1978 (11) TMI 7 - HC - Income Tax

Summary

Issues:
1. Whether the demand for interest by the Income Tax Officer (ITO) under section 220(2) of the Income Tax Act, 1961, after a winding-up order, constitutes a legal proceeding as contemplated by section 446(1) of the Companies Act, 1956.

Analysis:
The case involved an appeal against an order of a single judge regarding the levy of interest by the ITO on a company after a winding-up order was passed. The ITO demanded interest under section 220(2) of the Income Tax Act due to a delay in payment by the official liquidator. The single judge restrained the ITO from enforcing the interest claim except as provided in the Companies Act. The key issue was whether the ITO's demand for interest constituted a legal proceeding post-winding-up order under section 446(1) of the Companies Act.

The court referred to precedents like Governor-General in Council v. Shiromani Sugar Mills Ltd. and S. V. Kondaskar v. V. M. Deshpande to determine the scope of legal proceedings post-winding-up. It was established that recovery proceedings for tax fall under legal proceedings as per the Companies Act. The court differentiated between assessment proceedings and recovery proceedings, emphasizing that the latter, like the demand for interest in this case, are considered legal proceedings and require court approval post-winding-up.

Additionally, the court cited Union of India v. Seth Spinning Mills Ltd. and Union of India v. India Fisheries (P.) Ltd. to highlight the precedence of Companies Act provisions over conflicting provisions in the Income Tax Act. The court emphasized that the Companies Act's special provisions, including section 446(2) with a non obstante clause, prevail over general provisions in the Income Tax Act in case of conflict.

Ultimately, the court upheld the single judge's order, dismissing the appeal and affirming that the ITO's demand for interest after the winding-up order constituted a legal proceeding requiring court approval as per the Companies Act. The decision was based on the precedence of legal proceedings for tax recovery falling under the ambit of section 446 of the Companies Act and the primacy of special provisions in the Companies Act over general provisions in the Income Tax Act.