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TMI Blog1969 (4) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1967-68. All these notices are in respect of periods subsequent to the date of the winding-up order. These notices have all been issued by the income-tax department (which is also hereinafter referred to as the department) without obtaining any leave of the court. The official liquidator has taken out the present summons, complaining to the court about the conduct of the department in issuing the said notices without obtaining leave of the court under section 446 of the Companies Act, 1956, and has asked "that the proceedings under sections 142(1) and 148 of the Income-tax Act, 1961, initiated by the income-tax authorities against the company be stayed". Section 142 of the Income-tax Act, 1961, deals with enquiry before assessment and section 142(1) provides as follows : "(1)For the purpose of making an assessment under this Act, the Income-tax Officer may serve on any person who has made a return under section 139 or upon whom a notice has been served under sub-section (2) of section 139 (whether a return has been made or not) a notice requiring him, on a date to be therein specified,- (i)to produce, or cause to be produced, such accounts or documents as the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of every other person, before the 30th day of June of the assessment year: Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return- (i)in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any' person referred to in clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest; (ii)in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest; and (iii)up to any period falling beyond the dates mentioned in clauses (i) and (ii ), in which case, interest at six per cent. per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1). (4) Any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) may before the assessment is made furnish the return for any previous year at any time before the end of four assessment years from the end of the assessment year to which the return relates, and the provisions of sub-clause (iii) of the proviso to sub section (1) shall apply in every such case. (5) If any person having furnished a return under sub-section (1) or sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made. (6) The prescribed form of the returns referred to in sub-sections (1), (2) and (3) shall, in the case of an assessee engaged in business or profession, require him to furnish particulars of the location and style of the principal place where he carries on the business or profession and all the branches thereof, the names and addresses of his partners, if any, in such business or profession and if he is a member of an associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 391 by or in respect of the company; (d)any question of priorities or any other question whatsoever, whether of law or fact, which may -relate to or arise in the course of the winding up of the company ; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding-up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960). (3)Any suit, or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court. (4)Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court". The department contends that it is not necessary to obtain any leave from the court to enable the department to commence or continue the work of assessment against a company which is in liquidation and for taking necessary steps in relation thereto o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 34 IC 253; AIR [1916] Cal. 918, and also to the decision in the case of Commissioner of Income-tax v. Official Liquidator of the Agra Spinning and Weaving Mills Co. Ltd. [1934] 2 ITR 79 (All.) He has also drawn my attention to the definition of a "principal officer" as given in section 2(12) of the Income-tax Act of 1922, and in section 2(35) of the Income-tax Act, 1961, and he contends that the official liquidator cannot be considered to be a "principal officer" within the meaning of the said definition. He has contended that a company in liquidation is not liable to any assessment by the department. It is his contention that the company is only liable to pay the debts and liabilities of the company which existed on the date of the winding up of the company and it is also his contention that there cannot be any question of any assessment to tax in respect of any period subsequent to the winding up order, as the company ceases to carry on business after it is ordered to be wound up. He has argued that, as the official liquidator is not an officer of the company and is only an officer of the court, no proceedings can be started or continued against him without first obtaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision contained in section 446 of the Companies Act, leave of court is clearly necessary and the assessment proceeding cannot be commenced by the department without obtaining such leave. It is his contention that the proceeding sought to be taken by the department in the matter of assessment against the company is a legal proceeding within the meaning of section 446(1) of the Companies Act, 1956. In support of his contention, he has referred to the decision of the Federal Court in the case of Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248; 16 Comp. Cas.71; AIR [1946] FC 16 He has also referred to the decision of the Bombay High Court in the case of In re Colaba Land and Mills Co. Ltd. (In Liquidation) : Official Liquidator v. V. M. Deshpande [1968] 67 ITR 399; 38 Comp. Cas. 26 (Bom.). The official liquidator relies very strongly on this decision, as the very same question had come up for consideration, and the learned judge had upheld the contention of the official liquidator and held that leave of court by the department was necessary. The Bombay decision completely supports the case of the official liquidator. The official liquidator, naturally, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of leave in relation to receivers, has no application in the instant case. He has submitted that whether leave is necessary in respect of assessment proceedings by the department against a company in liquidation or not, has to be determined on a proper construction of section 446 of the Companies Act, 1956, and it is his submission that, if on a proper construction of the said section assessment proceedings by the department are held to be covered by the said section, leave of court will become necessary and if assessment proceedings are not covered by the said section leave of court will not be necessary. Mr. Mitter contends that, on a true construction of section 446 of the Companies Act, assessment proceedings by the department cannot be said to be covered by the said section and the same do not come within the purview of the said section. Mr. Mitter has argued that for a proper construction of section 446(1) of the Companies Act the said section must be read with section 446(2) and section 537 of the Companies Act. It is his submission that the said section 446(2) and section 537 of the Companies Act indicate the nature of proceedings in respect of which leave is contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate authority and a demand by the department in accordance with the provisions of the Income-tax Act is served, no debt or liability arises at all and he contends that in view of the specific provision of the Income-tax Act it is impossible for the court to proceed to make any valid assessment in accordance with the provision of the Income-tax Act in exercise of the power or authority conferred upon it under section 446(2) of the Companies Act. He submits that it cannot be disputed that the Income-tax Officer is the only appropriate authority which has the power and jurisdiction to commence, entertain and decide matters relating to assessment of any company under the Income-tax Act, 1961, and in accordance with the provisions thereof and in view of the provisions contained in the Income-tax Act, the winding-up court has no jurisdiction or power to entertain an assessment proceeding and it should, therefore, follow that leave of the court is not necessary in respect of any proceeding relating to assessment of a company in liquidation. Mr. Mitter has argued that it is the statutory duty of the Income-tax Officer to assess in accordance with the provisions of the Income-tax Act and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the company as are in the opinion of the Commissioner reasonable. (4) If the liquidator fails to give the notice in accordance with sub section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount. (5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. (6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se than by use of the machinery expressly provided by the Act itself. In substance it is the contention of Mr. Mitter that, as the entire machinery with regard to assessment is contained in the Income-tax Act including the machinery to question the assessment, the civil court really does not have any jurisdiction to deal with the matter relating to assessment and, in view thereof, there cannot be any question of leave under section 446(1) of the Companies Act in the matter of assessment of the company in liquidation. Mr. Mitter has relied on the following observations of the Privy Council in the case of Raleigh Investment Co. Ltd. v. Governor-General in Council [1947] 15 ITR 332, 338; 17 Comp. Cas. 150; AIR [1947] PC 78 : "In conclusion, their Lordships would observe that the scheme of the Act is to set up a particular machinery by the use of which alone total income assessable for income-tax is to be ascertained. The income-tax eligible is determined by reference to the total income so ascertained, and only by reference to such total income. Under the Act (section 45) there arises a duty to pay the amount of tax demanded on the basis of the assessment of total income. Jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248; 16 Comp. Cas. 71 ; AIR [1946] FC 16 He has argued that the decision of the Punjab High Court in Seth Spinning Mills Ltd.'s case (supra) does not really state any reason and the decision of the Bombay High Court in In re Colaba Land and Mills Co. Ltd. (In liquidation) 24 proceeds on an erroneous interpretation of the decision of the Federal Court in the case of Shiromani Sugar Mills Ltd.25 Mr. Mitter has submitted that these decisions should not be followed. With regard to the decisions of the other High Courts, namely, the decision of the Orissa High Court in State v. P. Topno, Income-tax Officer, Titlagarh [1959] 36 ITR 135 (Orissa), and the decision of the Mysore High Court in the case of Mysore Spun Silk Mills Ltd. [1968] 68 ITR 295; 38 Comp. Cas. 272 (Mys.), Mr. Mitter seeks to distinguish the said decisions by pointing out that these decisions do not relate to assessment proceedings. He has submitted that these decisions are of no assistance in the present case which is concerned with assessment proceedings. He has contended that the Allahabad High Court in Tika Ram and Son's case (supra) correctly interprete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind, that a company in liquidation is liable to assessment, as otherwise, there cannot be any question of setting apart any sum of money which may be payable by the company at a later date. Whether as a result of assessment, any liability will, in fact, arise or not is a matter to be determined in the assessment proceeding. It appears that the decision of the Allahabad High Court in the case of Offl. Liq. of the Agra Spg. & Wvg. Mills Co. Ltd. 's case ( supra) and the decision of the Mysore High Court in the case of Mysore Spun Silk Mills Ltd. (In liquidation) [1968] 68 ITR 295; 38 Comp. Cas. 272 (Mys.), sup port this view. The other contention of the official liquidator that the official liquidator being an officer of the court cannot be proceeded against in any way and in any matter without leave of court is, to my mind, not sound. It may be true that the official liquidator is an officer of the court, but the position of the official liquidator cannot be equated to that of a receiver ; and for the purpose of leave of court, the official liquidator and the receiver do not stand on the same footing. In view of the express provisions made in the Companies Act including the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, and, accordingly, on 8th August, 1944, the income-tax department sent an "arrear demand" to the official liquidators with the intimation that the demand was recoverable as arrear of land revenue, and that a recovery certificate under sub-section (2) of section 46 had been forwarded to the Collector of Allahabad. In fact, on 10th July, 1944, the official liquidators had already received from the Collector of Allahabad a demand for the recovery of the said amount of Rs. 18,493-12-0 as arrear of land revenue. In these circumstances, the official liquidators made an application to the High Court under sections 171, 228 and 233, Companies Act, 1913, against the Governor-General in Council, asking for an order that the income-tax department should be directed to put in a formal claim to the official liquidators in respect of the said sum of Rs. 18,493-12-0 and praying for an order restraining the Collector from effecting recovery of the said sum as arrear of land revenue. The High Court made an order directing that the income-tax department should be restrained from proceeding without leave of the court with the subsisting proceeding before the Collector at Allahabad for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ordinary suits against the company. That still leaves open the question whether action under section 46, Indian Income-tax Act, is covered by the phrase 'other legal proceedings'. Clearly it is not a proceeding in an ordinary court of law. But we see no reason why in British India no ' legal proceeding ' can be taken otherwise than in an ordinary court of law, or why a proceeding taken elsewhere than in an ordinary court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as a ' legal proceeding '. If it be considered that the effect of he income-tax authorities putting the machinery of section 46 of the Income-tax Act in motion for the collection of arrears of income-tax is to bring into operation all the appropriate legal enactments relating to the collection of land revenue in the province concerned, it is, in our judgment, very difficult to say that they are not taking a ' legal pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies 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, 672 (HL)). The Crown is accordingly not entitled, in our judgment, to any prerogative, priority, or preferential rights or treatment, save those expressly conferred and limited by the Act itself, in particular by section 230 and sub-section (2) of section 232. Before we turn to the more detailed consideration of section 171 of the Indian Companies Act, it may also be noted that the particular arrears of income-tax, which the appellant has endeavoured to collect through the machinery of section 46 of the Income-tax Act, do not come within the prescribed class of taxes for which the Crown can claim even the limited priority given by section 230 of the Indian Companies Act. Having regard to the delay in assessment, these arrears were not due from the company at the date of the winding-up order. In respect of them the Crown ranks as an ordinary unsecured creditor. Nonetheless, the appellant claims not only that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles him in the event of his desiring to take the benefit of the winding-up proceedings to prove his debt, to value the same and share in the distribution pro rata of the assets of the company just in the same way as he would be able to do in the case of insolvency under the Presidency Towns Insolvency Act or the Provincial Insolvency Act. Section 232(1) also has reference to legal proceedings in much the same way as legal proceedings envisaged by section 171 of the Act and the attachment, distress or execution put in force or the sale held are all of them legal proceedings which can only be resorted to through the intervention of the court. The word 'held' in connection with the sales contemplated within the terms of the amended section also lends support to this conclusion and this conclusion is further fortified by the terms of section 232(2) which says that nothing in this section applies to proceedings by the Government, thus in effect indicating that what are referred to in section 232(1) arc proceedings within the meaning of that term as used in section 171 of the Act". The Federal Court also put a similar construction on the provisions of section 171 read with section 232( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cas. 755, 762, 763; [1965] 3 SCR 665; AIR [1966] SC 135, 139. In this case the Supreme Court was concerned with section 446 of the Companies Act, 1956, the section which is involved in the present proceeding, and its scope and effect. The matter came up before the Supreme Court out of a decree passed by the Life Insurance. Tribunal, Nagpur, under section 15 of the Life Insurance Corporation Act, 1956 (31 of 1956). The company was in liquidation and one of the points raised before the Supreme Court was that the Life Insurance Tribunal had no jurisdiction to proceed with the proceedings on the petition presented by the Life Insurance Corporation without the leave of the High Court in view of section 446 of the Companies Act, 1956, the company having been ordered to be wound up by the High Court on November 9, 1959. Dealing with this contention the Supreme Court held : "Sub-section (1) of section 446 of the Companies Act provides that when a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced or, if pending at the date of the winding-up order, shall be proceeded with against the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration Act, will override the provisions of the general Act, viz., the Companies Act, which is an Act relating to companies in general". The decision of the Orissa High Court in State v. P. Topno, Income-tax Officer, Titlagarh [1959] 36 ITR 135 (Orissa), is not of material assistance, as the said decision relates to recovery of tax and is covered by the decision of the Federal Court in Shiromani's case [1946] 14 ITR 248; 16 Comp. Cas. 71; AIR [1946] FC 16. The decision of the Punjab High Court in Union of India v. Seth Spg. Mills Ltd. (In liquidation) [1962] 46 ITR 193 (Punj.) deals with a case of imposition of penalty by the income-tax authorities on a company in liquidation and it was held that imposition of penalty after winding up of the company without leave of court was not permissible in view of the provisions contained in section 171 of the Indian Companies Act, 1913. The learned judge observed at page 195: "The company went into liquidation on 13th January, 1956. When passing the penalty order, no notice was given to the official liquidator. Section 171 of the Indian Companies Act, 1913, provides that when a winding-up order has been made no suit or other legal proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to indicate the scope of the words other legal proceedings' as used in sub-section (1) of that section. Subsection (2) gives the court concerned with the winding-up of the company the jurisdiction to entertain or dispose of any suit or proceeding by or against the company itself. Sub-section (3) gives such court the right to transfer proceedings pending before another court and to dispose it of itself. Income-tax proceedings are certainly not such proceedings which the High Court under section 446 could possibly entertain and make the assessment itself nor could it transfer any such assessment pending before the Income-tax Officer to its own record. Thus, these two sub-sections go to indicate that the words 'other legal proceedings' must be such proceedings over which the High Court in its ordinary jurisdiction can exercise some original or appellate jurisdiction and control. The High Court, under section 66 of the Income-tax Act, has merely an advisory jurisdiction and no more. It has no original or appellate jurisdiction whatsoever in income-tax matters and much less has it the power to transfer any assessment proceedings to its own record. Income-tax proceedings are also not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Federal Court in the case of Shiromani Sugar Mills [1946] 14 ITR 248; 16 Comp. Cas 71 ; AIR [1946] FC 16, the decision of the Supreme Court in Damji Valji's case (supra), the decision of the Allahabad High Court in Tika Ram's case [1964] 51 ITR 403 (All), and also various other authorities. The learned judge construed the decision of the Federal Court in Shiromani's case (supra), to lay down that the expression "other legal proceedings" in section 446(1) of the Companies Act, 1956, is wide enough to cover any assessment proceeding by the department and, relying on this decision of the Federal Court, the learned judge held that leave of court was necessary. The learned judge observes at page 402 of the report In re Colabe Lands & Mills Co. Ltd. (In Liquidator) case (supra) : "The question is, however, in my opinion, clinched by one single decision of the Federal Court". And, at pages 403-404, the learned judge, in interpreting the decision of the Federal Court, holds: "It was held by the Federal Court that the expression 'all other legal proceedings' occurring in section 171 of the Companies Act, 1913, which, as already stated by me, is identical in terms with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expression 'other legal proceedings' in section 446(1) of the Companies Act, 1956, need not be confined to an original proceeding in the nature of a suit, and (2) that it need not be a proceeding in a court of law, so long as it is a proceeding taken in pursuance of a legal enactment". The learned judge, in dealing with the decision of the Supreme Court in Damji Valji's case ( supra), refers to the following observation of the Supreme Court [1968] 67 ITR 399, 410 (Bom.) : "It is in view of the exclusive jurisdiction which sub-section (2) of section 446 of the Companies Act confers on the company court to entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in sub-section (1) has been imposed on the commencement of the proceedings or proceeding with such proceedings against a company after a winding-up order has been made". And the learned judge then proceeds to hold at pages 410-411 of the report53: "It appears to me that the word 'exclusive', which is to be found in the above passage in the judgment in Damji Valji's case (supra), has occurred there per incuriam, in so far as section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings can be termed as legal proceedings. It was, however, nowhere held that even assessment proceedings which fall under a special Act which is a complete code in itself could be considered to be 'other legal proceeding' ". The learned judge then proceeded to state that the provisions of sub sections (2) and (3) of section 446 would also go to indicate the scope of the words "other legal proceeding" as used in sub-section (1) thereof. He stated that sub-sections (2) and (3) of section 446 go to indicate that ' other legal proceeding' must be such proceeding over which the High Court in its ordinary jurisdiction could exercise some original or appellate jurisdiction and control. I am afraid, I do not agree with that statement of Manchanda J. No such limitation can be imposed on the expression "other legal proceeding" in sub-section (1) from the language of subsection (2) of section 446, in view of the fact that the latter sub-section uses the still wider expression "proceeding" in clause (a) thereof. Subsection (3) of section 446, on the other hand, can be of no assistance for the purpose of construing the expression "other legal proceeding" occurring in sub-section (1) of that sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but I am afraid I am unable to see what is the distinction in principle which he seeks to make. I am bound by the decision of the Federal Court in Shiromani's case (supra) and I also respectfully agree with the same. The first contention of Mr. Joshi based on the decision of Manchanda J. in Tika Rani's case (supra) must, therefore, be rejected". The following observations of Vimadalal J. at page 411 of the report [1968] 67 ITR 399; 38 Comp. Cas. 26 (Bom.), while considering the contention of the department that, under the Income-tax Act, the department enjoys exclusive jurisdiction in the matter of assessment, may also be usefully quoted: "There is nothing in the judgment of the Federal Court in Shiromani's case 61 to lead to the conclusion that the expression ' other legal proceeding ' should not be held to apply to cases in which proceedings have been taken under: a special Act like the Income-tax Act which is a complete code in itself and under which the income-tax authorities are under a statutory duty to assess tax. Proceedings under such Act are, in my opinion, nonetheless proceedings taken pursuant to a legal enactment, and the statutory duty to which Mr. Joshi has refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , S.N. Mukherjee v. Krishna Dassi [1933] 3 Comp. Cas. 269 , 270; AIR [1933] Cal. 433, 434, the court had to consider whether a proceeding under section 145 of the Criminal Procedure Code could be started against a liquidator without obtaining leave of court. A Division Bench of this court held that the provision under section 171 of the Indian Companies Act, 1913, to the effect that when a winding-up order had been made, no suit or other legal proceeding would be proceeded with or commenced against the company except by leave of court, was not meant to override an express enactment in section 145, Criminal Procedure Code, by which a Magistrate, if satisfied that the disputes likely to cause a breach of the peace existed, was bound to call on the parties to attend his court and to put in their claim as regards actual possession. The court further held that whether the party to the proceeding was not the company but the liquidator, and though he happened only to be a party to the proceedings by reason of the fact that he was clothed with that character for the purpose of a proceeding under section 145 he was to be regarded as a separate personality responsible for the action of his m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e act. The adjudication was really by the Tribunal, and the award is the formal expression of that adjudication". The last case cited by Mr. Mitter is B. V. John v. Coir, Yarn and Textiles Ltd. [1960] 30 Comp. Cas. 162 , 168; AIR [1960] Ker. 247, 250 In this case the Kerala High Court had to consider the question of requirement of leave under section 446(1) of the Companies Act, 1956, in relation to proceedings pursuant to a reference under section 10 of the Industrial Disputes Act and the court came to the conclusion that no leave of court was necessary. The court held that section 446 of the Companies Act, 1956, could have no application to proceedings pursuant to a reference under section 10 of the Industrial Disputes Act. In construing section 446 of the Companies Act, 1956, the court observed : "In my opinion section 446 of the Companies Act can have no application to proceedings pursuant to a reference under section 10 of the Industrial Disputes Act. Giving the term, 'other legal proceeding' appearing in sub-section (1) of the section, the wide meaning given to the same term in the corresponding section, section 171 of the 1913 Act, in Governor-General in Council v. Shiroma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 433, it was observed that section 171 of the 1913 Act was a provision intended to safeguard the company's assets against wasteful or expensive litigation in regard to matters which are capable of determination more expeditiously and cheaply in the winding up. With due respect I agree". A review of these decisions to my mind indicates that the following propositions can be said to be fairly established: (1)Leave of court is necessary in the case of any recovery proceeding by the department against a company in liquidation. (2)Leave of court is not necessary in respect of any and every proceeding against a company in liquidation. (3)Whether leave of court is necessary or not will depend on the nature of the proceeding. (4)If on a consideration of the nature of the proceeding and on a proper interpretation of section 446(1) of the Companies Act, 1956, the proceeding complained of can be said to be covered by section 446(1) and to be within its scope, leave of court is essential and the proceeding cannot be commenced or continued without obtaining leave of court. (5)If, on a consideration of the nature of the proceeding and on an interpretation of section 446(1) of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa High Court in State v. P. Topno, Income-tax Officer, Titlagarh [1959] 36 ITR 135 (Orissa) . This aspect of the matter does not appear to have been argued or considered and no discussion of this question appears in the judgment. The observations appear to be incidental to the passing of the order and are really in the nature of an obiter. Though the decision and the observations are entitled to every respect, yet no great importance can be attached to the said observations and the order, as this question of leave does not appear to have been canvassed and argued before the learned judge and properly considered by him. The Allahabad High Court in the case of Tika Ram case (supra) considers this aspect of the matter fully, discusses authorities including the decision of the Federal Court in Shiromani's case (supra), interprets the said decision and states its reason as to why the decision of the Federal Court in Shiromani's case (supra )is not applicable to assessment proceedings and for its decision as to why no leave is necessary in respect of any assessment proceedings. The decision of the Bombay High Court in the case as already indicated, is another authority exactly on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t page 21 : "Accordingly, we agree with the learned judges of the Allahabad High Court in holding that the words 'other legal proceeding' in section 171 of the Indian Companies Act, 1913, comprise any proceeding by the revenue authorities under section 46(2), 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, Companies Act, 1913, for leave of the winding-up court". The question whether leave of court is necessary or not in respect of any assessment proceeding by the department was not before the Federal Court and the Federal Court did not consider this question. As the question of leave of court in relation to assessment proceeding was not before the Federal Court and was not considered by the Federal Court and as the only question the Federal Court decided and was called upon to decide was the question of leave of court in relation to recovery proceeding by the department, I am of the opinion that the said decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Court in Shiromani's case (supra): "It appears that, excepting the power of the court under section 171 to impose a condition at the time of granting leave, there is no machinery or provision in the Act to compel the appellant to account for or bring into court any such excess. Accordingly, this claim to exercise the machinery of section 46, if successful, would in effect 'enable the Crown to secure for the arrears set out above, the very priority to which both in England and India the Crown has been held not entitled. Hitherto, though it may be that attempts have been made to collect arrears of income-tax due from a company in liquidation through the machinery of section 46 of the Income-tax Act, the income-tax authorities have, upon objection being taken by the liquidators, submitted to prove their claim in the liquidation like any other creditor, cf., Governor-General in Council v. Sargodha Trading Co. Ltd. [1943] 11 ITR 368; 13 Comp. Cas. 163; ILR [1943] Lah 706; AIR [1943] Lah 228, above referred to. This they are now not prepared to do and the appellant presses for the sanction of the court to be given to the right to exercise the machinery of section 46 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court is binding on all the courts and the decision of the Division Bench of this court is binding on me. In view of the said decisions and for reasons already stated, I regret, with great respect to Vimadalal J., my inability to agree with the view expressed by him. It is also important and interesting to note in this connection that even in Shiromani's case (supra ) before the Federal Court, assessment proceeding had commenced and concluded after the company had gone into liquidation. The winding-up petition had been presented on the 26th of November, 1941, a provisional liquidator had been appointed on the 7th of December 1941, and finally the company was ordered to be wound up on the 17th of April, 1942. The order for assessment was not made until the 25th of February, 1943, and as the Federal Court itself notices that: "It will be noticed, therefore, that the company had been ordered to be wound up a considerable time before the assessment was made". The notice of demand was served on the liquidator on the 10th of March, 1943. As far as can be gathered from the facts stated in the judgment, it does not appear that any leave had been obtained to commence or continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lord Wrenbury in his speech in Food Controller v. Cork [1923] AC 647, 671 (HL)) 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 ordinary suits against the company". The Supreme Court, while interpreting the said section 171 in the case of M.K. Ranganathan case ( supra), referred to and relied on the said observations of the Federal Court and the Supreme Court has held: "It may be observed in this connection that section 171 enacts a general provision with regard to suits or other legal proceedings to be proceeded with or commenced against the company after a winding-up order has been made and lays down that no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court, and subject to such terms as the court may impose. This general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act, the company court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under section 15 of the Life Insurance Corporation Act, It must follow that the consequential provisions of sub-section (1) of section 446 of the Companies Act will not operate on the proceedings which may be pending before the Tribunal or which may be sought to be commenced before it". These decisions, to my mind, establish : (1)Section 446(1) of the Companies Act, 1956, should be construed with reference to other sections of the Act and the general scheme of administration of the assets of the company in liquidation. (2)No narrow construction should be placed upon the words "other legal proceeding" in section.446(1) and leave of court will generally be necessary in respect of any proceeding against, a company in liquidation, if the proceeding itself is directed against the estate or effects of the company in liquidation, unless it is, otherwise, specifically provided. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rank equally with the department. At and during the stage of assessment of any company, there can, therefore, be no question, to my mind, of any interference with the assets and properties of the company in liquidation or with any scheme of administration thereof. It is the duty of the Income-tax Officer to assess persons which include companies and make no exception in favour of any company in liquidation. This duty is cast upon the Income-tax Officer under the Income-tax Act; and, under the provisions thereof, the Income-tax Officer is the only authority competent to make an assessment and the jurisdiction as to assessment is vested exclusively in the Income-tax Officer. The court has no power or jurisdiction to entertain or dispose of any assessment proceeding or to make any assessment by itself. Under the provisions of subsections (2) and (3) of section 446 of the Companies Act, 1956, it is not possible or permissible for the court to entertain or dispose of any assessment proceeding or to transfer any assessment proceeding to its own record for disposal and to make any assessment by itself, dealing with any such assessment proceeding. Apart from the question of feasibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the judgment of the Supreme Court in Damji Valji's case (supra), has occurred there per incuriam. It is stated in article 1687 at page 800 in Halsbury's Laws of England, third edition, volume 22 : "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of co-ordinate jurisdiction which covered the case before it, or when it has acted in ignorance of a decision of the House of Lords. In the former case, it must decide which decision to follow, and in the latter it is bound by the decision of the House of Lords. A decision may also be given per incuriam when it is given in ignorance of the terms of a statute or of a rule having the force of a statute. A decision should not be treated as given per incuriam, however, simply because of a deficiency of parties, or because the court had not the benefit of the best argument, and, as a general rule, the only cases in which decisions should be held to be given per incuriam are those given in ignorance of some inconsistent statute or binding authority". The Supreme Court was considering section 446 of the Companies Act, 1956, in Damji Valji's case (supra) and was construin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory duty imposed on the Income-tax Officer under the Income-tax Act in the larger interests of the country should be subjected to the control of the winding-up court, as in the event of any such control by court, there arises a possibility that the Income-tax Officer may not be in a position to discharge the duty entrusted to him by the statute, if the court, for some reason or other, chooses not to grant leave in exercise of its control. In such a case, there may be no assessment at all, although the company under the Income-tax Act may be liable to be assessed and taxed. Assessment proceedings and recovery proceedings, although both are proceedings under the Income-tax Act, do not, to my mind, stand on the same footing in so far as leave under section 446(1) of the Companies Act, 1956, is concerned. So long as the duty of assessment is not performed, the right to recover does not arise at all. Assessment validly done in accordance with the provisions of the Income-tax Act is the only way of creating a debt in favour of the department and does not affect the assets and properties of the company or the scheme of administration thereof or the winding-up of the company in any wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as will lead to harmonious and smooth working of the provisions of the respective Acts and will not create any conflict between the two. This principle of harmonious construction of the two Acts, namely, the Income-tax Act and the Companies Act, indicates, to my mind, that leave of court is necessary by the department in respect of any recovery proceeding and no leave of court is necessary by the department in respect of any assessment proceeding of the company. I have to note that the decision of the Supreme Court in this case of Lalji Haridas's case (supra) , referred to and relied on by the official liquidator, is not of any assistance in considering the question involved in the present case. The said decision does not lay down that an Income-tax Officer constitutes a court in respect of every proceeding before it and is no authority, in my opinion, for the proposition that every proceeding before the Income-tax Officer is a legal proceeding within the meaning of section 446(1) of the Companies Act, 1956. In this case the Supreme Court was concerned with the question whether the proceeding before an Income-tax Officer under section 37 of the Indian Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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