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Economic Investment Corporation Ltd. Vs. the Commissioner of Income Tax, W.B. and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 294 of 1961
Judge
Reported inAIR1970Cal389,[1970]75ITR233(Cal)
ActsIncome Tax Act, 1922 - Section 46(5A); ;Companies Act, 1956 - Section 23(3)
AppellantEconomic Investment Corporation Ltd.
RespondentThe Commissioner of Income Tax, W.B. and ors.
Appellant AdvocatePal, ;Sunil Mukherjee and ;S. Bhattacharyya, Advs.
Respondent AdvocateN.L. Pal and ;S.C. Bose, Advs.
DispositionAppeal dismissed
Excerpt:
- .....sub-section (1) of section 26, in both these cases, there is a substitution or succession of one legal person by another legal person. to our mind, there has been no substitution or succession of one legal person by another legal person in the instant case. there has, to reiterate again, been only a change in name. it is only for that reason that no special provision has been considered necessary to meet that situation like the instant one in the income-tax act. from whatever angle of vision the problem is viewed at, we have no doubt that there has been no irregularity or illegality in demanding the money from the allahabad bank limited, which undoubtedly holds the assets of the meghlibundh tea company which assets are now in the hands of the appellant-company.6. before concluding,.....
Judgment:

D. Basu, J.

1. The question involved in this appeal is a short one of law on which much fight is not available from reported decisions. The Meghlibundh Tea Company was liable for income-tax for a certain period. It first sold its tea garden assets to a third party and thereafter on 23-9-47, it changed its name to the Economic Investment Corporation Limited under Section 11 (5) of the Indian Companies Act, 1913. Though the Economic Investment Corporation, that is to say, the appellant before us, duly intimated the Income-tax Officer of the aforesaidchange in the name of the company, the Income-tax Officer (Respondent No. 3) made his assessment for the relevant period (1946-47) on the Meghlibundh Tea Company. Thereafter a Certificate proceeding under the Public Demands Recovery Act was started on the allegation that a sum of Rs. 25,000 and odd was due on account of Income-tax from the Meghlibundh Tea Company. At a later stage or the Certificate Proceedings, the Income-tax Officer requested the Certificate Officer that the name of the Economic Investment Corporation be substituted in place of the Meghlibundh Tea Company, Notice having been served under Section 7 of the Public Demands Recovery Act upon the Corporation, that is, the appellants, objection was raised thereto and the certificate against the appellant was cancelled (vide page 46 of the paper book). Thereafter, a notice, under Section 46 (5A) of the Income-tax Act, 1922 was issued for the said demand upon the Manager of the Allahabad Bank Limited, vide page 50 of the paper book, to the following effect:

'A sum of Rs. 25911.81 P, is due from Messrs. Economic Investment Corporation Ltd. on account of Income-tax ....., Iam to request you, under Section 46 (5A) of the Income-tax Act, 1922, to pay to me forthwith any amount due from you to, or held by you for, or on account of the said Company of 12, Mysore Road, Cal-26 up to the amount of arrears shown above....Towards the end of this notice issued by the Income-tax Officer, it is stated:

'Further if you fail to make payment in pursuance of this Notice to me as Income Tax Officer, further proceedings may be taken by and before the Collector on the footing that this Notice has the same effect as an attachment by the Collector in exercise of his powers under the proviso to Sub-section (2) of Section 46.'

It is upon the service of the above notice upon the Bank that the appellant brought his application under Article 226 of the Constitution on the 12th of June, 1959 (pp. 8 to 60 of the paper book) and on contest, the Rule was discharged by the Judgment or Banerjee, J. at pp, 86-97).

2. Before Banerjee, J. two points were taken at the hearing. (1) That the petitioner as Company could not be proceeded against as the successor of the Meghlibundh Tea Company without assessment proceedings having been taken against the petitioner Company and (2) that the demand under Section 46 (5A) could not be made fromthe petitioner company in view of the bar under Section 46 (7) of the Act. Before us, on appeal, it is only the first groundwhich has been pressed by Dr. Pal on behalf of the appellant.

3. At the outset, it must be pointed out that by issuing a notice under Section 46 (5A), the Income-tax Officer is not seeking to pro-ceed against the petitioner company as a 'successor' of the Meghlibundh Tea Company as has been assumed but is seeking to realise the income-tax demand from the Bank who holds money on behalf of the Meghlibundh Tea Company, whose name has since been changed into that of the appellant. Section 46 (5A) runs as follows:--'The Income-tax Officer may at any time or from time to time, by notice in writing (a copy of which shall be forwarded to the assessee at his last address known to the Income-tax Officer) require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income-tax Officer, .....'The failure to comply with this notice is given in the 5th paragraph of that, sub-section as follows:--

'If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Income-tax Officer, further proceedings may be taken by and before the Collector on the footing that the Income-tax: Officer's notice has the same effect as an attachment by the Collector in. exercise of his powers under the proviso to Sub-section (2) of Section 46'. When read with the said proviso, the meaning of this would be that if the person upon whom the notice under Section 46 (5A) has been served fails to comply with the notice, the moneys specified in that notice may be recovered from such person either by resorting to the proceedings under the Revenue Recovery Act, 1890 or as an attachment in a civil proceeding under the Code of Civil Procedure. The only question, therefore, which arises in this context is does the Allahabad Bank hold any money for or on account of the Meghlibundh Tea Company, who was the assessee for the demand in question For an answer to that question, we must turn to the provision in Section 11 (5) under which the change in name stated at the outset took place. In the corresponding provisions of the Companies Act, 1956, it is provided in Section 21, that a Company may, by special resolution and with the approval of the Central Government signified in writing, change its name. In Section 23(1), it is stated that when a company changes its name under Section 21, the Registrar shall enter the new name on the register in the place of the former name, and shall issue a fresh certificate of incorporation with the necessary alterations embodied therein .....'

4. Sub-section (3) of Section 23 thereafter says,

'The change of name shall not affect any rights or obligations of the company, or render defective any legal proceedings by or against it; and any legal proceedings which might have been continued or commenced by or against the company by its formername may be continued by or against the company by its new name.'

It is clear from Sub-section (3) that by the change of name, the constitution of the old company is not changed. The only thing that is changed is its name and all the rights and obligations under the law of the old company pass to the new company. It is not similar to the reconstitution of a partnership, which, in law, means the creation of a legal entity altogether. If, therefore, under Sub-section (3) all the rights and obligations of the company pass on to the new one, it follows that the assets of the old company which were being held by the Allahabad Bank Ltd., are still being held on their behalf. Of course, in the notice under Section 46 (5A), it is curiously stated that money is due from the new company, the Economic Investment Corporation; even then that does not make any difference in law because the new company holds the assets and all the property belonging to the old company under a new label and not only the rights but also the obligations, -- including the obligation to pay income-tax belonging to the old company, -- have passed on to the new company under the provisions of Section 11 (3) of the Companies Act.

5. It was of course pointed out on behalf of the respondents that in the return of income submitted by the old company (vide page 64 of the paper book), the name of the assessee was given as 'Meghlibundh Tea Company Ltd., (now Economic Investment Corporation Ltd.' and, therefore, the Economic Investment Corporation was already there in the records of the Income-tax Officer. To this, however, it has been contended on behalf of the appellant that the return was submitted not by the appellant but by the old company. Here again is another quibble, which has no substance in law, because the new company is nothing but the old company with a new label, as has already been stated; there has been no change in position and no change in legal status. It was further pointed out that subsequent to the assessment, on 24th September, 1949, it is the appellant who asked for time to pay the aforesaid tax and on different dates in 1949-50, the appellant company paid up part of the assessed money to the extent of Rs. 22,000/-. Here again Dr. Pal submits that so far as the substantive liability to pay is concerned, the appellant does not deny it and cannot deny, in view of the provisions under Section 11 (3) of the Companies Act. The grievance of the petitioner is that the Income-tax Officer, even though informed of the change of name, did not substitute the name of the appellant-company in place of the old one in his assessment records. This confusion has taken place in view of the reference to the provision in Section 26 of the Income-tax Act, 1922 in the proceedings leading up to the appeal. That Section has no application to the instant case. So far as Sub-section (1) of Section 26 is concerned, it deals only with the situation arising from a reconstitution of a partnership firm, which is not the case here. Sub-section (2), on the other hand, speaks of legal succession by one person to another in the same capacity, which is also not the case here, because as has been stated at the beginning, there has been no legal succession, because the juristic entity is the same, namely, the old company under a new name. Sub-section (2) of Section 26, therefore, is not attracted either. Upon this, however, Dr. Pal based his argument that there is no provision in law as to what would happen under the law of Income-tax when there is a change of name of a company under the provisions of Section 11. (3) of the Companies Act, 1913. The answer to that is simple, namely, that no such question does arise in law just as it arises in the case of a legal succession under Sub-section (2) and in the case of a reconstitution of a partnership firm under Sub-section (1) of Section 26, In both these cases, there is a substitution or succession of one legal person by another legal person. To our mind, there has been no substitution or succession of one legal person by another legal person in the instant case. There has, to reiterate again, been only a change in name. It is only for that reason that no special provision has been considered necessary to meet that situation like the instant one in the Income-tax Act. From whatever angle of vision the problem is viewed at, we have no doubt that there has been no irregularity or illegality in demanding the money from the Allahabad Bank Limited, which undoubtedly holds the assets of the Meghlibundh Tea Company which assets are now in the hands of the appellant-company.

6. Before concluding, however, we should point out that this Court does not view with any amount of indulgence the indifference and carelessness which has been shown by the Income-tax Officer who made the assessment on 29-8-49 without caring for the letter which was addressed by the appellant company to the Income-tax Officer on 4-2-48 (vide page 85 of the paper book), This very Income-tax Officer, in the Certificate proceedings, applied for substitution of the name of the certificate debtor (vide page 34 of the paper book). It is not clear to us why he rose from his slumber so late. The higher authorities of the Income-tax department, who are very keen to stop evasions of payment of income-tax, should be keener to manage their own house and put it into order. It is these drain-pipes through which leakage occurs and, we believe, proper enquiry would be made in this matter when a copy of this judgment is forwarded by the Registrar of this Court to the respondent No. 1.

7. The appeal is accordingly dismissed burin the circumstances of the case, we would make no order as to costs.


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