1969 (4) TMI 22 - HC - Income Tax

Whether the income-tax authorities are competent to commence or continue an assessment proceeding against a company in liquidation without obtaining leave of the court

Summary

Issues Involved:
1. Competency of income-tax authorities to commence or continue assessment proceedings against a company in liquidation without court's leave.
2. Whether assessment proceedings under the Income-tax Act are considered "legal proceedings" under section 446(1) of the Companies Act, 1956.
3. The role and obligations of the official liquidator in the context of assessment proceedings.
4. The interpretation and application of section 446 of the Companies Act, 1956, in relation to assessment proceedings under the Income-tax Act, 1961.

Detailed Analysis:

1. Competency of Income-Tax Authorities:
The court examined whether the income-tax authorities can commence or continue assessment proceedings against a company in liquidation without obtaining leave from the court. The official liquidator contended that such actions by the department without leave are contrary to section 446(1) of the Companies Act, 1956. The income-tax authorities argued that assessment proceedings are not "legal proceedings" within the meaning of section 446(1) and thus do not require leave.

2. Assessment Proceedings as "Legal Proceedings":
The court analyzed sections 142 and 148 of the Income-tax Act, 1961, which deal with enquiry before assessment and reassessment, respectively. The official liquidator argued that these assessment proceedings are legal proceedings against the company and thus require leave under section 446(1) of the Companies Act, 1956. The income-tax authorities contended that assessment proceedings are administrative in nature and do not fall under the ambit of "legal proceedings" as envisaged in section 446(1).

3. Role and Obligations of the Official Liquidator:
The official liquidator argued that he is an officer of the court and not of the company, and therefore, any proceedings against the company in liquidation must obtain leave of the court. The liquidator also contended that a company in liquidation is not liable for assessment for periods post the winding-up order. The court considered the definition of "principal officer" under the Income-tax Act and previous case law, concluding that the liquidator can be treated as a "principal officer" for assessment purposes.

4. Interpretation of Section 446 of the Companies Act:
The court reviewed various judicial precedents, including the Federal Court's decision in Governor-General in Council v. Shiromani Sugar Mills Ltd., and the Supreme Court's decision in Damji Valji Shah v. Life Insurance Corporation of India. The court noted that section 446(1) should be interpreted with reference to other sections of the Companies Act and the general scheme of administration of the company's assets. The court concluded that assessment proceedings do not affect the assets of the company and are not directed against the estate or effects of the company. Therefore, such proceedings do not require leave under section 446(1).

Conclusion:
The court held that no leave of court is necessary for the income-tax authorities to commence or continue assessment proceedings against a company in liquidation. The assessment proceedings are administrative actions that do not impact the assets or the scheme of administration of the company in liquidation. The application by the official liquidator was dismissed, and the liquidator was allowed to retain his own costs from the company's assets.