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Issues Involved:
1. Legitimacy of the income-tax authorities' application for winding up the company. 2. Jurisdiction of the High Court under Section 226, Government of India Act. 3. Bona fide dispute over the amount of tax due. 4. Impact of the creditors' wishes on the winding-up order. 5. Appropriate course of action regarding the winding-up petition. Detailed Analysis: 1. Legitimacy of the Income-Tax Authorities' Application for Winding Up the Company The company opposed the application on grounds that the tax assessments were illegal and arbitrary, and that appeals against these assessments were pending. The company argued that the application to wind up was not bona fide and aimed to stifle these appeals. The judgment noted that the income-tax authorities had indeed taken steps to realize their dues through other means, such as issuing notices under Section 46(5)(a) of the Income-tax Act and obtaining a search warrant. However, the court found no concrete evidence to prove that the application was mala fide, despite some suspicious actions by the tax authorities. 2. Jurisdiction of the High Court under Section 226, Government of India Act The company argued that the High Court had no jurisdiction to entertain the winding-up application due to Section 226, which bars original jurisdiction in revenue matters. The court, however, held that an application to wind up a company does not fall within the scope of Section 226 as it does not involve adjudicating disputes over tax assessments or acts done in the collection of revenue. The court emphasized that the Companies Act allows for claims in the nature of revenue to be addressed during winding-up proceedings. 3. Bona Fide Dispute Over the Amount of Tax Due The court acknowledged that the company's tax liability was hotly disputed and that the original assessment of over Rs. 35,00,000 had already been reduced by about Rs. 7,00,000 due to successful appeals. The judgment emphasized that a winding-up petition is not a legitimate means of enforcing payment of a debt that is bona fide disputed. The court cited precedents indicating that winding-up orders should not be made if the debt is genuinely contested and the company is solvent. 4. Impact of the Creditors' Wishes on the Winding-Up Order The judgment considered the wishes of the creditors, noting that all creditors except the revenue authorities supported the company's voluntary liquidation. The court clarified that the majority in value of the creditors, not in number, should be considered. Given the substantial claim of the revenue authorities, the court found that the majority in value did not oppose the winding-up application, even if the tax debt was significantly reduced. 5. Appropriate Course of Action Regarding the Winding-Up Petition The court concluded that it was inappropriate to make a winding-up order given the uncertainty over the exact amount of tax due. Instead, the court decided to adjourn the application for a reasonable time to await the results of the pending appeals. The provisional liquidators were to continue functioning, and both parties were allowed to file affidavits after the final determination of the tax appeals, stating the liabilities as determined in those appeals. Conclusion: The order of Sinha J. winding up the appellant company was set aside. The application for winding up was adjourned sine die, with provisional liquidators continuing to function. The case was remanded for hearing after the final determination of the income-tax and excess-profits tax appeals. Costs of the hearing and the appeal were to abide by the final result of the winding-up application.
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