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Miscellaneous Application No. 31 of 1949, decided on 25th/30th September 1953.
Income‑tax Act (XI of 1922)
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----Ss. 29 & 45‑Companies Act (VII of 1913)‑S. 230‑Company in liquidation‑Assessment to Income‑tax and issue of demand notice after winding up order -Income‑tax a debt‑Whether Government has priority ‑ over other creditors.
The Company was compulsorily wound up under orders of the Court in July, 1949, The Company was assessed to tax for the assessment years 1947‑48 to 1950‑51 in March, 1953 and demand notices under Section 29 were issued. Thereafter the Official Liquidator was asked to intimate whether the Income‑tax claim should be filed with him and if the said claim would be given priority or preferential right over other creditors. The official liquidator referred the matter to the Chief Court for issue of necessary directions.
Held, that the claim of the Government had no priority within the meaning of Section 230 of the Companies Act, because the assessments were made and the tax became due and payable long after the winding up order.
Durga Parsad Chamaria A I R 1945 P C 62 and Governor- General‑in‑Council v. Shirmonai Sugar Mills Limited (1946) 14 I T R 248 ref.
Wallace Brothers & Co. Ltd. v. Commissioner of Income‑tax Bombay 1960 P T D 934 ref.
W. Lobo for the Creditors.
A. Aziz for the Income‑tax Department.
INAMULLAH, J.
‑This is an application under section 183 (3) of the Companies Act by Mr. Raymond, Official Liquidator for certain directions and arises under the following circumstances.
This Court on July 21, 1949 ordered that the Exchange Bank of India and Africa Ltd., Karachi, be compulsorily wound up. On the 2nd of March 1953 the said company was assessed by the Income‑tax Officer, Companies Circle I for the business it had done. The order of assessment related to the following assessment years :‑
|
| Rs. |
| (a) Assessment year 1947‑48 | 48,532 |
| (b) Assessment year 1948‑49 | 38,151 |
| (c) Assessment year 1949‑50 | 10,938 |
| (d) Assessment year 1950‑51 | 2,500 |
The Demand Notices under Section 29 of the Income‑tax Act respecting the amount found due for the various assessment years were also issued on the 2nd of March 1953.
The Official Liquidator has asked for direction on two questions :‑
(1) Whether the Income‑tax Officer is also bound to file his claim as regards Income‑tax amount due from the Company before the Official Liquidator or not and
(2) Whether the claim of the Income‑tax Officer regarding the above amounts of assessment dues should be given priority or preferential right or treatment or should the claim be treated as an ordinary claim for dividend.
Notice of this application by the Official Liquidator was given to the creditors who were under the orders of this Court treated preferentially for their claims and also to the Income‑tax Officer, Companies Circle I. Mr. Lobo, the learned advocate has represented the creditors and Mr. Aziz, the learned advocate has represented the Income‑tax Department.
So far as the first question is concerned Mr. Aziz, the learned counsel for the Income‑tax Officer candidly conceded that the present claim by the Income‑tax Officer has to be preferred before the Official Liquidator like any other claim by a creditor having a claim against the company. I am also of the view that the claim by the Income‑tax Department for the Income‑tax dues has to be filed before the Official Liquidator like any other claim by creditors of the company which has gone in liquidation.
So far as the second question is concerned to Section 230 of the Companies Act, 1913 a modified priority is expressly provided for a certain limited class of Crown debts. This includes debts in respect of revenue taxes, cesses and debts payable to the Crown but the section is limited to those debts that are due from the company at a prescribed date and having become due and payable within the 12 months next before that date. The present date, in the present case according to Section 230 of the Companies Act would be the 21st July 1949 when the said company was ordered to be wound up compulsorily.
There is, no doubt, that the assessment dues claimed by the Income‑tax Officer is a tax within the meaning of Section 230 of the Companies Act but the question remains to be seen whether any of the amounts claimed was due on the 21st July 1949 and had become due and payable within the 12 months next before the 21st July 1949. The question arises when can the present debt which consists of assessment dues be said to be due and payable within the meaning of Section 230 of the Companies Act It is the Income‑tax Act, 1922 alone which has to be considered in order to determine this question. For the purposes of Income tax Act the tax is due only when a demand is made under Section 29 and Section 45 of the Income‑tax Act, 1922. Their Lordships of the Privy Council in the case of Durga Parsad Chamaria (A I R 1945 P C 62) observed :‑
"In Their Lordships' opinion although Income‑tax may be popularly described as due for a certain year it is not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but it is due when demand is made under Section 29 and Section 45. It then becomes a debt due to the Crown but not for any particular period."
It has to be seen, keeping the above observation of Their Lordships in view, whether any of the tax claimed by the Income- tax Officer can be said to be due within the next 12 months before the date of winding up, namely, 21st July 1949. It is not contended by the learned counsel for the Income‑tax Officer that the, Demand notice was issued earlier than the 2nd of March 1953. It cannot, therefore, be said by any process of reasoning that any of the taxes mentioned above was due within the meaning of Section 230 of the Companies Act.
There is an important decision of the Federal Court in the case of the Governor‑General‑in‑Council v. Shirmonai Sugar Mills Ltd. ((1946) 14 I T R 248) which has a direct bearing upon the present question. The facts of that case were somewhat similar. In that case the company in liquidation had made some profits for the year ending the 30th May 1940. A petition for winding up of the company was made on 26th November 1941. An order for winding up of the company was passed on 17th April 1942 by the High Court at Allahabad. The Income‑tax Department assessed the company in liquidation on 25th February 1943 long after the date of order for winding up. A notice of Demand was served on the Official Liquidators of the Company under Section 29 of the Indian Income‑tax Act, 1922 on 10th March 1943.
Their Lordships of the Federal Court on the facts given above relating to the company in liquidation observed as under:‑
"It may also be noted that the particular arrears of Income tax which the appellant has endeavoured to collect through the machinery of Section 46 of the Income‑tax Act do not come within the prescribed class of taxes for which the Crown can claim the limited priority given by Section 230 of the Indian Companies Act. Having regard to the delay in assessment these arrears were not due from the Company at the date of the winding up order ; in respect of them the Crown ranks as an ordinary unsecured creditor."
This observation of Their Lordships of the Federal Court, to my mind, is directly applicable to the facts of the present case. In this case also the assessment had been made long after the winding up order. Their Lordships of the Federal Court, no doubt, did not consider it necessary under the circumstances of that case to go into the details as to when can a tax be said to be due and payable. It seems after a perusal of that case that the advocates for the Government had conceded that the Income tax could be due only after the Demand Notice is issued.
Mr. Aziz, the learned counsel for the Income‑tax Officer contends in the first place that the tax would be due and payable within the meaning of Section 230 of the Companies Act, 1913 from the time of the liability of the assessee. His contention was that if a person is liable to pay a tax he cannot say that the amount is not due and payable by him. He submitted that the liability to pay a tax is founded on Sections 3 and 4 of the Income‑tax Act, 1922 which are the charging Sections. If the liability to pay the tax was there against the company, it is urged by the learned counsel that the same continued till the liability was discharged and it cannot, therefore, be said that on the date when the order of winding up against the company was made no tax was due against the company either on the date of the order or 12 months before the order was passed.
Mr. Aziz, the learned counsel for the Income‑tax Officer relied on a Privy Council case Wallace Brothers & Co. Ltd. v. Commissioner of Income‑tax Bombay (A I R 1948 P C 118: 1960 P T D 934). Their Lordships in that case observed :‑
"The date of tax for the year of the assessment may be closed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arises by virtue of the charging Section alone and it arises not later than the close of the previous year though quantifica tion of the amount payable is postponed."
The learned counsel also relied on A I R 1947 F C 32 which lays down that the liability to pay the tax is founded on Sections 3 and 4 of the Income‑tax Act.
The points decided by the two cases relied on by the learned counsel for the Income‑tax Officer has no bearing on the facts of the present case. In the present case what has to be determined in view of Section 230 of the Companies Act, 1913 is not the liability to pay the tax but when has the tax become due and payable. The liability to pay the tax, in my opinion may be said to continue when the order of winding up of the company was passed but it cannot be said that the tax had become payable. The liability to pay the tax is not co‑extensive with the fact when the tax becomes due and payable under the Income‑tax Act.
Mr. Aziz, the learned counsel for the Income‑tax Officer next contented that a debt due to the Crown includes not only a debt which has become due to the Crown but also a debt which is provable within the meaning of Section 46 (3) of the Presidency Towns Insolvency Act. Mr. Aziz contended that the tax could be proved under Section 46 (3) of the Presidency Towns Insolvency Act and therefore it was A. debt due to the Crown. Mr. Aziz has relied upon a case A I R 1938 Sind 49. That was a case between a certain insolvent and the Income‑tax Department. Rup Chand, J. while deciding that case was not considering the provision of Section 230 of the Companies Act. He, however, observed :‑
"The debt in question was indubitably a contingent liability to which the insolvent was subject on the date when he was adjudicated as an insolvent. It is no doubt true that under the Income‑tax Act, there was no obligation upon the insolvent to pay income tax until and unless the provisions of that Act were complied with, that is to say, that he was served with a notice calling upon him to fill up his form and the amount of tax payable by him was ascertained in the manner provided by the Act."
It is clear from the above observation that this ruling can have no application to the present circumstances of the case as it was observed by Rupchand, J. that the insolvent was not under obligation to pay the tax unless something further was done. If the insolvent was not under obligation to pay the tax it cannot be said that the debt was payable within the meaning of Section 230 of the Companies Act. This case, in my opinion, clearly has no application to the present question.
It was lastly contended by Mr. Aziz, the learned counsel for the Income‑tax Officer that the tax for assessment year 1950‑51 which related to the accounting period 1949‑50 was within 12 months before the order of winding up of the company was passed. He contented that at least this amount was due from the company to the Crown. In view of the Privy Council decision as to when a tax can be said to be due and payable this contention has no force as the Demand Notice was issued on 2nd March 1953.
I, therefore, for the reasons set forth above direct the Official Liquidator to treat the claim of the Crown for dividend as an ordinary claim.
Direction given.
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