1933 (11) TMI 27 - HC - Income Tax

Summary

Issues:
1. Whether a liquidator is exempt from making an Income Tax return on business managed by him for the beneficial winding-up of the company?

Detailed Analysis:
The judgment was delivered by Mukherji, J. The Bench was constituted to decide four points, but only point 4 was argued as the other three points did not arise at that moment. The central issue was whether, under the Companies Act, a liquidator is exempt from making an Income Tax return on business managed by him for the beneficial winding-up of the company. The case involved the Agra Spinning and Weaving Mills Company, Limited, which went into compulsory winding-up, and official liquidators were appointed to manage the business. The Income Tax Officer called on the liquidators to make a return under Section 22(1) of the Income Tax Act, leading to a dispute on the tax liability.

The argument presented by the official liquidators was that a company in liquidation is no longer considered a "company" under the Income Tax Act, and therefore, no Income Tax can be assessed on the liquidators representing the company. However, the court referred to Section 3 of the Income Tax Act, which states that every company is liable to Income Tax. The definition of "company" in the Act includes a company in liquidation until it is dissolved under the Companies Act. The court also addressed the issue of determining the principal officer of a company in liquidation, stating that the official liquidators could be considered as managers under the Income Tax Act.

Further arguments against including a company in liquidation under the Income Tax Act were discussed, such as the treatment of borrowed capital interest and expenditure incurred during liquidation. The court emphasized that the intention of the legislature was to cast a wide net for Income Tax purposes, and it was unlikely that companies in liquidation earning profits would be exempt from taxation. The judgment also highlighted that not all companies in liquidation are insolvent, and solvent companies may also go into liquidation for various reasons.

Regarding the enforcement of tax payment against the company's property in liquidation, the court held that the Crown's right to enforce payment cannot be barred by mere implication and that the Income Tax authorities could call upon the official liquidators to furnish a return as per the Income Tax Act. The judgment concluded by allowing a fee to the counsel for the Income Tax authorities and directing the payment within the specified time frame as per court rules.