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M.R. Agarwal, Income-tax Officer Vs. Official Liquidator, Golcha Properties Private Ltd. (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany;Direct Taxation
CourtRajasthan High Court
Decided On
Case NumberS.B. Company Application No. 159 of 1971 in S.B. Company Case Nos. 9 and 10 of 1966
Judge
Reported in[1973]43CompCas423(Raj); [1973]90ITR251(Raj); 1972()WLN65
ActsIncome Tax Act, 1961 - Sections 4, 207 to 219; Companies Act, 1956 - Sections 457(1) and 530(6)
AppellantM.R. Agarwal, Income-tax Officer
RespondentOfficial Liquidator, Golcha Properties Private Ltd. (In Liquidation)
Appellant Advocate S.C. Bhandari, Adv.; U.C. Jain, Adv.
Respondent Advocate U.P. Mathur, Adv.
Cases ReferredCalcutta v. Commissioner of Income
Excerpt:
.....2,000 as illegal gratification from niranjan dass. once ram swaroop was acquitted in respect of the charge of conspiracy, the charge against bhagat ram for conspiracy must necessarily fall to the ground. - - sub-section (6) of section 530 of the act in fact clearly provides for the 'retention 'of such expenses in priority even to the preferential payments. on this basis, it has been urged that in a case like the present, where the income-tax officer has not notified to the official liquidator any amount of income-tax which would be sufficient to provide foi the tax which is likely thereafter to become payable by the company, it is not permissible for him to get over the omission or mistake by recourse to section 210 of the income-tax act. it may well be that the court may, in a..........advance tax under section 210 of the income-tax act, 1961, for the assessment year 1972-73. the official liquidator has objected to the grant of leave on the grounds that the company is not obliged to pay income-tax on any income earned by it after the winding-up order and advance tax cannot be paid in preference to the other debts as it is not a preferential claim within the meaning of section 530 of the companies act, 1956, hereinafter referred to as ' the act'. the arguments before me have, however, been advanced on the assumption that the company is liable to pay income-tax, as the official liquidator and the learned counsel for the interveners want to agitate the question of the liability to pay income-tax before the authorities concerned at the appropriate time. the only.....
Judgment:

P.N. Shinghal, J.

1. The summons in this case has been taken out by the Income-tax Officer, Central Circle-I, Jaipur, for leave of this court to take legal proceedings against the Golcha Properties (Private) Ltd., in liquidation, hereinafter referred to as ' the company ', for making an order requiring the company to pay advance tax under Section 210 of the Income-tax Act, 1961, for the assessment year 1972-73. The official liquidator has objected to the grant of leave on the grounds that the company is not obliged to pay income-tax on any income earned by it after the winding-up order and advance tax cannot be paid in preference to the other debts as it is not a preferential claim within the meaning of Section 530 of the Companies Act, 1956, hereinafter referred to as ' the Act'. The arguments before me have, however, been advanced on the assumption that the company is liable to pay income-tax, as the official liquidator and the learned counsel for the interveners want to agitate the question of the liability to pay income-tax before the authorities concerned at the appropriate time. The only question which, therefore, remains for my consideration is whether it is permissible for the Income-tax Officer to make an order for the payment of advance tax by the company in respect of its current business ?

2. The business of the company is being carried on under Section 457(1)(b) of the Act, which reads as follows :

' 457. (1) The liquidator in a winding-up by the court shall have power, with the sanction of the court,--.....

(b) to carry on the business of the company so far as may be necessary for the beneficial winding-up of the company.'

3. The business is, therefore, being carried on for the ' beneficial winding-up of the company ', and its expenses in that respect would be the expenses of the winding-up. For this purpose, and in this sense, income-tax would form part of the expenses of the business of the company and would, therefore, be an expense of the winding-up. I am fortified in this view by the decision in In re Beni Felkai Mining Co., [1934] 2 I.T.R. 309 (Ch. D.) In that case also, the liquidator of the company carried on its business after the commencement of the winding-up and earned profits on which income-tax was assessed. Maugham J. took the view that as the business of the company was carried on at a profit, the liability to pay income-tax was necessarily incurred as part of the expenses of the winding-up. Sub-section (6) of Section 530 of the Act in fact clearly provides for the ' retention ' of such expenses in priority even to the preferential payments. The sub-section reads as follows :

' 530. (6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding-up, the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet them, and in the case of the debts to which priority is given by Clause (d) of Subsection (1), formal proof thereof shall not be required except in so far as may be otherwise prescribed. '

4. As Maugham J. has stated in In re Beni Felkai Mining Co. the phrase ' expenses of the liquidation' (or ' expenses of the winding-up ') is not a term of art, and there is no reason why it should not include any expenses which the liquidator ' might be compelled to pay in respect of his acts in the course of a proper liquidation of the company's assets '. The payment of income-tax is, therefore, a part of the ' costs and expenses of the winding-up' within the meaning of Sub-section (6) of Section 530, so that the official liquidator has the authority to retain the amount payable on that account in order to meet the liability.

5. Now, Section 4 of the Income-tax Act, which is the charging section, provides, inter alia, for the payment of income-tax in advance where it is so payable under any provision of that Act. Sections 207 to 219 of the Income-tax Act deal with the advance payment of income-tax and that payment is really a mode of paying the income-tax in a case falling within the purview of those sections. There is, therefore, no reason why it should not be permissible for the Income-tax Officer to invoke the provisions of Section 210 of the Income-tax Act in an appropriate case,

6. It has, however, been argued by the learned counsel for the interveners and learned official liquidator that as Section 178 of the Income-lax Act specifically deals with a company in liquidation, that is the only section which can be availed of by the Income-tax Officer in respect of any claim for the payment of income-tax by a company in liquidation, and that it is not permissible for the Income-tax Officer to invoke Section 210 at all. On this basis, it has been urged that in a case like the present, where the Income-tax Officer has not notified to the official liquidator any amount of income-tax which would be sufficient to provide foi the tax which is likely thereafter to become payable by the company, it is not permissible for him to get over the omission or mistake by recourse to Section 210 of the Income-tax Act. It has been argued that the special provision of Section 178 should prevail over the general provision of Section 210. The argument has been supported by a reference to Union of India v. India Fisheries (Private) Ltd., [1965] 57 I.T.R. 331 ; 35 Comp. Cas. 669 ; [1965] 3 S.C.R. 679 (S.C.) The argument is, however, untenable for the reason that Sub-section (2) of Section 178 cannot be said to refer to the amount of any income-tax which may be payable in a case where profitsare earned by a company while carrying on its business for its beneficial winding-up within the meaning of Section 457(1)(b) of the Act. Any other view of Section 178(2) will not be possible for the simple reason that the Income-tax Officer may not be able to ascertain, at the time when he notifies the amount payable by the liquidator, whether the company has been, or will be, allowed to carry on business for its beneficial winding-up and whether it will earn any profit. It may well be that the court may, in a given case, not sanction the proposal for carrying on the business of the company, or may sanction it some time after the Income-tax Officer has notified the amount to the liquidator under Sub-section (2) of Section 178. I do not, therefore, find any justification for the argument of the learned counsel for the interveners and learned official liquidator.

7. It has however been further argued that even if income tax is held to be an expense of the winding-up within the meaning of Sub-section (6) of Section 530 of the Act, advance tax would not be an expense of that kind for the reason that it is payable in advance and not as the actual expense of running the business of the company. Reference in this connection has been made to Tika Ram and Sons (Private] Ltd. v. Commissioner of Income-tax, [1964] 51 I.T.R. 403 ; 34 Comp. Cas. 151 (All.) and Official Liquidator, High Court, Calcutta v. Commissioner of Income-tax, [1971]80 I.T.R. 108 (Cal.) and it has been urged that the liability for any debt on account of income-tax is created only after its assessment so that it cannot be proved or paid as a preferential claim. This argument does not appear to me to be based on a proper appreciation of Section 4(2) read with sections 207 to 219 of the Income-tax Act, to which reference has been made already, for when the liability to pay the advance tax is there, there is no reason why the official liquidator should not be required to retain the amount payable therefor, under Sub-section (6) of Section 530, as a part of the expenses of the winding-up, to the exclusion of the claims for the discharge of even the preferential debts.

8. Apart from the above arguments, it has been argued that leave should be refused to the applicant because there can be no question of nonpayment of the income-tax in this case as the company is under the management and control of the court through the official liquidator. It has, therefore, been contended that it is not necessary to anticipate the total income of the company for the assessment year in question on any hypothetical basis and that the Income-tax Officer should really wait until the close of the year and the filing of the return of income-tax by the company. I do not, however, think this argument can be upheld when the applicant only wants leave to proceed in the matter according to the law.

9. In the result, the leave applied for is granted. There will be no order as to costs.


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