1958 (9) TMI 111 - HC - Income Tax

Summary

Issues Involved:
1. Contempt of Court by initiating legal proceedings without leave.
2. Applicability of Section 446 of the Companies Act, 1956.
3. Interpretation of Section 46(5A) of the Indian Income Tax Act, 1922.
4. The legal status and duties of the official liquidator.
5. The validity and impact of the apology tendered by the Income Tax Officer.

Detailed Analysis:

1. Contempt of Court by initiating legal proceedings without leave:
The court issued a notice to the Income Tax Officer to show cause why he should not be committed for contempt for initiating legal proceedings against the official liquidator without the court's leave. The court emphasized that under Section 446 of the Companies Act, 1956, once a winding-up order is made, no suit or other legal proceeding shall be commenced against the company without the court's leave. The Income Tax Officer's issuance of a notice under Section 46(5A) of the Indian Income Tax Act, 1922, without obtaining such leave, constituted contempt of court.

2. Applicability of Section 446 of the Companies Act, 1956:
The judgment highlighted that Section 446(1) of the Companies Act, 1956, mandates that no legal proceeding shall be commenced or continued against a company in liquidation without the court's leave. This provision is a "mandatory direction of law" and applies to proceedings initiated by the State as well. The court cited precedents to reinforce that the Crown is bound by the Companies Act and cannot claim prerogative priority in liquidation proceedings.

3. Interpretation of Section 46(5A) of the Indian Income Tax Act, 1922:
The court examined Section 46(5A), which allows the Income Tax Officer to require any person from whom money is due to the assessee to pay the arrears of income tax. The court concluded that issuing a notice under this section amounts to starting a legal proceeding. The court referred to previous cases, including Governor-General in Council v. Shiromani Sugar Mills Ltd., to establish that proceedings under Section 46(5A) are legal proceedings requiring the court's leave under Section 446 of the Companies Act.

4. The legal status and duties of the official liquidator:
The judgment noted that the official liquidator is an officer of the court, similar to a receiver, and any initiation of legal proceedings against him without the court's leave amounts to contempt. The court cited Braja Bhusan Trigunait v. Sris Chandra Tewari, emphasizing that public policy requires court authority to be respected when it has assumed possession of property in the interest of litigants.

5. The validity and impact of the apology tendered by the Income Tax Officer:
The Income Tax Officer tendered an unconditional apology and withdrew the notice of attachment. The court acknowledged the apology but clarified that an apology cannot serve as a defense to purge the guilt of contempt. The court referenced M. Y. Shareef v. Hon'ble Judges of the Nagpur High Court, stating that there cannot be both justification and an apology. Despite the apology, the court held the officer guilty of technical contempt but chose not to impose any punishment, emphasizing the need for the officer to act with more circumspection in the future.

Conclusion:
The court held the Income Tax Officer guilty of technical contempt for initiating legal proceedings against the official liquidator without the court's leave, as required under Section 446 of the Companies Act, 1956. However, in light of the unconditional apology tendered by the officer, the court did not impose any punishment but admonished him to act with greater regard for the law in the future. The proceedings were disposed of without any order as to costs.