9911796707
TMI Blog1972 (1) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the company and to reassess it in respect of the assessment years 1950-51 to 1955-56. On December 31, 1966, the Income-tax Officer served further notices under section 142(1) of the Income-tax Act upon the official liquidator calling upon him to produce accounts and documents specified at the back of the notices and to furnish any information called for by the said officer. At the foot of the said notices it was stated that failure on the part of the official liquidator to comply with the terms of those notices would not only result in ex parte assessment against the company but might also entail penalty under section 271 of the Income-tax Act. Certain negotiations followed between the official liquidator and the Inspecting Assistant Commissioner of Income-tax but they were infructuous. On an application made by the official liquidator in the High Court questioning the jurisdiction of the Income-tax Officer to issue the said notices or to proceed with the reassessment of the company without the leave of the High Court winding up the company, Vimadalal J, on 28th September, 1967, held that the income-tax authorities were not entitled to commence the assessment or reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, except by leave of the court and subject to such terms as the court may impose. (2)The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a)any suit or proceeding by or against the company ; (b)any claim made by or against the company (including claims by or against 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d one in 1960 by Act No. 65 of 1960, and sub-section (4) was also added by that Act. Sub-section (2) is on the lines of section 7 of the Presidency Towns Insolvency Act, 1909, section 4 of the Provincial Insolvency Act, 1920, and section 45B of the Banking Companies Act. The object of this sub-section appears to be to empower "the court in exercise of insolvency jurisdiction to decide all claims made by or against any company and other questions whatsoever so that winding-up proceedings might be expedited." Sub-sections (2) and (3) both seem to have been inserted to give effect to the recommendation of the Company Law Committee Report contained in paragraph 207(c ), namely: "That all suits by or against a company in winding up should, notwithstanding any provision in any law for the time being in force, be instituted in the court in which the winding-up proceedings are pending." This was considered to be, to quote the exact words : "on balance an advantage to all concerned, including the parties which have a claim against the companies, to institute suits relating to its affairs in the court where the winding-up proceedings are pending." In the Indian Companies Act, 1913, secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act. In particular, we would refer to section 232. Section 232 appears to us to be supplementary to section 171 by providing that any creditor (other than Government) who goes ahead, notwithstanding 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 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 [1923] AC 647, 671 (HL)), are subjected as to their actions against the property of the company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words 'any sale held without leave of the court of any of the properties' added in section 232(1) by the Amending Act XXII of 1936 have been used in juxtaposition with, any attachment, distress or execution put into force without leave of the court against the estate or effects ', it would be a legitimate construction to be put upon them that they refer only to sales held through the intervention of the court and not to sales effected by the secured creditor outside the winding-up and without the intervention of the court, and that the amendment was not intended to bring within the sweep of the general words sales effected by the secured creditor outside the winding-up. Held, accordingly, that in the present case the sale effected by respondent No. 2 as the receiver of the trustees of the debenture holders in July, 1954, was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the official receiver." In this case the observations already reproduced from the judgment of the Federal Court in Shakuntla's case (supra) were approved. If may also be pointed out that in this decision this court observed that the winding-up court assure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court, mainly on the ground that the demand for Rs. 8,737 in respect of 1948-49, being adjudged and certified, came to have all the incidents and character of an unsecured debt payable by the liquidator to the department; it was therefore governed by the provisions of company law and no other remedy or method to obtain satisfaction of the claim was available to the creditor. In the appeal to this court it was contended on behalf of the appellant that section 49E gave statutory power to the Income-tax Officer to set off a refundable amount against any tax remaining payable and that this power was not subject to any provision of any other law : Held, the Income-tax Officer was in error in applying section 49E and setting off the refund due to the respondent. The effect of sections 228 and 229 of the Companies Act, 1913, is, inter alia, that an unsecured creditor must prove his debts and all unsecured debts are to be paid part passu. Once the claim of the department has to be proved and is proved in liquidation proceedings, it cannot, by exercising the right under section 49E get priority over other unsecured creditors and thus defeat the very object of sections 228 and 229 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly seem to lend more direct support to the appellant's contention are Union of India v. Seth Spinning Mills Ltd. (In Liquidation) [1962] 46 ITR 193, 195 ; 32 Comp. Cas. 801, 803 (Punj.) and Mysore Spun Silk Mills Ltd. (In Liquidalion), In re : Official Liquidator v. Commissioner of Income-tax [1968] 68 ITR 295 ; 38 Comp. Cas. 272 (Mys.). Both of them are decisions by single judges, the former by the Punjab High Court and the latter by the Mysore High Court. In Seth Spinning Mills' case (supra) it was observed that: "Section 171 of the Indian Companies Act, 1913, provides that when a winding-up order has been made 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. The language of this section is wide enough to include proceedings under the Income-tax Act. No leave of the court has been obtained. In view of this, the claim of the petitioner for Rs. 4,000 on account of the penalty order passed on 14th April, 1956, cannot be entertained." In this case the Union of India through the Commissioner of Income-tax had applied to the learned single judge who was apparen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ially charged with the duty of representing the company and protecting its interests in winding-up. In the light of the above principles, it is the duty of the court to see that all liabilities of a company are properly met in accordance with the provisions of the law and the special provisions in that behalf contained in the Companies Act. Liability to income-tax is also one of the liabilities which the court is expected to provide for in the course of winding-up. Such being the position, the question is whether, because the liquidator does not answer the description of the principal officer as denned in the Income-tax Act, the liability, if any, of the company for payment of income-tax itself comes to an end and, therefore, the winding-up court may ignore that liability." The court thereafter observed that the corporate existence of the company continues even after the winding-up order; but after the winding up order the question of payment of income-tax has to be dealt with or answered on a joint application of the terms or provisions of the Income-tax Act and the Companies Act. After so observing, the court proceeded [1968] 682 TR 295, 299, 300 ; 38 Comp. Cas. 272, 276, 277 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prosecution by the Collector of those steps amounted to "commencement" or "proceeding with" a "suit or other legal proceeding". Needless to point out that this is the view which the Federal Court on appeal upheld in the decision already referred to. The further submission pressed by Shri Desai, that section 446 of the Act is a special provision and section 148 of the Income-tax Act is a general provision of law was sought to be supported by reference to India Fisheries case (supra) . It may here be pointed out that in that case, it was while dealing with section 49E of the Income-tax Act, that this court observed that the revenue could not, by exercising the right under that section, get priority over other unsecured creditors, and it was in this context that it was said that there being apparent conflict between two independent provisions of law the special provision must prevail. In order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts of the case in which the decision was given and what was the point which had to be decided. Thus considered, India Fisheries case (supra) lends no assistance to Shri Desai and we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income-tax. It would lead to anomalous consequences if the winding-up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The argument on behalf of the appellant by Shri Desai is that the winding-up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of section 446 must be so construed as to eliminate such startling consequences as investing the winding-up court with the powers of an Income-tax Officer conferred on him by the Income-tax Act, because, in our view, the legislature could not have intended such a result. The argument that the proceedings for assessment or reassessment of a company which is being wound up can only be started or continued with the l ..... 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