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2014 (12) TMI 266 - HC - Income TaxRecovery of dues - Invocation of section 178 Company in liquidation - Dues to be paid in priority over other dues or not Company in the process of winding up - Whether the Department has a preferential right in matter of payment of dues over the right of the secured creditors (including the workmen) from the proceeds received upon sale of assets Held that:- The Department has taken out the summons to counter the liquidator's request for permission to disburse the sale proceeds amongst the creditors covered under section 529A of the Companies Act - the liquidator has proposed to disburse the proceeds received from sale of assets which were loaded with charge created by the company in favour of the Banks / Financial Institutions - there is nothing in the section which, apart from asking the liquidator to set aside assets sufficient to meet possible tax liabilities (or to set aside sufficient amount), commands the liquidator to pay the tax dues in preference over all other dues and it neither creates any special right nor does it confer preferential ranking or higher priority in favour of Government or the Department or tax dues, and it does not place tax dues or the dues of State / Department in a position higher or better than what is conferred by and what is available under Companies Act. There is an additional feature viz. the Department has not even passed any order u/s 178(2) - The Department's affidavit does not claim that the competent assessing officer has passed order under section 178(2) of the Income Tax Act. That is not the case or claim even of the Department - the obligation cast on the liquidator u/s 178(3) will arise after he is notified by the authorised assessing officer under sub-section (2) of section 178 - section 529A is a non obstante clause and the section 529A is introduced and brought in force subsequently (i.e. From 24.5.1985) it will have overriding effect, and it shall prevail, over other provisions. The costs, charges and expenses properly incurred in winding up may stand ahead in the order of priority prescribed u/s 530 of the Companies Act but the dues covered within purview of section 529A of the Companies Act will have priority and overriding effect - The priority and preference conferred in favour of secured creditors (and the workmen whose dues rank pari passsu with that of secured creditors) under section 529A of the Companies Act is a superior right and ranks higher compared to all other priorities and they cannot be made subject to the payment of 'costs and charges' covered within purview of section 520 of the Companies Act - the claim of the Department that payment of its dues should be given priority and preference over the dues of secured creditors and workmen militates against the provision u/s 529A of the Companies Act and is contrary to the scheme of the Companies Act and cannot be allowed. Workmen get rights pari passu with those of the secured creditors on the assets of the company in liquidation - Purpose of the section is to ensure that workmen should not be deprived of their rights in the event of liquidation of the company - Section 529A has employed a non obstante clause which says that "notwithstanding anything contained in any other provision of the Companies Act or any other law for the time being in force" - The non obstante clause whittles down the priority of even the crown debts thus, the claim of the Income Tax Department, except so far as the Department's request relates to the liquidator's obligation to inform the Department about liquidator's appointment in each case, cannot be sustained and the claim and submissions of the Department is to be rejected. The request made by the Department and the submission made by the Official Liquidator are in consonance with the obligation imposed by virtue of section 178 of Income Tax Act and that, therefore, appropriate intimation to the Department in each case when order appointing liquidator is passed and when the process for disposal of assets and/or disbursement of sale consideration received by liquidator begins, ought to be given to the concerned authority / officer of the Department. The Department has nominated one officer as Nodal Officer who may be informed about the appointment of liquidator and/or about the process of sale of properties or about disbursement of sale proceeds - such intimation is not a substitution of the obligation u/s 178 of Income Tax Act - the liquidator is obliged to regularly file the returns and that, therefore, the liquidator shall take necessary action in all cases Decided against revenue.
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