Balakrishna Eradi, Actg. C.J.
1. The appellant in this appeal is the Income-tax Officer, B-Ward, Companies Circle, Ernakulam. Considerable amounts were due to the I.T. department from the Catholic Bank of India Ltd. by way of arrears of income-tax under assessment orders passed against the company for the years 1955-56 to 1959-60. The company was ordered to be wound up as per an order passed by this court dated October 3, 1961. Apparently under a wrong impression that the department was entitled to priority in respect of the arrears of tax, no steps were taken for filing any claim before the liquidator in respect of the arrears of tax within the time specified by this court. After the list of creditors had been finally settled by the liquidator, the department moved this court by filing Application No. 3 of 1964 and Application No. 248 of 1968 for leave to file proof before the liquidator in respect of the arrears of tax due from the company in liquidation. These applications were allowed by the company court and pursuant thereto the department filed an affidavit of proof of the debt before the official liquidator on August 22, 1969. Orders were passed in the matter by the liquidator recognising the claim of the department as an ordinary creditor in respect of the full amount of the tax arrears due by the company only on July 27, 1973. In the meantime, on January 28, 1971, the department wrote to the official liquidator requesting that provision should be made also for the further sum of Rs. 23,585 said to be due by way of interest on the arrears of tax payable under Section 220(2) of the I.T. Act, 1961, for the period subsequent to the passing of the wind-ding-up order. The official liquidator by his order dated July 27, 1963, ' admitted the I.T. department as an ordinary creditor only for the sum of Rs. 44,761.51 which represents the actual amount of arrears of tax due for the assessment years 1955-56 to 1959-60 and he did not include within the scope of his order the claim put forward by the department for interest amounting to Rs. 23,585. Thereupon the department filed Application No. 315 of 1973 before the company court contending that the liquidator ought to have admitted to proof the claim of the department for the amount of interest also. That application was dismissed by the learned company judge by the following order :
' The tax claimed does not fall within Section 530(1)(a). So the revenue is not entitled to priority. The application is dismissed.'
2. It is against the said order that the ITO has preferred this appeal.
3. In our opinion the appellant is well founded in his contention that the order under appeal proceeds on a misconception that the request made by the department was mainly for priority in the matter of payment. Although a contention had been taken that the department was entitled to priority in respect of the entire amount of tax, inclusive of interest, the main contention urged by the department in Application No. 315 of 1973 was that the liquidator had erred in ignoring the claim of the department for the interest payable in respect of the arrears of tax under Section 220(2) of the I.T. Act, 1961. This aspect was unfortunately lost sight of by the learned company judge. While we are in full agreement with the learned company judge that the department is not entitled to priority in respect of the claim either for the tax or for the interest that may be payable under Section 220(2) of the I.T. Act, 1961, we consider that it would only be just and proper to allow the I.T. department an opportunity to file its claim before the official liquidator in respect of the amount of interest that is alleged to be payable by the company in liquidation under Section 220(2) of the Act and to have the said claim duly adjudicated upon by the liquidator. Accordingly we direct that the department may file before the liquidator a fresh claim for the amount said to be due by the company in liquidation by way of interest under Section 220(2) of the I.T. Act, 1961, within one month from to day, and, if that is done, the liquidator should adjudicate upon the said claim in accordance with law, more particularly in accordance with the provisions contained in the Companies Act and the Companies (Court) Rules. The appeal is allowed only to the limited extent indicated above. The parties will bear their respective costs.
4. Carbon copies of this judgment will be furnished free of cost to the counsel appearing on both sides.