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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 ..... 8. 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 Officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( b )in the case 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in the prescribed manner and containing such 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of its branches in India); ( c )any application made under section 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in the case of Amrita Lal Kundu v. Anukul Chandra Das [1916] 20 CWN 358; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted without leave being first obtained. He had argued that, in any event, in view of the express provision 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of the court exercising any inherent jurisdiction and it is his argument that the principles which apply in the case 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved. It is his contention that, unless an assessment is made in accordance with the provisions of the Income-tax Act and by the appropriate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands : Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment 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 shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessable for any company is to be ascertained and the liability for payment of tax is to be determined; and the assessment cannot be permitted to be questioned otherwise 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Cas. 151 (All.) and Colaba Land and Mills Co. Ltd. ( In liquidation ) , In re [1968] 67 ITR 399; 38 Comp. Cas. 26 (Bom.) He has commented that the decisions which are against him are mostly based on the judgment of the Federal Court in Governor-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that this question as well relates to the merits of the assessment proceeding. There is no provision, either in the Income-tax Act, or in the Companies Act, which exempts a company in liquidation from assessment. On the other hand, section 178 of the Income-tax Act clearly indicates, to my 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 46 of the Income-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated by 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 proceedings' 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. 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 putti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or preferential treatment, save those expressly conferred by the Act itself and the Federal Court observed at pages 254-55 of the report [1946] 14 ITR 248; 16 Comp. Cas. 71, 76, 77; AIR 1946 FC 16,19, 20 : "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, 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, etc ., put into force without the leave of the court against the estate or effects of the company and also of any sale held without the leave of the court of any of the properties of the company after the commencement of the winding-up. Section 229 recognises the position of the secured creditor generally as outside the winding-up, but enables 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiver. The position was rightly summed up by the High Court as under: "We thus reach the position that no leave of court was needed before the receiver appointed by the mortgagee debenture-holders exercised the power of sale...". It will be convenient at this stage to note the decision of the Supreme Court in the case of Darnji Valji Shah [1965] 35 Comp. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation 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. Further, the provisions of the special Act, i.e. , the Life Insurance Corporation 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) and go to show that "other legal proceedings" must be such proceedings over which the High Court in its ordinary jurisdiction could exercise some original or appellate jurisdiction and control. The learned judge observes at pages 410-411 of the report Tika Ram and Sons case ( supra ) : "The provisions of sub-section (2) and sub-section (3) of section 446 of the Companies Act, 1956, would also go 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 Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... straining the department from taking any steps in enforcement thereof without obtaining leave of court. Vimadalal J., who decided the case, held that it was not open to the department to proceed to assess the company in liquidation without leave of court and the learned judge accordingly made an order of injunction restraining the department from assessing or reassessing the company. The learned judge in his judgment considered 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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the collection of the arrears of income-tax as arrears of land revenue into motion, the revenue authorities should have applied under section 171 of the Companies Act, 1913, for leave of the winding-up court. For the purpose of the present summons, it is unnecessary for me to consider the other points which were decided by the Federal Court in Shiromani's case ( supra ). The ratio of the decision of the Federal Court in that case, therefore, is (1) that 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'other legal proceedings', so far as it relates to income-tax proceedings, was confined to execution or distress proceedings, that is, action under section 46, which is a stage arising after the assessment has been completed. Manchanda J. then stated as follows at page 158 55 : "The ratio of the decision is that because other Acts U. P. Land Revenue Act and the Civil Procedure Code in proceedings under section 46 of the Income-tax Act come to the assistance of the Collector, those proceedings 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. I do not see how the distinction which Manchanda J. has sought to draw in Tika Ram's case ( supra ), can be drawn at all on a plain reading of the language of section 446(1) itself. In my opinion, recovery proceedings are proceedings which are as much under a legal enactment as assessment proceedings, and, in fact, both the proceedings would be proceedings under the same Act, though they relate to different stages. Manchanda J. has sought to distinguish the decision of the Federal Court in Shiromani's case ( supra ), 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the reference was a legal proceeding within the meaning of section 171 of the Indian Companies Act does not arise for our decision and we prefer not to express any opinion on that part of the question". The decision of the Patna High Court and also the decision of the Supreme Court in the case of S. K. G. Sugar Ltd. [1957] 27 Comp. Cas. 168; 11 FJR 155; AIR [1957] Pat 722- on appeal AIR [1959 SC 230; 15 FJR 303 are not of any real assistance, as the material question involved in the present proceeding was not discussed or decided. In the case, 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the required declaration under section 15(2) of the Industrial Disputes Act. The court observed : "Even if we construe the words 'other legal proceeding' in the widest manner possible, we fail to see how the declaration made by the Government can be held to be a 'legal proceeding'. Section 15(2) of the Industrial Disputes Act says that on receipt of an award from the Industrial Tribunal, the Government' shall, by order in writing, declare the award to be binding '. There is no proceeding taken by the Government. The order is a mere mechanical administrative 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that comes within the mischief of sub-section (1), For, sub-section (2) gives the winding-up court jurisdiction to entertain or dispose of any suit or proceeding by or against the company, while sub-section (3) gives it the power to withdraw and dispose of any such suit or proceeding pending in any other court. I am inclined to think that a suit or proceeding for which leave is necessary under sub-section (1) must be a suit or proceeding capable of being withdrawn and disposed of by the winding-up court. In S. N. Mukerjee v. Krishna Dassi [1933] 3 Comp. Ca. 296; AIR [1933] Cal. 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 proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed judge merely proceeds to observe in dealing with section 171 of the Companies Act, 1913, that "the language of the section is wide enough to include proceedings under the Income-tax Act". 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.) may appear to lay down that leave of court is necessary in respect of assessment proceedings. It is, howeyer, to be noted that the decision of the Mysore High Court was not really concerned with this aspect of the question and the observations of the court are based mainly on the decision of the Orissa 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of the Federal Court in Shiromani's case ( supra ), I am, however, of the opinion that the said decision does not conclude the question involved in the present proceeding. It is to be noted that in Shiromani's case ( supra ), the Federal Court was concerned with the question of recovery proceeding and not with any assessment proceeding. The point for decision before the Federal Court was whether recovery proceeding by the department was a legal proceeding within the meaning of section 171 of the Companies Act, 1913, and the Federal Court held that it was. The conclusion of the Federal Court may best be stated in the words of the learned Chief Justice at 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the point before them for decision, which was a very narrow one". The main consideration which led the Federal Court to its conclusion, to my mind, appears to be that if the department would be allowed to go on with the recovery proceeding without obtaining leave of court, the department would gain for itself in the matter of realisation an advantage over the other creditors of the company, an advantage to which the department was not otherwise entitled in law. I have already quoted the relevant observations of the Federal Court at pages 19-20 of the report earlier in my judgment and it may be apposite in this connection to set out the following observations of the Federal 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 Cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Life Insurance Corporation Act, which is undoubtedly a legal enactment, and yet the Supreme Court held that no leave of court under section 446(1) of the Companies Act, 1956, was necessary in respect of the said proceeding. Similarly, in the case of proceedings against the company under the provisions of the Industrial Disputes Act, which again is a legal enactment, the courts have decided in cases noted earlier that leave of court is not necessary. Also in the case, S. N. Mukherjee case ( supra ) a. Division Bench of this court held that no leave of court was necessary in respect of a proceeding against the liquidator under section 145 of the Criminal Procedure Code which is also a legal enactment. The decision of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any creditor (other than Government) who goes ahead, nothwithstanding a winding-up 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 pan 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 [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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is pending in any court other than that in which the winding-up 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". Then the Supreme Court proceeds to lay down at the same page: "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. In view of section 41 of the Life Insurance Corporation 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-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, payable to the department by the company on a proper assessment that the question of the assets of the company being affected and the scheme of administration of the assets of the company being interfered with, may arise. If a valid debt arises, the department may seek to prove its claim in liquidation and willrank equally in respect of its claim amongst the same class of creditors. The department may also seek to have recourse to recovery proceeding under the provisions of the Income-tax Act and, in that case, the department must obtain prior leave of court. The court, while granting such leave, may impose necessary terms and conditions which will prevent the department from gaining any undue or preferential advantage over the creditors of the same class who are to 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vimadalal J., while dealing with the decision of the Supreme Court in Damji Valji's case ( supra ) , in his judgment in Colaba's case ( supra ), observed at page 410 "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 446(2) is an empowering provision which confers an overriding controlling power on the court which is winding up a company, so that liquidation proceedings cannot be impeded or delayed in any manner, and so as to ensure a fair and equitable distribution of the assets of the company". With due respect to the learned judge I regret my inability to agree with the view expressed by him that the word "exclusive", which is to be found 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceeding. The duty of assessment is cast upon the appropriate officer of the department under the provisions of the Income-tax Act. The Income-tax Act has been enacted in the larger interests of the country, although the provisions thereof may affect the interests of the individuals. Income-tax Act is a special Act, containing specific provisions relating to assessment in the larger interests of the country as a whole and the larger interests transcend the interest of the creditors and the members of the company. The Income-tax Act, 1961, is also a later enactment than the Companies Act of 1956. To my mind, a duty imposed by a statute on any appropriate authority in the larger interest of the nation should not be considered to be subject to the control of the winding-up court. In my opinion, it is not reasonable to hold that the statutory 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rank equally in the matter of payment and no particular preferential creditor of the same class is to receive any discriminatory treatment or payment. To allow the department to have an unfettered and uncontrolled right to have recourse to recovery proceedings in accordance with the provisions of the Income-tax Act to realise its dues from a company in liquidation, will result in giving the department a prerogative or privilege and preference, not warranted by the provisions of the Icome-tax Act, over the other creditors of the company of the same class in clear violation of the scheme and provisions of the Companies Act, 1956, which postulate and lay down that all creditors of the same class, except those who are outside the scope of winding-up, must rank equally and not be discriminated against. Both the Acts, in my opinion, should be so 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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