1988 (6) TMI 80 - AT - Income Tax

Summary

Issues:
1. Appeal against order of CIT(A) for levying additional tax for non-distribution of dividends by a company under liquidation.
2. Interpretation of provisions under s. 104 of the IT Act regarding assessment on official liquidator of a company under liquidation.
3. Application of s. 160(1)(iii) in the context of assessment on official liquidator as a representative assessee.
4. Analysis of relevant provisions of the Indian Companies Act, 1956 in relation to the powers and functions of the official liquidator during liquidation proceedings.
5. Examination of whether s. 104 is applicable to a company under liquidation and the impact of the official liquidator managing the business during the winding up process.
6. Consideration of the absence of a government notification exempting the company from s. 104 and the role of the Central Government in overseeing the liquidation process.

Analysis:
The case involved an appeal by a company under liquidation against the CIT(A) order for additional tax under s. 104 of the IT Act for non-distribution of dividends. The company argued that the official liquidator, appointed by the High Court, managed the business during the winding up process, and any income should be assessed on the liquidator, not the company. The Departmental Representative contended that s. 104 applied without exemption for such situations.

Upon careful consideration, the Tribunal analyzed the provisions of the Indian Companies Act, noting that the official liquidator manages the company's affairs under the Court's supervision during liquidation. The Act empowers the liquidator to handle property, effects, and business for the beneficial winding up of the company. As the liquidator operates under Court control akin to insolvency proceedings, the Tribunal concluded that s. 104 did not apply to companies under liquidation, where the liquidator assumes the company's functions.

The Tribunal highlighted the distinction between normal company operations and liquidation proceedings, where the Directors' and Shareholders' powers are suspended in favor of the liquidator. It emphasized that the liquidator, not the company, conducts business during liquidation, rendering s. 104 inapplicable. The absence of a government notification exempting the company from s. 104 was considered, with reference to the Central Government's oversight role in liquidation matters under the Companies Act.

Ultimately, the Tribunal quashed the s. 104 proceedings, ruling that the official liquidator of a company under liquidation should be assessed as a representative assessee, distinct from the company itself, due to the unique nature of liquidation proceedings and the liquidator's authority over the company's affairs during that period.