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TMI Blog1973 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... h a notice under section 226(3) of the Income-tax Act, 1961, calling upon the official liquidator to pay a sum of Rs.44,000. Thiswas by notice dated 12th January, 1970. Later, the Income-tax Officer, II(2)(Collection), New Delhi, dealt with the case and corresponded with the official liquidator, who informed him that, as the company was being wound up, leave of the court under section 446 of the Companies Act, 1956, was necessary. In these circumstances, the Income-tax Officer, District 11(2), Additional, has moved this court under section 446 of the Companies Act, 1956, and has at the same time stated that the provisions of that section do not apply to the case. The petitioner has explained that the salary of the director in question. Shri Arora, was Rs. 36,000 annually and the deductions which should have been made under section 192 of the Income-tax Act, 1961, amounted to Rs. 44,000 which should have been deposited in the Treasury. Having not made the deposit, the company was an assessee in default as provided by section 201 of the Income-tax Act, 1961. A further sum was claimed as interest under section 201(IA) of that Act. The petitioner also explained that after tax had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 1956, is concerned with the effect of a winding-up, order on pending suits and other legal proceedings. Subsection (1) of that section provides: (1) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the date of the winding up order, shall be proceeded with against the company, except by leave of the court and subject to such terms as the court may impose." The effect of this section in relation to income-tax proceedings has been considered by the Supreme Court in S. V. Kondashar v. V. M. Desh pande, referred to above. In that case, the question was whether reassessment proceedings under section 147 of the Income-tax Act, 1961, required the leave of the liquidating court. It was held that the Income-tax Officer was not performing a function of a court within the meaning of section 446(2) and a winding-up order would, therefore, not result in the stay of such proceedings. It was further observed that the court in which the liquidation proceedings were pending could not perform the functions of an Income-tax Officer and there would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... official liquidator is concerned. In this respect, reference is first necessary to Governor-General in Council v. Shironmani Sugar Mills Ltd. wherein it was held that the debts owed to the Crown could not claim priority in the matter of payment on account of the administrative scheme provided by the Companies Act. On referring to section 230 and section 232(2) of the Companies Act,1913, the Federal Court held that income-tax arrears could not be collected as arrears of landrevenue under a certificate granted under sectin 46(2) of the Indian Income-tax Act, 1922, that procedure being ultra vires of the Companies Act. In other words, it was held that, as a result of the Companies Act, the claim of the Crown to get priority in the matter of payment of its dues was overruled by statute. A similar question was considered in Builders Supply Corporation v. Union of India which also related to the priority of debts due to the Government of India for arrears of income-tax over other debts due to unsecured creditors. It was held that doctrine of priority of Crown debts was "a law in force" within the meaning of article 372() of the Constitution of India and continued to be in force even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section 232 of the Act of 1913. On this analysis it would appear that the provisions of the Companies Act of 1913 have been reproduced in the Companies Act of 1956. Reverting now again to the Federal Court's judgment in Shirmani Sugar Mills' case . it is necessary to examine the reasoning which led the Federal Court to hold that in spite of section 232(2) of the Act, arrears of income-tax could not be recovered by the Collector as arrears of land revenue. The scheme of section, 230(1)(a) of the Act of 1913 and the other portions of that provision'showed that certain creditors of the company in liquidation were to be treated as prior claimants. The same provision is now to be found insection 530(1). The court concluded that the prerogative of the Crown to claim priority of Crown debts had been overruled by a special priority contained in section 2'30. The court relied on the decision of the House of Lords in Food Controlky v. Cork. A further reason ws given by the Federal Court at a later stage in the judgment. It was stated thus : " We agree with the learned judges of the Allahabad High Court in holding that the words 'other legal proceeding' in sectin 171, Companies Act, 113, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure prescribed by the Income-tax Act, 1961, or as arrears of land revenue, or by any other means available to the authorities. On the other hand, if leave is refursed, then, the income-tax authorities will be placed in the same position as any other creditor of the company. As, in the present case, the dues to be realised are arrears of tax which were not deposited by the company in liquidation for the period covered by the assessment years 1961-62 to 1965-66, I would hold that no priority was involved in these realisations. If any part of the sum of Rs. 44,000 is entitled toc priority under section 530(1)(a) of the Act, the Income-tax Officer is entitled to get leave. No indication has been made in the application as to whether any part of the sum claimed is entitled to priority and hence, I am unable to determine this question on the present record. I permit the Income-tax Officer to apply for leave under section 446(1) to proceed under the Income tax Act, 1961, in relation to any debts due from the company which are entitled to priority under the provisions of section 530(1)(a) of the Companies Act, 1956. This will have to be by a subsequent application. If the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d judgment. The Federal Court resolved the inconsistency by holding that the Government was not entitled to a preferential payment for arrears of tax except in so far section 230(1)(a) of the Companies Act, 1913, permitted. Correspondingly, it would follow that the income-tax department cannot claim priority except to the extent permitted by the law now in force, i.e., by section 530(1)(a) of the Companies Act, 1956. As regards the realisation of taxes in general, the Federal Court held that the provisions of section 171 of the Act of 1913, corresponding to the provisions of section 446(1) of the present Act, operated stay of the realisation of tax except with the leave of the court. It would, therefore, follow that unless the leave of the court was granted under section 446(1) of the present Act, the income-tax authorities could not proceed to follow the procedure laid down in the Income-tax Act, 1961. This being the position, section 536(2) of the present Act does not entitle the income-tax authorities to effect a sale or attachment unless leave is granted under section 446(1) of the Act. The view of the Federal Court is confirmed by the observations of the Supreme Court in the c ..... 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