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TMI Blog1986 (11) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... ted aggregate to Rs. 1,48,179 and claims which are disputed aggregate to Rs. 2,61,762. The admitted claims of the State Railways for Rs. 1,44,901 are stated to be subject to set off by the claims of the company against the State Railways for Rs. 1,14,250. In the course of liquidation, the liquidators have sold the assets of the company. The Income-tax Officer has assessed the company in liquidation through the liquidators for the years 1972-73 to 1982-83. The assessments were on the capital gains which are stated to have been assessed in the hands of the liquidator by reason of the sale of the assets of the company. The liquidators have disputed their liability to be assessed altogether and contend that, in any event, capital gains cannot be assessed where the assets of the company are sold in liquidation proceedings. Appeals were preferred by the liquidators against the assessments made by the Income-tax Officer up to the Income-tax Appellate Tribunal. The contentions of the liquidators have been rejected by the Tribunal and the assessments have been confirmed. Presently, the income-tax demands aggregate to Rs. 73,41,296. The said demands consist of tax assessed, interest and pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidation. An affidavit was affirmed by the Income-tax Officer concerned on November 26, 1984, which was filed in reply to the aforesaid affidavit of the liquidator. The application was disposed of by a judgment and order dated November 27, 1984. The present appeal by the company is from the said judgment and order. The learned judge in the first court held, inter alia , following a decision of the Supreme Court in S. V. Kondaskar, Official Liquidator Liquidator of the Colaba Land Mills Co. Ltd. v. V. M. Desh-pande, ITO [1912] 83 ITR 685 (SC), that inasmuch as the assessments have been completed and demand notices have been issued, the amount claimed by the Revenue should be allowed to be so recovered, particularly as no stay has been obtained by the liquidators. It was held that the income-tax authorities were entitled to initiate recovery proceedings in respect of their claims. The learned judge directed the liquidators not to return any capital to the contributories or make any other payment without the leave of the court. This application which was made by the Revenue in the first court under section 446 of the Companies Act, 1956, was, at the instance of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was improper. ( c ) Official Liquidator, High Court, Calcutta v. CIT [1971] 80 ITR 108 (Cal). This decision of A. N. Sen J., as his Lordship then was, was cited for the following propositions. ( i )The Income-tax Officer was the only authority competent to make an assessment and had exclusive jurisdiction to make such assessment under the Income-tax Act, 1961. ( ii )The company court had no power or jurisdiction to entertain or dispose of any assessment proceeding or to make an assessment by itself. ( iii )Once the assessment was completed, it would be open to the Revenue to prove the debt in liquidation and the claim of the Revenue could be paid in the same manner as the debts of other creditors of the same class. ( iv )It remained open to the Revenue to proceed to recover the debt under the provisions of the Income-tax Act, for, this right would be subject to section 446(1) of the Companies Act, 1956, and might be exercised subject to leave of court. ( v )The recovery proceedings would affect the estate and the assets of the company and if such proceedings were allowed to be effected without leave of court, the Revenue might obtain an undue preference o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings within the meaning of section 446 of the Companies Act, 1956. It was laid down further that proceedings for recovery of interest for delayed payment of tax under section 220(2) of the Income-tax Act, 1961, could not be commenced or concluded without the prior sanction of the winding up court and recovery effected without such prior leave would be invalid. ( h ) ITO v. Official Liquidator [1986] 59 Comp Cas 514 . In this case, a Division Bench of the Kerala High Court has laid down that the provisions of sections 156 and 220 of the Income-tax Act, 1961, under which an assessee on his failure to pay a valid demand for payment of tax within the statutory period became liable to pay interest on arrears of tax, did not apply where the assessee was a company in liquidation under the control of the liquidator and the company court. In such a case, the Revenue would be treated as an unsecured creditor and could recover the debt in the liquidation proceedings after proving the debt but the company in liquidation, not being a free agent to pay all demands, will not incur any liability to pay interest or penalty under the Income-tax Act for default of payment. Interest under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the meaning of section 4 of the Income-tax Act, 1961, and the liquidator would be the principal officer of such company within the meaning of section 2(35)( a ) of the Income-tax Act. ( ii )Receipt of any income by the company in the course of winding up would attract liability to income-tax and it would be the duty of the court to ensure that the liabilities of the company were duly met in accordance with law. ( c ) S. V. Kondaskar, Official Liquidator Liquidator of the Colaba Land Mills Co. Ltd. v. V. M. Deshpande, ITO [1972] 83 ITR 685 (SC). This decision has also been relied on by the appellant. The following observation in the judgment of the Supreme Court was relied on by the Revenue (p.698): "The liquidation court, in our opinion, cannot perform the functions of the Income-tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the court. The orders made by the Income-tax Officer in the course of assessment or reassessment proceedings are subject to appeal to the higher hierarchy under the Income-tax Act. There are also provisions for reference to the High Court and for appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l position of the company in liquidation, the liquidation court is required to decide to what extent tax claims should be paid by the liquidators. The liquidation court has to keep in view the claims of other creditors and the pending liquidation proceedings. If it is found that by permitting realisation of the entire dues of the Revenue, other creditors who may have an equal or superior claim to that of the Revenue are deprived, then the liquidation court will not permit the realisation of the entire demand of the Revenue. It also appears to us that if it is found that by allowing realisation of the tax demands from the liquidators in full, the entire funds in the hands of the liquidators are depleted, they may not be in a position to continue the liquidation proceedings to the detriment of other creditors and contributors. In such a case also, the liquidation court may stay the realisation of the entire demand. In the instant case, the balance in the hands of the liquidators as of today is Rs. 25,53,973. Under an order of court passed on December 10, 1984, Rs. 20 lakhs out of the said amount has been directed to be set apart to meet the claim of the Revenue. The liquidators are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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