Company - Tax arrears - unable to pay - compulsory liquidation - Income Tax - 550/CBDT

INSTRUCTION NO. 550/CBDT Dated : June 4, 1973 Section(s) Referred: 434(1)(a) of Companies Act Statute: The question whether companies against whom arrears of taxes are outstanding could be taken into compulsory liquidation was examined by the Board in consultation with the Ministry of Law. The Law Ministry has advised that a company is deemed to be unable to pay its debts if, following the service of the statutory notice under section 434(1)(a) of the Companies Act, 1956 demanding payment of the debt due to the creditor, the company fails within three weeks either to pay the sum demanded or secure or compound it to the reasonable satisfaction of the creditor. Consequently, if a company has defaulted in the payment of tax dues, it would be open to the Department to serve a notice under section 434(1)(a) of the Companies Act and in case of failure, to move the Court for winding up of the Company. The Board, however, desire that liquidation proceedings against a defaulting company should be initiated only after all available methods of recovery have been exhausted. Recourse should be had to the provisions of Section 434(1)(a) of the Companies Act, 1956 only in the face of continuing and consistent default. However, before issuing such a notice to the company the Income-tax Officer should obtain the prior approval of the Commissioner of Income-tax or the Addl. Commissioner of Income-tax as the case may be. The contents of this circular may be brought to the notice of all the Officers working in each charge.