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TMI Blog1973 (4) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... olcha Properties (Private) Ltd. (hereinafter called "the company") was ordered on 10th May, 1968, to be wound up, the Income-tax Officer, Central Circle-I, Jaipur (who was then the assessing authority for the said company), sent a letter on 29th August, 1961, to the official liquidator, notifying to the company that Rs. 41 lakhs were payable or likely to be payable as income-tax by the company to the department and, therefore, he was specifically directed to set apart this amount under section 178 of the Income-tax Act, 1961 (hereinafter called "the Act"). The official liquidator wrote back to the Income-tax Officer, vide his letter dated 3rd October, 1968, that such a direction could be issued to him only after obtaining leave of the High Court under section 446 of the Companies Act, 1956, but the Income-tax Officer did not agree with this suggestion. The official liquidator was under the circumstances forced to move an application before the High Court under section 460(4) of the Companies Act and stated in his application that out of the amount of Rs. 41 lakhs of the estimated tax as pointed out by the Income-tax Officer, the claim of the tax liability was admitted by him only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as issued to the liquidator not to comply with the notice issued by the Income-tax Officer. It is against this order of the learned company judge that the present appeal has been preferred by the revenue. Mr. Gupta, appearing on behalf of the department, urged that the provisions of section 178 of the Act is independent of the provisions of sections 446 and 530 of the Companies Act and, therefore, the requirements of section 178 of the Act cannot in any manner be whittled down by taking resort to the provisions of section 530 or 446 of the Companies Act. He also contended that the Income-tax Act is a complete code in itself and the act of quantifying the tax against the company in liquidation cannot in any manner be subjected to the jurisdiction of the company judge under section 446 of the Companies Act. According to Mr. Gupta, the official liquidator was under a statutory duty to comply with the requirements of sub-section (3) of section 178 when the amount of tax was duly quantified by the Income-tax Officer and notified to the official liquidator under sub-section (2) of section, 178 of that Act. Mr. Rastogi, appearing on behalf of the official liquidator, on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidator and Liquidator of the Colaba Land and Mills Co. Ltd. v. V. M. Deshpande, Income-tax Officer, Companies Circle I(8), Bombay. These rival contentions of the parties raise an important question of law : Whether the official liquidator while taking action under section 178(3)(b) of the Act is subject to the control and supervision of the company judge so as to attract the provisions of section 446 of the Companies Act of 1956. In order to understand the true scope and the nature of the provisions of section 178 of the Act it will be relevant to examine the scheme of this section. Section 178 of the Act reads as follows : "178. (1) Every person- (a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise ; or (b) who has been appointed the receiver of any assets of a company, (hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Income-tax Officer who is entitled to assess the income of the company. (2) The Income-tax Officer shall, after making such enquiries or calling for such information as he may deem fit, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the Income-tax Officer shall make such enquiries and call for such information as he may deem fit, and shall determine the estimated amount of tax which is payable or likely to be payable by the company and shall notify the same to the liquidator within a period of three months from the date of the receipt of the appointment of the liquidator. Sub-section (3) of this section requires that if the liquidator has to part with the assets of the company or has to sell its properties in his hands, then he can do so before the receipt of the estimated tax liability of the company with the leave of the Income-tax Commissioner. After the estimated tax liability is notified to the liquidator, then it becomes incumbent under sub-section (3)(a) for the liquidator to set aside the amount equal to the amount so notified to him and not to part with that amount or the assets of the company in his hands. There is, however, one exception to this rule that the liquidator has the liberty to part with the assets or the properties of the company for making any payment to secured creditors whose debts are entitled under the law to get priority over debts due to the Government. Sub-section (4) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer the question of its realisation from the assets of the company in liquidation is governed purely by the provisions of the Companies Act and according to section 530 of the Companies Act the tax liability of the company is treated as an ordinary debt and it ranks pari passu with other unsecured debts of the company and such a debt cannot be put on a higher level and cannot be given any priority over the debts of other unsecured creditors. His argument, therefore, is that if the tax liability of the company as notified by the Income-tax Officer under section 178 of the Act is given any preference to the other unsecured debts and the entire amount of Rs. 41 lakhs is set aside by the liquidator, then the unsecured creditors in this case would not get any dividends from the liquidator, and the department would also not receive any payment till the assessments are completed and the position of the tax liability vis-a-vis other unsecured debts is determined by the liquidator and, therefore, this heavy amount shall remain frozen for the benefit of none and eventually the revenue shall not get the whole amount as the debt relating to tax shall stand at par with other unsecured d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 law for the time being in force, be transferred to and disposed of by that court. (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court." A careful examination of section 178 of the Act reveals. that subsection (3) of that section casts a statutory duty on the liquidator to set aside an amount equal to the amount notified under sub-section (2) of that section and till it was done the liquidator is debarred from parting with any of the assets of the company. The object of this provision of law is to ensure the ultimate recovery of the tax which may eventually be found due against the company. The argument of Mr. Rastogi is that the provisions of sub-section (3)(b) of section 178 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and it is that the winding-up proceedings may not be hampered by any outside agency and proceed smoothly under the supervision of the winding-up court. If any dispute regarding the affairs of the company arise during the course of the pendency of the winding-up proceedings then such a dispute under the scheme of the Companies Act should be settled by the company judge under section 446 of that Act so that agencies not knowing the true state of affairs of the winding-up of the company may not interfere with the functioning of the liquidator who has to wind up the company under the direct supervision of the winding-up court. It is with this view that the legislature has centralised the power of supervision in the company judge and a statutory ban is put on the institution of suits or initiation of legal proceedings without the leave of the court. It is in this scheme of the statute that we have to see whether provisions of section 446 of the Companies Act are attracted to the circumstances of the instant case. If during the course of the winding-up the official liquidator is required by the Income-tax Officer to deal with the assets of the company in a particular manner and to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditors then such a claim would run contra to the scheme of the Companies Act and the duty is cast on the winding-up court to see that the provisions of the Companies Act and that of the Income-tax Act are to be given a harmonious construction in order to avoid such a conflict. Every debt of the insolvent company during the course of the winding-up proceedings shall be admissible to proof against the company. The tax due under the Act also falls within the expression "debt" and after the same has been quantified by the department it is also admissible to proof before the liquidator. The effect of all these statutory provisions is, inter alia, that all the unsecured debts are to rank pari passu and in the matter of payment no preference is to be given to the debt relating to the tax liability unless it falls within the provisions of section 530(1) of the Companies Act. Therefore, when the claim of the revenue is proved in the liquidation proceedings, it is treated as the unsecured debt and the department cannot claim any preference over other creditors in the matter of payment because certain amount has been set aside to ensure the payment of the debt under sub-section (3) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the income-tax department which may not in its entirety be eventually paid to the department because its claims are to rank pari passu with other unsecured creditors who may take a lion's share in the assets of the company. Mr. Gupta, appearing for the revenue, cited before us a Supreme Court authority in S. V. Kondaskar v. V. M. Deshpande to suggest that the matters relating to tax assessments do not fall within the supervision of the company judge under section 446 of the Companies Act. The question raised before the Supreme Court in that case was whether the assessment of tax under the Act against a company in liquidation was also subject to the jurisdiction of the company court under section 446 of the Companies Act. Considerable stress was laid on the expression "suit or legal proceeding" to bring the action of the Income-tax Officer in the matter of assessment or reassessment of tax against the insolvent company in liquidation, but their Lordships rejected that argument by observing: "Turning now to the Income-tax Act, it is noteworthy that section 148 occurs in Chapter XIV which beginning with section 139 prescribes the procedure for assessment and section 147 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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