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TMI Blog1946 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... the 17th of April, 1942, a winding-up order had been made by the High Court at Allahabad. It will be noticed therefore that the company had been ordered to be wound up a very considerable time before the assessment was made. On the 10th of March, 1943, a notice of demand was served on the Official Liquidators of the respondent company under section 29 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Income-tax Act ). On the 13th of March, 1943, the Official Liquidators pointed out to the Income-tax Department that the proper procedure to be followed was for the Income-tax Department to lodge a claim in the winding-up in respect of the arrears of tax alleged to be due from the company. Instead of adopting the procedure suggested, the Income-tax Department decided to adopt the procedure provided by section 4 6 of the Income-tax Act, and accordingly, on the 8th of August, 1944, the Income-tax Department sent an 'Arrear Demand' to the Official Liquidators with the intimation that the demand was recoverable as arrears of land revenue, and that a recovery certificate under sub-section (2) of section 46 had been forwarded to the Collector of Allahabad. In fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in this case could be granted under section 169. No formal objection, however, was taken in regard to this matter, and it is clear from the judgment of the learned Judges that in this respect the substantial question was whether or not the appellant should have obtained the leave of the Court under section 171 of the Indian Companies Act prior to taking steps to put into action the machinery of section 46 of the Income-tax Act. The effect of the decision was that such leave was required, and that as it had not been obtained, the Court could restrain further action under section 46. The learned Judges also held that the objection raised by the present appellant to the exercise by the Allahabad High Court of any jurisdiction at all in the matter based on section 220 of the Government of India Act, 1935, was ill-founded, and that they were free to deal with the matter. They granted, however, a certificate under section 205 of the last mentioned Act and accordingly the appellant has come to this Court, and asks that the order of the 13th of November, 1944, be set aside, both on the ground that the High Court had no jurisdiction to deal with the matter, in view of the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are insufficient to meet them in full. In this connection it is material also to notice sub-section (2) of section 232 of the Indian Companies Act, 1913. This sub-section indicates that an express enactment was considered necessary to provide that the consequences set out in sub-section (1) of section 232 should not apply to proceedings of the Government. To these indications of the manner in which the Crown prerogative has been expressly dealt with by the provisions of the Indian Companies Act may be added a general consideration derived from the whole scheme of the Act in regard to the administration of assets in the liquidation of companies. It is difficult to believe that where so much consideration has been given to rights of priority and the respective rights and position of secured and unsecured creditors, and the order and manner in which their debts are to be discharged, the Crown was to remain outside the scheme and unaffected by the provisions of the Act, except to the extent to which Crown rights have been expressly dealt with. It is difficult to think of any reason for qualifying the priority in respect of the Crown debts specified in section 230 (1)( a ), if it was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ) [1936] 41 CWN 458; 7 Comp. Cas. 470 ; Governor-General in Council through the Income-tax Commissioner, Punjab, N.W.F. and Delhi Provinces v. Sargodha Trading Co., Ltd., ( In Liquidation ) [1943] 11 ITR 368; 13Comp. Cas. 163 Counsel for the appellant invited our attention to these cases, but did not suggest that they were in any way wrongly decided, or that the scheme of the administration of assets of a company in liquidation under the Indian Act was materially different to that enacted by the English Acts, notwithstanding the decisions to the contrary in the matter of West Laikdih Coal Co., Ltd. [1925] ILR 53 Cal. 328 , and Commissioner of Income-tax v. Official Liquidators, Agra Spinning and Weaving Mills Co. [1934] ILR 56 All. 635; 21 TR. 79. We have no hesitation in coming to a conclusion and holding that the Crown is bound by the provisions of the Indian Companies Act, 1913, and is bound, in regard to the provisions relating to the liquidation of companies, to a statutory scheme of administration wherein the prerogative right of the Crown to priority no longer exists. (Lord Wrenbury in Food Controller v. Cork [1923] AC 647 , at page 672). The Crown is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the right to exercise the machinery of section 46 of the Income-tax Act in respect of arrears of income-tax due from a company in liquidation uncontrolled by the Court in which the company is being wound up. How then is this claim in fact formulated? Counsel for the appellant urges ( a ) that under section 46 of the Income-tax Act, the very special machinery therein set forth is not in any way limited in its application and is prima facie therefore applicable to the facts of this case and available and appropriate for the collection of arrears of income-tax due from the respondent company, whether it be in liquidation or not; ( b ) that the powers of the Court in a winding-up under the Indian Companies Act to control, restrain or interfere with claims or actions or remedies of creditors are very limited and are confined to sections 169 and 171; ( c ) that the former section gives jurisdiction during the period only between the presentation of a petition and the making of an order for the winding-up of the company and only upon the application of a company, a creditor, or a contributory, to restrain further proceedings in any suit or proceeding against the company upon such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p order or in ignorance of it, with any attachment, distress, execution or sale, without the previous leave of the Court, will find that such steps are void. The reference to distress indicates that leave of the Court is required for more than the initiation of original proceedings in the nature of a suit in an ordinary Court of law. Moreover, the scheme of the application of the company's property in the pari passu satisfaction of its liabilities, envisaged in section 211 and other sections of the Act, cannot be made to work in co-ordination, unless all creditors (except such secured creditors as are outside the winding-up in the sense indicated by Lord Wrenbury in his speech in Food Controller v . Cork [1933] AC. 647 at p. 671) are subjected as to their actions against the property of the company to the control of the Court. Accordingly, in our judgment, no narrow construction should be placed upon the words or other legal proceeding in section 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , comprise any proceeding by the revenue authorities under section 46 (2) of the Indian Income-tax Act, and that accordingly before forwarding the requisite certificate under section 46 (2) to the Collector, which would put the machinery for the collection of the arrears of income-tax as arrears of land revenue into motion, the appellant should have applied in the liquidation under section 171 of the Companies Act for leave of the winding-up Court. That leaves the question whether, inasmuch as the appellant moved under section 46(2) without prior leave of the Court, the High Court at Allahabad, as the Court having jurisdiction under the Indian Companies Act to wind up the respondent company, had jurisdiction to interfere by injunction or otherwise to prevent the completion of the collection of the arrears of land revenue. Were it not for the provisions of section 226 of the Government of India Act, 1935, we should without hesitation answer this question in the affirmative and dismiss this appeal. section 226 must however be considered in the light of decided cases and of the facts of this case. The section runs as follows: (1)Until otherwise provided by Act of the appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 63; 3 Comp. Cas. 207 ) , and to confine the meaning of the words original jurisdiction to the original jurisdiction exercised by the Supreme Courts and by the High Courts of Madras, Calcutta and Bombay, as successors to the Supreme Courts, and to hold that High Courts, other than those three, though they may exercise special or particular jurisdiction conferred on them by Letters Patent or statute, exercised no original jurisdiction within the meaning of the words as used in section 226. In our opinion, the history itself of the section does not justify such a method of construction. It was clearly re-enacted in section 106 (2) of the Government of India Act, 1915, in a setting where it was impossible to confine its operation to the High Courts of Madras, Calcutta and Bombay [ vide section 106 (1)], and where [ vide section 101 (5)] the High Court at Allahabad was expressly referred to amongst the High Courts. In the Government of India Act, 1935, the very opening words of section 226 and sub-section (2) thereof show that it is no mere repetition of a section without consideration. It has again been deliberately re-enacted with appropriate provision for its repeal or modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or done in the collection thereof; and ( b )if so, do the last words of the sub-section according to the usage and practice of the country or the law for the time being in force qualify original jurisdiction in any matter concerning the revenue as well as concerning any act ordered or done in the collection thereof? As regards ( a ), there was much discussion before us in this case, as there had been in other cases, whether a matter concerning an act ordered or done in the collection of the revenue would not also be included in a matter concerning the revenue, or whether it would not be something additional to or different from a matter concerning the revenue. In Dewarkhand Cement Co., Ltd. v. Secretary of State [1939] ILR 1939 Bom, 320 the learned Judge (Rangnekar, J.) basing himself on an observation in the judgment delivered by Lord Phillimore in Alcock, Ashdown and Co., Ltd. v. Chief Revenue Authority, Bombay [1923] LR 50 IA 227 , came to the conclusion that two different ideas are expressed in the respective parts of the section; the first refers to the preliminary proceedings taken for the purpose of determining the amount of the revenue in any case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a company in liquidation by a procedure not authorised by law generally. Accordingly, they say, the matter is outside the limitations to jurisdiction imposed by section 226. It has been urged on behalf of the appellant that the learned Judges were wrong in allowing the phrase law for the time being in force to embrace all law for the time being in force in respect of the act ordered or done in the collection of the revenue, and that they should have confined the phrase to law directly concerned with the collection of the revenue. We are not prepared to differ in this respect from the learned Judges in the Court below. It would be difficult, if not impossible to delimit satisfactorily the law which had to be considered in relation to any matter from that which could be excluded from consideration. But in our view the more important question in this case is whether the act ordered or done in the collection of the revenue must in truth and in fact have been according to the law for the time being in force or whether it is sufficient that the person or persons ordering or during the act should bona fide and not absurdly have believed that the act was according to the law fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction upon such enactments, and there can be no rule more firmly established, than that if parties bona fide and not absurdly believe that they are acting in pursuance of statutes and according to law, they are entitled to the special protection which the legislature intended for them, although they have done an illegal act. In this case it may well be that the warrant against the goods of Tookaydass did not authorize the taking the goods of Hurgovundass, or even that Hurgovundass might not be liable for the arrears of 'quit-rent' which accrued before he became owner of the house. Still the Collector was evidently of opinion, that a distress might be made for the whole of the arrears due, and that it was sufficient to introduce into the warrant the name of Tookaydass, in whose name the house continued to be registered. The other defendant never could have doubted the sufficiency of the warrant If Indian revenue-officers have fallen into a mistake, or without bad faith have been guilty of an excess in executing the duties of their office, the object of the legislature has been, that they should not be liable to be sued in a civil action before the Supreme Courts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case to try to recover the arrears by a procedure believed to be available to the Income-tax authorities according to their view of the law for the time being in force. Indeed the number of points raised and debated before us and the High Court show that it would be very difficult to hold that the challenged procedure had clearly been adopted mala fide or absurdly. At the stage therefore when the procedure which we have held to be unauthorised by law was in fact put in force in this case, we can see no reason for holding that the officials concerned were not acting bona fide or were acting absurdly. In this case, on the facts, the appellant must in our judgment succeed on the plea that section 226 (1) of the Government of India Act, 1935, deprived the High Court of jurisdiction in the matter. Any further action under section 46 (2) of the Income-tax Act in the future will be taken in the light of this judgment and may well not be saved by the provisions of the said section 226. The appellant fails on all points except the objection taken under section 226 of the Government of India Act, 1935. By reason of that we must allow the appeal and declare that the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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