1965 (9) TMI 9 - HC - Income Tax

This is an application by the Income-tax Officer, Company Circle, Bangalore, for an order admitting the claim of Rs. 1,44,678.36 nP. against the company in winding up and for a direction to pay the same as a preferential claim - applicant is entitled to preferential payment of this amount under s. 530 of the Companies Act of 1956

Summary

Issues:
1. Entitlement to preferential payment under section 530 of the Companies Act of 1956.
2. Interpretation of the relevant section in light of a ruling from the Patna High Court.
3. Relevance of section 178 of the Income-tax Act of 1961 in the present case.

Analysis:
The judgment pertains to an application by the Income-tax Officer for preferential payment of Rs. 1,44,678.36 nP. against a company in winding up. The amount represents the total tax liability for two assessment years. The key issue revolves around whether the applicant is entitled to preferential payment under section 530 of the Companies Act of 1956. The section prioritizes the payment of revenues, taxes, and rates due from the company to the government within twelve months before the winding up date. The court notes that the tax claimed had become due and payable before the recovery action was initiated, raising doubts about its eligibility for preferential payment.

The judgment references a ruling from the Patna High Court regarding the interpretation of a similar provision under the Companies Act. The ruling emphasized that the co-existence of due and payable amounts within the twelve-month period is sufficient for preferential treatment. However, the court in the present case distinguishes the facts, highlighting that the tax claimed had become due and payable long before the relevant twelve-month period, thereby rejecting the application for preferential payment.

Another argument raised concerns the relevance of section 178 of the Income-tax Act of 1961. The court clarifies that section 178, which deals with notices to the official liquidator, is not pertinent to the present case. The court asserts that the rule of priorities under section 530 of the Companies Act is distinct from the provisions of the Income-tax Act, dismissing any overlap between the two sections.

Ultimately, the court admits the income-tax officer's claim against the company as an ordinary unsecured debt, ranking equally with other unsecured debts. The claim for preferential payment is consequently rejected based on the interpretation of the relevant statutory provisions and the specific timeline of the tax liability in question.