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TMI Blog1973 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act and Rs. 11,216.50 being sales tax due and payable under the Central Sales Tax Act and the balance of the claim admitted by the liquidator plus the claim rejected by the liquidator as ordinary debt ranking pari passu with other unsecured Creditors. It was conceded that the claim of Rs. 195.42 has been rightly disallowed by the liquidator and no claim is made in that behalf. Petitioner also prays that the liquidator be directed to admit the claim of the penalty amount as being the debt entitled to payment pari passu with other unsecured creditors including the penalty amount which has been levied for the period subsequent to the date of the order of winding up. Company was ordered to be wound up by an order made on 26th June, 1967. The liquidator after obtaining directions of the court invited the creditors of the company to prove their debts or claims and simultaneously to establish any title they may have to priority under section 530. Pursuant to this invitation to prove the debts, the Sales Tax Officer, Petlad, submitted as many as five affidavits, the last being the most comprehensive filed on 21st August, 1971, claiming an aggregate amount of Rs. 70,945.60 as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-4-57 to 27-4-62 16-12-66 17-12-66 7,735.96 3,906.31 2,829.75 31-12-57 1-1-58 to 27-4-62 16-12-66 17-12-66 6,065.03 3,781.21 2,117.43 31-12-58 1-1-60 to 20-1-64 31-1-67 31-1-67 23,178.44 22,197.63 1029.89 31-12-60 1-1-61 to 20-1-64 31-1-67 1-2-67 25,204.43 24,266 08 1,137.36 31-12-61 rectification order 29-8-67 2-9-67 100.00 100.00 1-1-62 to 31-12-62 20-1-64 31-1-67 1-2-67 21.178.53 20,992.52 367.92 1-1-63 to 31-12-63 20-1-64 31-1-67 1-2-67 30,079.50 29,370.79 741.83 1-1-64 to 31-12-64 13-6-66 31-1-67 1-2-67 34,405.95 33.226.19 1,258 83 1-1-65 to 31-12-65 13-6-66 31-1-67 12-2-67 20,944.67 20,464.22 481.45 CL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which winding up order was made, namely, 26th June, 1967. In order to claim priority by invoking clause ( g ) of sub-section (1) of section 530, it must be shown that revenues, taxes, cesses and rates due from the company to the State Government were due at the relevant date and had become due and payable within 12 months next before that date. The word "due" had been used twice over in the clause. In fact the clause is divided into two parts: ( i ) the amount in respect of which priority is claimed must be due from the company at the relevant date; and ( ii ) it must have become due and payable within 12 months next before that date. This word "due" implies or conveys different meanings in the juxtaposition in which it is used in two parts of the same clause. Ordinarily, when the same word is used in two parts of the same clause or for that matter of the same section, legislature may intend to use it to convey the same meaning unless of course the context in which it is used contra-indicates the same. Subject, however, to this well-known canon of construction, the safest rule is to put a literal construction on the language used in the statute, unless of course such constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd take possession of and protect the assets of the company so that the object of the winding-up provisions of the Companies Act, to put all unsecured creditors upon an equality and to pay them pari passu is fully carried out. Further, section 530 finds its place in Chapter V of Part VII of the Companies Act under the heading "Proof and ranking of claims". After the liquidator has realised all the assets of the company, it is incumbent upon him to invite the creditors to prove their debts. Rule 147 of the Companies (Court) Rules, 1959, provides that the liquidator has to fix the date on or before which all the creditors of the company are to prove their debts or claims and to establish any title they may have to priority under section 530. Obviously, proof will be offered and can be accepted in respect of the debt outstanding on the date of winding-up. If it was not outstanding on the date of winding-up, the liquidator cannot entertain proof of such debt because nothing was outstanding on the date on which he steps in and acquires jurisdiction to distribute the assets of the company according to the provisions contained in the winding-up chapter of the Companies Act. Not only thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feels that the legislature was guilty of tautology in saying that debt must be due and payable because debt is either payable in praesenti or in futuro, if a date for payment is fixed and debt due is necessarily payable. But, on deeper examination of the sub-clause, the legislative intent becomes quite manifest. The amount may be outstanding and payable by the company at the relevant date but that amount may be outstanding for a long time prior to the relevant date, or, for a period preceding 12 months next before the relevant date. Such amount would undoubtedly be due from the company at the relevant date. In respect of such an amount the first part of the clause would necessarily be satisfied but before priority could be claimed and granted, it will have to be found out whether that debt which was outstanding at the relevant date became due, meaning thereby that the event which brought debt into existence occurred within 12 months and also it became payable, meaning thereby its payment could have been enforced against the company within 12 months. Three specific conditions are prescribed in sub-clause ( a ) and all the three must co-exist and be satisfied in respect of any partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved as under : "....it seems to us to be abundantly clear that in order to constitute a debt it is not pre-requisite that there must be an ascertained sum of money legally recoverable in praesenti. It is sufficient if there is a present obligation to pay a sum of money, whether the amount thereof is ascertained or not and whether the amount is presently payable or payable at a future date. It must not be a contingent obligation". This view was confirmed in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax [1966] 59 I.T.R. 767, 780; [1966] 2 S.C.R. 688 (S.C.), wherein the Supreme Court observed as under: "The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount". Learned Advocate-General urged that while construing the expression "having become due and payable" it would be improper to rely on the ratio of the case because the court in that case was concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due as and when the taxing event occurred and that was much prior to the period prescribed in clause ( a ) for claiming priority. The question that clearly falls to be determined is as to when the sales tax becomes due and payable. Sales tax is a tax on the sale of goods as clearly mentioned in the preamble of the Bombay Sales Tax Act, 1953, as well as the Bombay Sales Tax Act, 1959. At any rate, it cannot be considered as tax on the goods itself but it is a tax on the sale of goods It has to be ascertained as to when sales tax which is a tax on sale of goods becomes due and when it becomes payable. In respect of the sales tax it is agreed that three independent situations can be envisaged. They are : ( i )when a return is submitted by the assessee, computing therein tax payable as per the return and the amount is paid and challan is submitted along with the return; ( ii )when a return is submitted and tax is computed as per the return but the amount of tax so computed is not paid; and ( iii )when the assessee submits the return and simultaneously computes the tax as per the return and pays the same along with the return but at the time of assessment by the authority conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate prescribed in sub-section (4) of section 16 has to be paid along with the tax payable as per the return for the period during which there is delay in submitting the return and payment of the tax as per the return. It would thus appear that sales tax is levied on the sale of goods. Taxing event is the sale of goods. The liability to pay sales tax is cast on the registered dealer. He is required to submit the quarterly returns of his turnover. And along with the quarterly return of his turnover he has to submit a challan showing payment of tax computed on the return submitted by him. And if there is delay in submission of the return and payment of tax as per the return he must add to the tax payable by him the amount of penalty computed as per the provisions contained in sub-section (4) of section 16. This provision is very important to find out as to when tax becomes due. A tax becomes due when the taxing event occurs. Taxing event in the case of sales tax is sale of goods. The person liable to pay tax is the registered dealer and method of payment is quarterly submission of return showing turnover and payment of tax as per the return. Penalty is payable when tax which has beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to December 31, 1957, and paid tax as computed by him, at the time of filing his returns. Now, the authority may comm3nce assessment proceedings for the period January 1, 1957, to December 31, 1957, somewhere in 1960, and reject certain proof tendered by the assessee whereby he adds to the turnover and assesses the tax payable by the assessee and after giving credit for the amount already paid serves demand notice for the balance. Can it be said that tax became due when assessment is made, or it has already become due daring the relevant period for which assessment is being made and became payable when assessment order is made? The scheme of the Sales Tax Act does not leave an assessee option not to pay tax till assessment proceeding is completed and assessment order is made. In fact, the scheme entails a liability on the assessee himself first to compute the tax while submitting his return and pay the same. His failure to pay tax as per his computation, or his failure to submit return within the stipulated time, and to pay tax at the time of submitting return would entail liability to payment of penalty which again has to be computed by him and paid along with the tax. It is thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecomes due and payable only when it is assessed and a demand notice pursuant to the assessment is served upon the assessee. I am not inclined to examine the provisions of the Income-tax Act, 1922, or, for that matter, the Income-tax Act, 1961, to find out as to when income-tax becomes due, save saying that income-tax becomes due at the end of the accounting year. By the very nature of income-tax, every piece of income, whenever earned, does not entail liability to pay tax such as every sale by the registered dealer may entail liability to pay sales tax. In the case of income-tax when a certain quantum of income is reached within the accounting year, then at the end of the accounting year, having regard to certain income which is taxable, liability to pay tax arises. Payment of advance income-tax stands on a different footing. In the case of payment of advance income-tax, as the statute authorises the competent authority to ask for payment of advance income-tax, notice to the assessee to pay the same makes advance tax due and payable from the date on which tax is demanded. But in the case of ordinary income-tax as understood in contradistinction to advance income-tax, there is conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was that the tax does not become due unless quantified. Negativing the contention it was held that even if the amount of sales tax is not quantified as a result of a pending assessment, liability to pay tax is considered as tax due by sub-section (4) of section 19 of the Act. The reasoning of the Division Bench proceeds on the basis that tax becomes due as soon as a taxing event occurs, and in order to decide whether a certain tax is due or not, it is immaterial whether by the assessment order it is quantified or not. In this connection it is advantageous to refer to Recols ( India ) Ltd., In re. [1953] 23 Comp. Cas. 380, 381 ; 4 S.T.C. 271 ; [1954] I.L.R. 2 Cal. 378 [S.B.] It is necessary to examine in some detail this judgment because both the sides have relied upon it; the learned Advocate-General relied on the judgment of Chakravarti C. J. and Mr. Shah, for the official liquidator, relied upon the judgment of Sinha J. though reference to the Special Bench has been answered back by unanimous decision. The matter came up before a Special Bench consisting of three judges of the Calcutta High Court upon a reference made by a single judge of that High Court which was in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this connection, Sinha J. has, in his concurring judgment, examined the question as to when sales tax becomes due and when it becomes payable under the Bengal Finance (Sales Tax) Act, 1941. This question was examined by Sinha J. in order to find out as to when sales tax became due in that case and when it became payable so as to be entitled to payment in priority. After examining the effect of the charging sections and sections levying tax, and the sections providing for the mode, manner and method of payment of tax, it was observed [1953] 23 Comp. Cas. 381, 396; 4 S.T.C. 271 ; [1954] I.L.R, 2 Cal. 378 [S.B.] : " The cumulative effect of sections 4, 5 and 6 of the Act is that the tax becomes due as soon as the gross turnover within the taxable period exceeds the taxable quantum. It is true that the dealer is entitled to certain deductions under section 5 and exemptions under section 6, but all that is taken into account in arriving at the 'taxable turnover'. Such an adjustment must have to be calculated and in all probability is calculated by the dealer just before drawing up the return. But that process cannot hold up the tax being due". This view of Sinha J. lends assur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months next before the relevant date ( sic ), neither side relied upon this judgment and I must confess with great respect that it is not possible to accept the conclusion recorded on this point. Next case referred to was Joint Official Liquidators of Peerdhan Juharmal Bank Ltd. v. Commissioner of Income-tax [1954] 24 Comp. Cas 41; 25 I.T.R. 140 ; A.I.R. 1954 Mad. 858 . Now, this case would lend no assistance in deciding the question raised before me because the question raised before a Division Bench of the Madras High Court in that case was in respect of advance income-tax and as to when it becomes due and payable. The liability to pay advance income-tax stands on a different footing and the assessee becomes liable to pay advance income-tax on a notice served upon him and, therefore, advance income-tax becomes due and payable on the date of the receipt of the notice. But the liability to pay sales tax stands on a different footing and this case would not lend any assistance in deciding the question raised in this matter. In Income-tax Officer v. Official Liquidator [1957] 37 Comp. Cas. 114 ; 63 I.T.R. 810 (Mys.) claim for priority in payment of income-tax was negatived. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke it abundantly clear even in a case where quarterly returns of sales tax are submitted and tax computed on each return is paid and when, at the time of assessment, something more is found due by rejecting portion of the return submitted by the assessee, or for any other cause, and tax in the higher amount than what was computed and paid with the return is assessed and balance becomes payable and in respect of which notice of demand is issued, yet that tax becomes due at the time when the taxing event occurred, namely, sales were effected though it might have become payable when the assessment is made. If the conclusion herein recorded is correct, then the claim for priority has been rightly negatiyed by the liquidator because even though amount for which priority is claimed was the amount of tax arrears that became payable at the time of making assessment order after giving credit for what was paid along with the return, yet it was due for a period much prior to 12 months next before the relevant date and even if it has become payable on the assessment order being made and demand notice being issued, as both the conditions did not co-exist and are not satisfied, claim for prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would not be admissible as a claim in winding-up. It is, therefore, necessary to examine what is the effect of winding-up order in respect of an insolvent company on the right of unsecured creditors to claim payment of debt which has become due and payable. Section 528, on which reliance was placed by the learned Advocate-General, reads as under : "528. Debts of all descriptions to be admitted to proof: In every winding-up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act or the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value". Section 528 provides as to what debts should be admitted to proof in winding-up in respect of a company other than an insolvent company, Section 529 specifically provides for application of insolvency rules in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any further liability being incurred merely on account of non-payment of a liability or a debt which was outstanding on the relevant date. Now, if penalty amount under the Sales Tax Act is nothing but a liability imposed on account of non-payment of tax, it would mean that continuous recurring liability to pay penalty must come to an end on the date on which winding-up order is made. Any other construction would put tax liability in a preferred position compared to other liability of the company and except where preference is shown by law itself, there is no reason to grant any other preference in favour of tax liability. It was, however, contended that penalty is nothing but tax itself under a different nomenclature and liability to pay tax cannot come to an end if it otherwise accrues merely because winding-up order is made. Reference was made to K. V. Adinarayana Setty v. Commercial Tax Officer, Kolar Circle, Kolar [1963] 14 S.T.C. 587 (Mys.) . The matter came up before a Division Bench of the Mysore High Court by way of criminal revision petition against the order made by the Magistrate who had ordered issue of warrant for attachment of movables of the respondent fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein. Tax was being assessed under the Mysore General Sales Tax Act, 1939, in that case, but penalty was being levied under section 24(3) of the Mysore General Sales Tax Act, 1959. Claim for penalty was negatived as it was not leviable under the 1939 Act. Argument was that levy of amount as penalty was a process of recovery of amount due. That argument was negatived. The question raised could have been answered by observing that though the 1939 Act did not provide for levy of such penalty, yet it was, in passing, observed that penalty in such circumstances is nothing but by way of interest on arrears of sales tax. Penalty in every case may not partake the character of interest on tax which is not paid. Full Bench of the Andhra Pradesh High Court in State of Andhra Pradesh v. Godavarthi Kasiviswanadham [1970] 25 S.T.C. 1 (A.P.) [F.B.] , observed that penalty under the Sales Tax Act is clearly separate and distinct from the tax and the usual proceedings taken for the assessment of the tax are not sufficient for the levy of penalty also, because penalty is not merely incidental to assessment proceedings. It was, however, observed that the word "tax" as used in the Act does not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inaction not on account of any fault on his part but on account of complying with the statutory provisions? If during all this period, penalty as a recurring liability is allowed to go on accumulating against the liquidator and if penalty partakes the character of tax and becomes payable as such, everything will be devoured in payment of tax and nothing will be available to other creditors. In a taxing statute, generally speaking, penalty may be a tax or may be incidental to the process of payment and collection of tax, or necessary concomitant or incident of the process of assessment, levy and collection of tax. It may none-the-less be punitive in character. If that be so, no penalty can be imposed upon the liquidator for the period beyond the relevant date; and, therefore, it would not be admissible as a debt in winding-up. This decision is confined to the case where penalty is levied on tax assessed prior to the relevant date and for failure to pay the same subsequent to the relevant date. If some tax becomes due for the period subsequent to the relevant date, the official liquidator must attend to it and meet the liability and if he fails or neglects to pay tax so assessed an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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