2001 (12) TMI 67 - HC - Income Tax

Summary

Issues:
1. Whether the Income-tax Department can recover amounts from a company in liquidation without the court's permission as per the Companies Act.
2. Whether an order under the Income-tax Act issued before the winding-up order is enforceable against a debtor of the company in liquidation.

Analysis:

Issue 1:
The court considered the case law precedent set by the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. The Federal Court held that any proceedings by revenue authorities seeking to recover dues from a company in liquidation must obtain court leave. The court applied this principle to the present case, where the Income-tax Department sought to recover amounts under section 226(3) of the Income-tax Act. The court emphasized that such proceedings essentially target the company in liquidation and, therefore, fall under the purview of the Companies Act, requiring prior court approval. The court highlighted the purpose behind this requirement, emphasizing the need for court control to ensure fair distribution of assets among creditors.

Issue 2:
Regarding the enforceability of an order under section 226(3) of the Income-tax Act issued before the winding-up order, the court held that the timing of the order does not affect its efficacy. The court pointed out that section 446 of the Companies Act prohibits legal proceedings against a company in liquidation without court permission. The court further referenced section 537 of the Companies Act, which voids any actions like attachment or distress against the company's assets without court approval. The court concluded that the respondent's argument was untenable, especially considering the counter plea acknowledging liability. Consequently, the court directed the respondent to pay the due amount with interest, granting a two-month period for payment, failing which the official liquidator could take appropriate legal steps for recovery.

In summary, the judgment clarified that the Income-tax Department must obtain court leave to recover dues from a company in liquidation, as per the Companies Act provisions. It also affirmed that orders under the Income-tax Act are subject to the Companies Act regulations, emphasizing the need for court control in such matters to ensure fair treatment of creditors. The court's decision mandated the respondent to pay the outstanding amount with interest within a specified timeframe, highlighting the legal obligations in cases of companies in liquidation.