Weather personal liability for payment of tax could be fixed on Official Liquidator in view of section 178(4) of Act. - Income Tax - 1229/CBDT

INSTRUCTION NO. 1229/CBDT Dated : January 19, 1979 Section(s) Referred: 178 Statute: Income - Tax Act, 1961 A case has come to the notice of the Board wherein the Official Liquidator did not pay the tax arrears for the assessment years 1970-71,1971-72 and 1973-74 due from a company which had gone in liquidation on the ground that he had distributed after obtaining the orders of the court the sale proceeds of the properties belonging to the company among the creditors much earlier to the raising of the demand by the department. The facts of the case in brief are that the Official Liquidator had given notice of his appointment under sub-sec.1 of sec.178 of the Act. The ITO thereafter did not intimate to him, under sub section(2) the amount required to be provided for the payment of tax which was there or was likely thereafter to become payable by the company. The ITO did not make enquiries about the properties likely to be disposed of by the Official Liquidator the amount of capital gains tax that was likely to arise, as a result of the disposal of the capital assets of the company. 2. The question that came up for consideration before the Board in this case whether or not personal liability for payment of the tax could be fixed on the Official Liquidator in view of section 178(4) of the Act. 3. The matter has been examined in consultation with the Ministry of Law. The Board are advised that as the liquidator had given notice of his appointment under sub-section(1) but the ITO failed to send an intimation under sub-sec(2), there is no failure on the part of the liquidator under sub-sec(3) of sec.178. Accordingly it would be difficult to fix any personal liability for the tax on the official liquidator. The board are however advised that, in such cases, where liquidation proceedings are still pending, steps may be taken to bring to the notice of the court the taxes due and the fact of the non-payment so that the Court may pass orders for payment of whatever amount that could now be realised from the Official Liquidator. Further, the conduct of the Official Liquidator can also be brought to the notice of the Central Government in the Department of Company Affairs for action u/s.463(1) of the Companies Act. 4. As non-compliance with the provisions of sec.178(2) is likely to jeopardise the interests of revenue, ITOs should take particular care well in time to ascertain and intimate to the liquidator the amount of tax and any other sum which is then, or is likely thereafter to become payable by the company including the estimated tax on capital gains that may arise on the sale of assets during liquidation proceedings of the company. 5. It may be incidentally clarified that recoveries made through the liquidator u/s.178 are without prejudice to any action the ITO may take u/s.179 against the directors of private companies who come within the purview of the section.