) , what the Supreme Court held was that the provisions of the Companies Act were special and those of the I.T. Act general and that if there was an apparent conflict between the provisions of those enactments, the provisions of the Companies Act had to prevail. The provisions of Section 446(2) of the Companies Act, besides being special, contain a non obstante clause also.

11. For the reasons stated above, the order under appeal deserves no interference. Therefore, this appeal is dismissed with costs.


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