TMI Blog1954 (6) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... or payment of income- tax on the official liquidator for the year ending with the 30th June, 1945, and 30th of June, 1946. At this the official liquidator put in the present petition praying that the Federation of Pakistan through the Income-tax Commissioner, Lahore, be called upon to prove the assessment before this Court and the Income-tax authorities be prohibited from taking any proceedings against the official liquidator with regard to these assessments pending the decision of the petition. Civil Original No. 19 of 1952 and Civil Original No. 11 of 1953 relate to the Pindi-Kashmir Transport Limited, which was wound up by the order of this Court dated the 31st of January, 1949, and the claims of the creditors were finally settled by this Court on the 15th of January, 1951. On the 19th March, 1952, the Income-tax Officer, Lahore, issued a demand notice for ₹ 26,687-8-0 for the assessment year 1947-48. In Civil Original No. 19 of 1952, the position of the official liquidator, who is the petitioner, was that the assessment made by the Income-tax authorities was beyond the period of limitation prescribed by law and was based on wholly incorrect data. The prayer, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnor-General in Council [1947] 15 I.T.R. 332. No doubt, section 67 of the Income-tax Act bars only suits, but in principle there is no difference in a case in which the matter is taken before a civil Court by a regular suit and the one in which it is brought before that Court by a miscellaneous petition. It is noticeable that section 67 and the other provisions of the Income-tax Act, which bar the jurisdiction of the civil Courts, at least impliedly, to question any assessment made by the Income-tax authorities were not even considered in Governor-General in Council v. Sargodha Trading Co. Ltd. [1943] 11 I.T.R. 368 nor was section 226 of the Government of India Act, 1935, which takes away the jurisdiction of High Courts with regard to any matter concerning the collection of revenue even mentioned in that decision. In view of the apparent conflict between the decision of three learned Judges of this Court and that of their Lordships of the Privy Council, I am of the view that the cases be heard by a larger Bench, and I, therefore, send them to my Lord the Chief Justice for orders. M.A. SOOFI, J.--This Judgment shall dispose of the questions of law common to Civil Original C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his remedy before the proper Income-tax authority, made a petition to the liquidation Judge on the 14th of April, 1953, on the same lines as in Civil Original No. 19 of 1952. The facts relating to Civil Original No. 17 of 1952 are that the Ravi Paint Colour and Varnish Works Limited was ordered to be wound up by the order dated 9th of January, 1948, of the learned liquidation Judge. An official liquidator was appointed. Debts and claims were adjudicated upon in accordance with law, and the first and so far final dividend was declared at the rate of 9 as per rupee on 9th of June, 1951. On 29th of February, 1952, the Income-tax Officer, Companies Ward III, Lahore, served the official liquidator with a notice of demand for payment of income-tax amounting to ₹ 15,765-7-0 for the years ending on the 30th of June, 1945, and 30th of June, 1946. This assessment was under section 23(4) of the Income-tax Act as no returns relating to the accounts for the respective years had been supplied to the Income-tax authorities. The official liquidator prepared account statements with the sanction of the learned liquidation Judge and came to the conclusion that the company had suffered los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of law and fact arising out of the proceedings under the Act should be decided by the authorities set up and in accordance with the procedure prescribed by the Act. It is evident that the only method open to an assessee to get a redress of his grievances is to set in motion the machinery provided by the Act. That the assessee should have a right to seek his remedy in the alternative in a civil Court, is a notion inconsistent with the elaborateness and completeness of the machinery provided by the Act. If the civil Courts start entertaining petitions against assessments made under the Act, the machinery set up by the Act would become useless. In some cases there may be a clash between the decisions of the civil Courts and the Income-tax authorities and thus the collection of income-tax would become an extremely difficult matter. It would lead to anomalous results and no system of law would tolerate such a state of affairs. Again if the cases relating to income-tax are not decided in accordance with the income-tax Act, it would become practically a dead letter. It is, therefore, essential that all matters relating to assessments should be dealt with by the machinery set up under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was ultra vires might appeal against the assessment. If he were dissatisfied with the decision on appeal-the details relating to the procedure are immaterial-the assessee could ask for a case to be stated on any question of law for the opinion of the High Court and, if his request were refused, he might apply to the High Court for an order requiring a case to be stated and to be referred to the High Court (See section 30 and Secretary of State for India in Council v. Meyyappa Chettiar [1936] 4 I.T.R. 341). It cannot be doubted that included in the questions of law which might be raised by a case stated is any question as to the validity of any taxing provision in the Income-tax Act to which effect has been given in the assessment under review. Any decision of the High Court on that question of law can be reviewed on appeal. Effective and appropriate machinery is therefore provided by the Act itself for the review on grounds of law of any assessment. It is in that setting that section 67 has to be construed. 24. In conclusion, their Lordships would observe that the scheme of the Act is to set up a particular machinery by the use of which alone total income assessable for inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has a right enforceable against the Commissioner to require refund of tax paid by him upon ground of equity and good conscience, though the assessment has been made and the tax received in good faith. Their Lordships cannot accept this argument. They have reviewed the code of income-tax law for the purpose of showing that it exhaustively defines the obligations and remedies of the taxpayer. It would be wholly incompatible with this that he should have a collateral right, necessarily vague and ill-defined, founded on the principles of equity and good conscience. Their Lordships are of opinion that the only remedies open to the taxpayer, whether in regard to appeal against the assessment or to claim for refund, are to be found within the four corners of the Act. This view of his rights harmonises with the provision of section 67, to which reference has already been made that no suit shall be brought in any civil Court to set aside or modify any assessment made under the Act. It is the Act which prescribes both the remedy and the manner in which it may be enforced. In Janda Rubber Works v. Income-tax Officer, Salaries Section [1950] 18 I.T.R. 951, a case relating to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was further held that this rule applied with equal force to assessments and a liquidation Court can, in proper cases, go behind assessments though the latter are prima facie evidence that certain income was earned and that an amount of income-tax was due, the onus of proving that the assessment did not represent the real taxable income being on the liquidator. The facts of this case were as follows. The Sargodha Trading Company did not make a return of their income to the Income-tax Officer for the assessment year 1938-39. The Income-tax authorities served a notice on the company under section 22(4) of the Income-tax Act calling upon the company to produce its accounts on the 7th of July, 1938. The manager of the company appeared before the Income-tax Officer on the said date and secured an adjournment till the 14th of July, 1938. He was required by the Income-tax Officer to produce the accounts on the adjourned hearing, i.e., the 14th of July, 1938. In the meanwhile on the 12th of July, 1938, an order was made by the learned liquidation Judge to wind up the company and a provisional liquidator was appointed. On 14th of July, 1938, the manager filed a return showing that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove his claim only by production of the assessment order. The learned Judge held that the mere production of the assessment order was not sufficient and as the Commissioner of Income-tax was not prepared to prove his claim otherwise, it was rejected. Against that decision an appeal was preferred to a Division Bench, which referred the question of law involved in the case, i.., whether the liquidator can call upon the Income-tax authorities to prove their claims, to a Full Bench for an authoritative decision. It was contended on behalf of the Commissioner before the learned Judges that although an insolvency Court or a liquidation Court can go behind a decree, it cannot go behind an assessment, as a decree does not stand on the same footing as an assessment. To support this contention reliance was placed on In re Calvert [1890] 2 Q.B. 145. While dealing with this authority the learned Chief Justice made the following observations:- Even if the case of In re Calvert [1890] 2 Q.B. 145 correctly states the law in England, I would hesitate to apply the same rule in India. In this province in particular a very large number of companies have been formed in recent years and experien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tollemache [1884] 13 Q.B.D. 720 and Ex parte Lennox: In re Lennox [1885] 16 Q.B.D. 315 in which Ex parte Kibble: In re Onslow [1875] 10 Ch. App. 373. was followed, and held that the Court of bankruptcy had the power to go behind a judgment and enquire into the consideration of the judgment debt. Applying the principle relating to a judgment enunciated in the said English cases by analogy to an assessment the learned Chief Justice came to the conclusion that an assessment was prima facie proof of taxable income, but the Court can go behind it if there are suspicious circumstances. It is noticeable that in the decision of the Sargodha Trading Company case [1943] 11 I.T.R. 368, the existence of an appropriate and complete machinery provided by the Income-tax Act for the decision of all questions relating to assessment of income-tax was not considered. Nor has the question whether in the presence of this elaborate machinery the civil Court should also have jurisdiction to adjudicate on the same matters been referred to in their judgment. Nor is there any reference in the judgment to section 67 of the Income-tax Act. As discussed above, it should be taken as a settled pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined to be right in law the jurisdiction of the civil Court to entertain the suit is excluded. The assessment is on the appellant's construction made under the Act. If, on the other hand, the assessment is determined to be wrong, the jurisdiction of the civil Court to entertain the suit arises. The result of an inquiry into the merits of the assessment is, on the appellant's construction, to determine whether jurisdiction existed to embark on the enquiry at all. Jurisdiction is made to depend not on subject-matter but on the correctness of the suitor's contention as respects subjectmatter. The language of the section is inapt to justify any such capricious method of determining jurisdiction. A direct authority holding a view contrary to the view in Sargodha Company's case [1943] 11 I.T.R. 368. is Messrs. Dinshaw and Company v. Income-tax Officer, Lucknow [1941] 9 I.T.R. 215. The facts were that the firm Dinshaw and Co. came under liquidation on the 15th of October, 1935. The firm had been assessed to pay income-tax, surcharge and penalty under section 23(4) of the Income-tax Act, as no return had been sent to the Income-tax Department, and a notice to prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a special mode of appeal provided which must be followed. I cannot think it possible that it is competent to the bankruptcy Court, on the invitation of the trustee in bankruptcy or of the debtor, to reopen questions of that kind on a motion to expunge. Some argument was addressed in respect of the original jurisdiction of the High Court being barred in matters relating to revenue, by section 226 of the Government of India Act, 1935, but we find it unnecessary to express ourselves on this point. That the jurisdiction of the civil Court is barred is established by the three points discussed above: (i) the implied bar by the special and elaborate machinery set up by the Income-tax Act for determining questions relating to assessment and the provisions for safeguarding the interests of the assessee, (ii) the express provisions of section 67 of the Income-tax Act barring such jurisdiction and (iii) the principle of English law enunciated in In re Calvert [1890] 2 Q.B. 145, followed in Dinshaw's case [1941] 9 I.T.R. 215.which we have respectfully viewed with approval. We consequently overrule the decision of the learned Judges of this Court in Sargodha Trading Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to section 191 of the Companies Act (VII of 1913). This proposition also finds support in several English authorities. Reference may be made to In re General Rolling Stock Company [1872] 7 Ch. App. 646., In re Kit Hill Tunnel : Exparte William [1881] 16 Ch. D. 590.and In re Metcalfe [1880] 13 Ch. D. 236. In the last mentioned authority, it was clearly laid down that a creditor may come in as long as there are assets undistributed. Lastly it may be added that by the mere fact that a company has gone into liquidation, it is not absolved from the liability to pay income-tax. According to sub-section (6) of section 2 of the Income-tax Act:- 'company' means a company as defined in the Companies Act, 1913, or formed in pursuance of an Act of Parliament or of Royal Charter or Letters Patent, or of an Act of the Legislature of a British possession or of a law of an Acceding State or a non-Acceding State and includes any foreign association whether incorporated or not which the Central Board of Revenue may, by general or special order, declare to be a company for the purposes of this Act. It is provided by section 3 of the Income-tax Act that where any Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. Sargodha Trading Company [1943] 11 I.T.R. 368 which was then the governing authority, and which we have overruled, we leave the parties to bear their own costs. MUHAMMAD MUNIR, C.J.--I agree with Soofi, J., and wish only to make one observation. Once it is conceded, as it was in the course of arguments in this case, that an Income-tax Officer has jurisdiction to assess to income-tax a company in liquidation, it must follow that the company, if it is aggrieved by the assessment, must pursue the same remedies as are open to any other assessee. The mere fact that a winding-up order has been made in respect of a company does not, in the absence of an express provision to that effect, take it out of the operation of income-tax statutes, and neither the liquidation Judge nor the liquidator acquires any right to question the correctness of the assessment otherwise than in the manner provided by the statute under which the Income-tax Officer has acted. The rights and liabilities of a company in liquidation are neither more nor less than those of any other assessee and though the law for the purposes of winding up places its affairs under the special supervi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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