9911796707
TMI Blog1973 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amount of sales tax plus penalty payable by the company and claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 CLAIM UNDER THE CENTRAL SALES TAX ACT 1-1-57 to} 31-12-57 27-4-62 16-12-66 17-12-66 8,196.03 5,957.82 2,238 45 1-1-58 to 31-12-58 27-4-62 16-12-66 17-12-66 3,858.99 1.685.82 2.17317 1-1-59 to 31-12-59 27-4-62 16-12-66 17-12-66 2,028.21 894.36 1133.85 1-1-60 to 31-12-60 20-1-64 31-1-67 1-2-67 2,274.23 1,489.30 238.97 1-1-62 to 31-12-62 20-1-64 31-1-67 1-2-67 2,309.05 940.22 1,454.83 1-1-63 to 31-12-63 20-1-64 31-1-67 1-2-67 10,733.48 6,638.07 3,895.41 1- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 construction leads to absurdity. As observed by Lord Warrington in Barrell v. Fordree [1932] A.C. 676 (H.L.), at page 682, the safer and more correct course of dealing with a question of construction is to take the words themselves and arrive, if possible, at their meaning without, in the first instance, reference to cases, because this rule of construction is based on the well-known principle that the legislature has meant what they have actually expressed, because the object of all interpretations is to discover the intention of the legislature. Intention, however, must be deduced from the language used. Therefore, where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise. Looking to the language used in the sub-clause uninfluenced an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 this, rule 156 enables the creditors to claim interest up to the date on which winding-up order is made and rule 179 provides in certain circumstances payment of interest subsequent to the date of winding-up. Obviously, therefore, looking to the juxtaposition in which section 530 is placed in the scheme of Chapter V of Part VII of the Companies Act, and looking to the purpose for which sub-clause (a) is enacted, the word "due" in the first part of the clause must mean "outstanding at the relevant date". Now, merely because any particular debt in respect of any revenue, tax, cess or rate due to the Central or State Government or to the local authority is outstanding at the relevant date, that by itself is not sufficient to clothe it with priority in payment thereof in the distribution of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utstanding 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 particular debt for which priority is claimed before priority in payment can be accorded to it. These three conditions are: (i)debt of the kind mentioned in clause (a) must be outstanding on the relevant date; (ii)the debt must have become due, in the sense, it must have been incurred at any time within 12 months next before the relevant date; and (iii)the debt must have become payable at any time within 12 months next before the relevant date. Analysing the section, these three conditions emerge and all the three must be satisfied and the debt must be in respect of revenues, taxes, cesses and rates and must be due to the Central or State Government or a local authority. Now, apparently confusion may be created when it is said that debt is due and payable because the debt which is due may presumably be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concerned with the expression "debts owed" as it finds its place in the definition of "net wealth" in section 2(m) of the Wealth-tax Act, 1957. In fact, in a very elaborate judgment, the Division Bench examined what constitutes "debt" and whether the meaning undergoes change because of the context in which that word is used in the definition of the expression "net wealth". The context, however, did not affect the intrinsic meaning of the word "debt" as used in the definition of the expression "net wealth" and as used in clause (a) of sub-section (1) of section 530 of the Companies Act. Priority is claimed for payment of the amount which admittedly is to be paid as and by way of sales tax payable by the company. It is admitted that the amount was outstanding on the relevant date. The real controversy centres round the question whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concerned, more tax than what is computed and paid by the assessee is found due and payable by the assessee and, pursuant to the assessment, a demand notice is issued Learned Advocate-General claimed priority in respect of the tax which becomes payable under the third category and did not argue that as and when tax is made payable, priority ought to be granted. Therefore in this case I am concerned with the third situation in which the case of the petitioner falls and priority is claimed by him. At this stage, it is necessary to refer to the relevant charging sections of the Bombay Sales Tax Act, 1953, the Bombay Sales Tax Act, 1959 and Central Sales Tax Act. Section 5 of the Bombay Sales Tax Act 1953 provides for the incidence of tax and it says that every dealer whos'e turn' over either of all sales or of all purchases made during the relevant ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 become due is not paid. One cannot levy penalty for non-payment of tax or non-payment of tax within prescribed period unless the tax has become and due payable. The charging sections in the Bombay Sales Tax Act, 1953, clearly show that the tax is levied on sale of specified goods at the specified rates and it is payable every three months when a duty is cast on the registered dealer to submit his return. This duty is ascertainable because the moment the registered dealer on whom duty is cast to submit the return and pay tax as per the return fails to submit the return and pay tax within the prescribed time, he incurs liability to pay penalty. The fact that he has to pay penalty merely because of his failure to submit return and pay tax in time indicates that the tax had already become due and payable by him as per his own computation and he failed to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompute 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 this provision which shows the incidence of tax. Therefore, in the scheme of the Sales Tax Act, taxing event appears to be sale of goods. Mode of payment is that it is deferred till quarterly return is submitted. Tax became due when taxing event occurred, namely, sale of goods took place. It became payable when the return was to be submitted, because the assumption underlying the scheme is that the assessee will submit correct return and pay tax computed as per his correct statement. If the assumption is justified assessment is merely a formality because nothing becomes payable at the time of assessment as the assessee had submitted return and paid tax computed as per the return. Assuming that the return submitted by the assessee is not accepted by the authority and the authority while making assessment makes demand of the tax in higher amount than what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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 consensus of judicial opinion that it becomes due at the close of the accounting year and becomes payable when assessment is made. I would refer to some of the authorities bearing on the subject when I examine the authorities relied on by either side in this case, but at this stage it is sufficient to say that the analogy about income-tax becoming payable on the assessment order being made and demand notice being served will not assist in determining as to when sales tax becomes due in the situation as envisaged in this case. I would now refer to some of the authorities relied upon on either side. In Kesoram Industries' case [1966] 59 I.T.R. 767 ; [1966] 2 S.C.R. 688 (S.C.), it has been in terms held that income-tax becomes due at the latest on the last date of the accounting year. After examining various provisions of the Income-tax Act, as also the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial 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 following words : "Whether sales tax is to be treated as a preferential debt within the meaning of section 230 of the Indian Companies Act (which is in pari materia with section 530(1)(a) of the Companies Act 1956)? From which date-from the date of demand or the date when the sale price is received, or any other date?" The answer of the Bench was that the amount of sales tax which became due and payable on the date of service of notice of demand was entitled to preferential payment. The learned Advocate-General relied upon the answer to the reference given by the Special Bench and urged that the sales tax always becomes due and payable when assessment order is made and demand notice is issued. Mr. A. L. Shah, on the other hand, contended that the Special Bench has not further examined the question whether both the conditions must co-exist before priority in payment is grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assurance to the view I have already taken that tax becomes due when the taxing event occurs. It may further become payable when the return is submitted as initially tax is to be paid according to the return; where the whole or part of the return is not accepted then tax becomes payable when assessment takes place. But even if tax becomes payable at some future date, it is none-the-less tax which was due for the period for which return is submitted or in respect of sales which took place or the period for which assessment is being made. However, Sinha J., with great respect, after examining the case from this angle fell into an error by not examining the question whether both the conditions in the latter part of clause (a) of section 530(1) must co-exist and be satisfied before priority in payment can be claimed and concurred in the order passed by Chakravarti C.J. Therefore, with respect, it is not poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent 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. In fact the case has been disposed of on its own facts. But, Mr. Shah drew my attention to this case in support of his submission that the observation of the Patna High Court in In the matter of Bihar Bolts and Engineering Works [1959] 29 Comp. Cas. 482 ; 10 S.T.C. 578 ; A.I.R. 1959 Pat. 537 on the question whether the amount should become due as well as payable within 12 months was not approved and was in fact questioned. But, as the case has been disposed of on its own facts, I need not examine it further. In Sales Tax Officer, v. Official Liquidator [1968] 38 Comp. Cas. 430 (All.) the Allahabad High Court rejected the claim for priority in respect of sales tax dues observing that section 530(1)(a) not only requires that the tax should have become due within the relevant period but that it should have also become payable within that period. Both these conditions must, therefore, co-exist before priority mentioned therein ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 priority has been rightly negatived by the official liquidator and there is no reason to interfere with the order. Next contention of the learned Advocate-General was that the official liquidator was in error in rejecting the claim for penalty in its entirety. It is true that the liquidator has rejected the entire claim of penalty. Now, penalty is also levied for the period preceding the relevant date. The amount of penalty levied till the relevant date under the Bombay Sales Tax Act, excluding the amount not pressed by the learned Advocate-General, comes to Rs. 61293. The amount of penalty till the relevant date levied under the Central Sales Tax Act comes to Rs. 612.42. The total of the penalty up to the relevant date comes to Rs. 1,225.35. This has been rejected by the official liquidator. Mr. Shah appearing for the official liquidator conceded that the liquidator is willing to admit the claim of Rs. 1,225.35 as ordinary claim and that was quite satisfacto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 winding up of insolvent companies. Section 529 reads us under : "529. Application of insolvency rules in winding up of insolvent companies.-(1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to - (a)debts provable; (b)the valuation of annuities and future and contingent liabilities; and (c)the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent". It would, therefore, be necessary to refer to the rules which prevail with regard to respective rights of secured and unsecured creditors as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Section 45 of the Provincial Insolvency Act provides that a creditor may prove the debt not payable when the debtor is adjudged insolvent as if it were payable presently, and he is entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 for recovering sales tax in arrears. Section 13(3)(b) of Mysore Sales Tax Act, 1956, enabled the Commercial Tax Officer to collect tax as distinct from penalty due under the Central Sales Tax Act by approaching a Magistrate. It was, however, contended that respondent would not be legally liable to pay any amount claimed as penalty under section 13(2) of the Mysore Act, because even if any person makes default in payment of the tax under the Central Sales Tax Act, he is not under any liability to pay penalty under section 13(2) of the Mysore Act. It is in this background that the observation was made that penalty levied under section 32 is something which is incidental to and part of the process of payment and collection of tax. In Commissioner of Income-tax v. Bhikaji Dadabhai & Co. [1961] 42 I.T.R. 123 ; [1961] 3 S.C.R. 923; A.I.R. 1961 S,C, 1265, the Supreme Court, while examining the provisions of the Hyderabad Income-tax Act, which was kept alive by the Finance Act, 1950, observed that pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 include penalty. The two are treated therein as distinct and separate. What exactly is the nature of penalty in a given case may depend upon the provisions of the statute under which it is levied. It may partake the character of interest in the case of delayed payment of tax. It may be punitive in character, in order to punish the dishonesty or contumacy of the dealer. A very broad proposition that penalty under a taxing statute always partakes the character of interest cannot be accepted. If the penalty in a given case partakes the character of interest, then rules of bankruptcy which will be applicable to the winding-up of an insolvent company would not permit payment of interest in the guise of penalty for a period subsequent to the relevant date. Theory in bankruptcy to stop all things at the date of bankruptcy applies in whatever guise interest is claimed (vide In re Savin [1872] L.R. 7 Ch. App. 760). Further, the court of bankruptcy is a court of equity and would have regard to the substance of the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and penalty is levied, such a penalty may stand on a different footing. But examining the case of penalty as claimed herein which was for failure to pay tax which was assessed prior to the relevant date and which was outstanding on the relevant date and which the liquidator failed to pay subsequent to the relevant date, such a penalty can be considered punitive and that amount would not be admissible in winding-up. If on the other hand penalty is a kind of tax, there was no taxing event that occurred after the relevant date and, therefore, it would not be admissible. If it partakes the character of interest, no surplus is shown at present as envisaged in rule 179 and, therefore, the amount of penalty would not be admissible in winding-up. Viewed from either angle, claim for penalty for the period subsequent to the relevant date is unsustainable and has been rightly rejected by the liquidator and no case is made out for interfering with the same. Accordingly, this appeal, only to the extent of Rs. 1,225.35, being the am ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
