1952 (12) TMI 28 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether sales tax is to be treated as a preferential debt within the meaning of Section 230 of the Indian Companies Act.
2. From which date should sales tax be considered due: the date of demand, the date when the sale price is received, or any other date?

Issue-Wise Detailed Analysis:

1. Whether sales tax is to be treated as a preferential debt within the meaning of Section 230 of the Indian Companies Act:

The court examined Section 230(1)(a) of the Indian Companies Act, which states that in a winding-up, all revenue, taxes, cesses, and rates due from the company at the date of the winding-up order and having become due and payable within the twelve months preceding that date shall be paid in priority to all other debts. The court noted that the amount of Rs. 759-8-9, which was the balance due under an assessment, satisfied both conditions laid down in Section 230(1)(a). It was due at the date of the winding-up order (18th July 1950) and had become due and payable within twelve months before that date (17th May 1950). Therefore, the sales tax amount in question was entitled to preferential payment.

2. From which date should sales tax be considered due: the date of demand, the date when the sale price is received, or any other date?

The court clarified that the relevant date for considering the sales tax due is the date of the winding-up order, not the date when the application for winding-up was presented or when the provisional liquidator was appointed. The court rejected the contention that sales tax became due when the sales were made or when the returns for the quarters were due to be filed. Instead, it held that the tax became due and payable when the notice of demand was served, which was on the 17th May 1950. This was well within twelve months before the winding-up order, thus satisfying the requirement for preferential payment under Section 230(1)(a).

Additional Observations:

The court also discussed the nature of tax liability under the Bengal Finance (Sales Tax) Act, 1941. It noted that while the liability to pay tax accrues before an assessment is made, the tax does not become due and payable until an assessment is completed and a notice of demand is served. This principle aligns with the judicial interpretation of similar provisions under the Income-tax Act, where tax becomes due when a demand is made following an assessment.

Conclusion:

The court concluded that the amount of Rs. 759-8-9 became due and payable on the 17th May 1950, when the notice of demand was served on the company. Since this amount remained due on the 18th July 1950, when the winding-up order was made, it was entitled to preferential payment under Section 230(1)(a) of the Indian Companies Act. The reference was answered accordingly, and the rest of the application of the Official Liquidator was to be dealt with by the Company Judge. The State of West Bengal was awarded the costs of the reference, with such costs and the costs of the Official Liquidator to come out of the assets of the company.