1962 (9) TMI 30 - HC - Companies Law

Summary

Issues Involved:
1. Whether the company recognized a liability of Rs. 14,503.80 towards South India Builders.
2. Whether the claim by the Income-tax Officer was barred by limitation.
3. Whether the Income-tax Officer's claim should be treated as a preferential payment under section 530(1)(a) of the Companies Act.

Issue-Wise Detailed Analysis:

1. Recognition of Liability:
The company had entered into a contract with South India Builders, which defaulted in paying income tax. The Income-tax Officer issued a notice under section 46(5A) of the Indian Income-tax Act, 1922, requiring the company to pay the amount due to the builders directly to the tax department. The company acknowledged in its letter dated 20th February 1953, that a sum of Rs. 14,503-12-9 was due to the builders according to its books, but stated that the amount would only be payable upon the builders signing and accepting the final bills. This acknowledgment was supported by the company's books of account, which recorded the liability as an unclaimed liability. The liquidator's rejection on the ground that the company did not accept any liability was found unsustainable as the books clearly showed the existence of the liability.

2. Limitation of the Claim:
The company claimed that any liability to the builders was time-barred. However, the court noted that the company had acknowledged the debt in a letter to the builders' lawyer on 19th June 1952, which extended the limitation period. The notice under section 46(5A) was served within three years of this acknowledgment. The court held that the claim by the Income-tax Officer was governed by Article 140 of the Limitation Act, which provides a 60-year limitation period for claims by the Central Government. Therefore, the claim was not barred by limitation at the time of the winding-up petition.

3. Preferential Payment Claim:
The Income-tax Officer claimed preferential payment under section 530(1)(a) of the Companies Act, which prioritizes taxes due from the company to the Central Government. The court rejected this claim, stating that the liability was not a tax owed by the company but a statutory obligation to pay an amount due to another assessee. The court held that the Income-tax Officer's claim could only be treated as that of an ordinary creditor, not a preferential creditor.

Conclusion:
The court partially reversed the liquidator's order, admitting the Income-tax Officer's claim as an ordinary creditor for Rs. 14,503-12-9 but rejecting the claim for preferential payment. The parties were directed to bear their own costs.