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TMI Blog1980 (3) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by the court. Affidavit of proof of the debt was thus filed before the liquidator in August, 1969, and the liquidator recognised the department's claim for tax arrears by an order passed on July 27, 1973. In the meanwhile, the department had requested the liquidator by letter dated January 29, 1971, to make provision for over Rs. 23,000 by way of interest on the tax due, under s. 220(2) of the I.T. Act. But the liquidator's order dated July 27, 1973, did not recognise this claim for interest; it recognised only the claim for the tax assessed. The department then filed Application No. 315/73 before the company court contending that interest also should have been allowed., but the application was dismissed, holding that no priority could be recognised under s. 530. The department thereupon appealed to the Division Bench; and by judgment dated September 27, 1978, in A. S. No. 563/74, the Bench allowed the appeal to the extent of permitting the department to prove the claim (for interest) before the liquidator as an unsecured debt. The liquidator was directed " to adjudicate upon the said claim in accordance with law, more particularly in accordance with the provisions contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1913 (corresponding to ss. 528 and 529 of the 1956 Act) and observed (page 334) (also see p. 672 of 35 Comp Cas): " The effect of these statutory provisions is, inter alia, that an unsecured creditor must prove his debt and all unsecured debts are to be paid pari passu. Therefore, once the claim of the department has to be proved and is proved in the liquidation proceedings, the department cannot by exercising the right under section 49E of the Income-tax Act get priority over the other unsecured creditors. If we were to read section 49E in the way suggested by the learned Additional Solicitor-General, it would be defeating the very object underlying sections 228 and 229 of the Companies Act, 1913. If there is an apparent conflict between two independent provisions of law, the special provision must prevail. Section 49E is a general provision applicable to all assessees and in all circumstances; sections 228 and 229 deal with the proof of debts and their payment in liquidation. In our opinion, section 49E can be reconciled with sections 228 and 229 by holding that section 49E applies when insolvency rules do not apply. " In other words, the rules in insolvency had to be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermining the amount of tax payable by the company which is being wound up. The liquidation court would have full power to scrutinise the claim of the revenue after income-tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court then to decide how far under the law the amount of income-tax determined by the department should be accepted as a lawful liability on the funds of the company in liquidation. At that stage the winding-up court can fully safeguard the interests of the company and its creditors under the Act. The question of interest under s. 220(2) directly arose for decision in Official Liquidator v. ITO [1978] 111 ITR 398 (Ker). Interest was there demanded in respect of tax assessed for periods subsequent to the winding up. Viswanatha Iyer J. held that the provision for interest was in the nature of compensation for delayed payment of tax, pertaining to the realm of recovery and collection, and that such post-assessment proceedings were not the same as assessment or reassessment proceedings covered by Kondaskar's case [1972] 83 ITR 685 ; 42 Comp Cas 168. When once the tax payable was determined by the I.T. authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rigour of r. 168; no leave or sanction under s. 446 was granted. The very observation in the judgment that the liquidator should adjudicate the claim in accordance with the provisions of the Companies Act and the Rules indicates that it was for him, in the first instance at any rate, to decide whether the claim was sustainable under s. 446. Nor is it possible to accept the larger contention of Sri. N.R.K. Nair for the department that Kondaskar [1972] 83 ITR 685 ;42 Comp Cas 168 (SC) has overruled India Fisheries [1965] 57 ITR 331 ;35 Comp Cas 669 (SC); the Bench in MFA No. 92/77 (ITO v. Offl. Liq., Swaraj Motors (P.) Ltd.) has held otherwise, by clarifying that assessment proceedings dealt with by the former could not be equated to post-assessment proceedings considered by the latter. The liquidator's decision on this point has, therefore, to be upheld. The only other question is whether the department could claim interest under s. 220(2) from a company in liquidation for periods subsequent to the winding-up. Section 156 of the I.T. Act provides that when any amount is payable in consequence of any order passed under the Act, the ITO should serve a notice of demand on; the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 should, therefore, be confined to an assessee who is at least free to comply with the requirement of sub-s. As pointed out, by the Supreme Court in India Fisheries' case[1965] 57 ITR 331 ; 35 Comp Cas 669 with reference to s. 49E of the Indian I.T. Act, 1922, if s. 220(2) is to be read in the manner suggested on behalf of the department, it would defeat the object underlying ss. 528 and 529 of the Companies Act and the Rules noticed, at least in their application to an insolvent company like the one in hand; and the solution, therefore, is to reconcile the provisions of the Companies Act with those of the I.T. Act by holding that s. 220(2) of the latter does not apply when insolvency rules have to be applied under the former. That means that the second ground mentioned by the liquidator in the order appealed against has also to be sustained. Counsel suggested that the exclusive jurisdiction to enforce s. 220(2) is on the department and that the liquidator cannot be permitted to usurp it. The plain answer is that if the section cannot apply at all to a case like the present, there is no question of any one exercising or usurping the power thereunder. That apart, by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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