1970 (1) TMI 16 - HC - Income Tax

Liquidation of company - Proceedings for reassessment of escaped income-tax - ITO alone has exclusive jurisdiction to make reassessment and to determine the tax liability - therefore it is held that leave of winding up court is not necessary -

Issues Involved:
1. Whether reassessment proceedings under Section 148 of the Income-tax Act, 1961, constitute "legal proceedings" under Section 446(1) of the Companies Act, 1956.
2. Whether leave of the company court is necessary for initiating reassessment proceedings against a company in liquidation.

Detailed Analysis:

Issue 1: Whether reassessment proceedings under Section 148 of the Income-tax Act, 1961, constitute "legal proceedings" under Section 446(1) of the Companies Act, 1956.

The original respondents argued that reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961, are "legal proceedings" and thus require leave from the company court under Section 446(1) of the Companies Act, 1956. This contention was supported by the judgment of the learned judge, who referred to the phrase "legal proceedings" as interpreted in various cases, including Governor-General in Council v. Shiromani Sugar Mills and Abdul Aziz v. State of Bombay. The judge concluded that the phrase "legal proceedings" should include assessment or reassessment proceedings under the Income-tax Act.

On the other hand, the appellants contended that reassessment proceedings are not "legal proceedings" within the meaning of Section 446(1) of the Companies Act. They argued that the Income-tax Officer is a special officer under a special Act, and the proceedings for assessment are undertaken by this officer alone, who has exclusive jurisdiction to determine tax liability. They relied on the case of Damji Valji Shah v. Life Insurance Corporation of India, where the Supreme Court observed that the provisions of a special Act override those of a general Act.

The court, while discussing this issue, noted that the Supreme Court in Damji Valji Shah v. Life Insurance Corporation of India held that the provisions of the Life Insurance Corporation Act, being a special Act, override the general provisions of the Companies Act. Applying this principle, the court concluded that the Income-tax Act, being a special Act with a complete code for assessment, should similarly override the general provisions of the Companies Act.

Issue 2: Whether leave of the company court is necessary for initiating reassessment proceedings against a company in liquidation.

The original respondents argued that reassessment proceedings could only be initiated with the leave of the company court under Section 446(1) of the Companies Act, 1956. They contended that the absence of such leave rendered the proceedings without jurisdiction and a nullity.

The appellants countered this by asserting that the Income-tax Officer has exclusive jurisdiction to make reassessments and determine tax liabilities. They argued that the company court has no jurisdiction over assessment proceedings, and therefore, leave under Section 446(1) is not necessary.

The court referred to several sections of the Companies Act, including Sections 442, 446, 530, and 537, which are in pari materia with provisions of the Indian Companies Act, 1913. The court observed that the Supreme Court in Damji Valji Shah v. Life Insurance Corporation of India had held that the provisions of a special Act, such as the Life Insurance Corporation Act, override the general provisions of the Companies Act. Applying this reasoning, the court concluded that the Income-tax Act, being a special Act, overrides the general provisions of the Companies Act concerning the necessity of obtaining leave from the company court for reassessment proceedings.

The court further noted that the Supreme Court had emphasized that the provisions of the Income-tax Act, which provide a complete code for assessment and reassessment, should be considered as special provisions that override the general provisions of the Companies Act. Therefore, the court held that leave of the company court under Section 446(1) of the Companies Act is not necessary for initiating reassessment proceedings against a company in liquidation.

Conclusion:
The appeal was allowed, and the order dated September 28, 1967, was set aside. The judge's summons dated July 1, 1967, was dismissed with costs. The court concluded that reassessment proceedings under Section 148 of the Income-tax Act, 1961, do not constitute "legal proceedings" under Section 446(1) of the Companies Act, 1956, and therefore, do not require leave of the company court. The respondent was ordered to pay the appellants' costs.

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