TMI Blog1962 (10) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the year 1958-59 and the company in compliance therewith filed a return of its income on the 17th of July, 1958. While these assessment proceedings were pending an application was made under section 439 of the Companies Act, 1956, for the winding up of the company and this court on the 8th of January, 1960, ordered the winding up of the company on the ground that it was just and equitable to do so. By that order it was noticed that the shareholders of the company were all members of the family of Lala Tika Ram except for two outsiders ; that disputes had arisen between various members of the family which had resulted in dissension and litigation which was continuing till then. The winding-up order was directed to be published pursuant to rules 112 and 113 of the Companies (Court) Rules, within fourteen days in one issue each of the Hindustan Times and the Bharat newspapers. The official liquidator took charge of the property and a statement of the affairs of the company was made to him under section 454 of the Companies Act, 1956. In this statement the income-tax department was not shown as a creditor so far as the tax liability for the assessment year 1958-59 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer issued a notice under section 23(2) calling upon the petitioner to appear on 22nd of May, 1962. The company protested against the continuance of the proceedings which had been commenced prior to the winding up order on the ground that the Income-tax Officer had no longer any jurisdiction to continue the same. The Income-tax Officer did not accept the contention of the petitioner and by his letter dated July 27, 1962, held that he had jurisdiction to proceed with the assessment and fixed August 6, 1962, for the production of account books, etc. Challenging this decision of the Income-tax Officer and praying that the Income-tax Officer be prohibited from proceeding further with the assessment for the year 1958-59, the present writ petition has been filed. The contention of Mr. Hari Swarup, the learned counsel for the petitioner, in the main is that on the filing of the winding up petition in the High Court all income-tax proceedings stood automatically stayed and could not be resuscitated after the winding up proceeding had resulted in the dissolution of the company or in the sanctioning of a scheme. The income-tax department, according to the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held bound by any scheme that may have been sanctioned. The income-tax department can only become a creditor when an assessment is made and not before. In Doorga Prasad v. Secretary of State [1945] 13 ITR 285 (PC) it was laid down by the Judicial Committee that income-tax becomes a debt due to the Crown only when the demand is made under sections 29 and 45 of the Income-tax Act. Income-tax is calculated and assessed by reference to the income of the assessee for a given year, but it becomes due when the demand is made. In other words, until the stage of assessment is complete, there is no demand and the Crown or the department cannot be said to be a creditor, contingent or prospective, of the taxpayer. The Supreme Court in the case of E.D. Sassoon Co. Ltd. v. Commissioner of Income-tax [1954] 26 ITR 27, 51 ; [1955] 1 SCR 313 observed, though in a different connection, that before an income can be said to have accrued, there must be a debt owed to him by somebody. No one can become a creditor unless such person has acquired a right to receive the amount from such person, or, in other words, that a debt must be owed to him by somebody. "Unless and until there is crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year, though quantification of the amount payable is postponed",' can be of little or no assistance to the petitioner in this case. A person may have a liability to tax because he alone knows whether his income is above the minimum taxable limit or not in relation to the relevant Finance Act but such liability as may be within such person's knowledge will not make the revenue department his creditor in respect thereof. The observations made by the Supreme Court were clearly made in a different context altogether. The question there was whether the charge to tax depended on the passing of the Finance Act or it was determinable under the scheme of the Indian Income-tax Act and whether the moment any income was earned it attracted the quality of chargeability with reference to the standing provision of the Act and only the quantification of the tax depended on the passing of the Finance Act ? It was there held that income is chargeable to tax independent of the passing of the Finance Act but until the Finance Act is passed no tax will be actually levied. This only means that the liability to tax is there but it cannot mature into a debt or even a claim by the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave of the court and subject to such terms as the court may impose." It is contended that income-tax proceedings fall within the ambit of the words "other legal proceeding" and, therefore, the income-tax proceedings for the assessment year 1958-59 automatically came to a stop on the making of the winding up order and could not be resuscitated or proceeded with at any time thereafter without the permission of the liquidation court. Again, no direct authority bas been cited except a decision of a learned single judge of the Punjab High Court in the case of Union of India v. Seth Spinning Mills Ltd. ( In liquidation ) [1962] 46 ITR 193 , where it was held that a penalty order which was passed on the 14th of April, 1956, after the company had gone into liquidation on the 13th January, 1956, without notice to the official liquidator, was " other legal proceeding" within the meaning of section 171 of the Indian Companies Act, 1913 (corresponding to section 446 of the Act of 1956), and that the language of the section was wide enough to include proceedings under the Income-tax Act. Those observations, however, must be confined to the facts of that particular case where obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrears of income-tax is to bring into operation all the appropriate legal enactments relating to the collection of land revenue in the province concerned, it is, in our judgment, very difficult to say that they are not taking a 'legal proceeding'." The ratio of the decision is that because other Acts the U.P. Land Revenue Act and the Civil Procedure Code in proceedings under section 46 of the Income-tax Act come to the assistance of the Collector, those proceedings can be termed as legal proceedings. It was, however, nowhere held that even assessment proceedings which fall under a special Act which is a complete code in itself could be considered to be "other legal proceeding ". The provisions of sub-section (2) and sub-section (3) of section 446 of the Companies Act, 1956, would also go to indicate the scope of the words "other legal proceeding" as used in sub-clause (1) of that section. Sub-section (2) gives the court concerned with the winding up of the company the jurisdiction to entertain or dispose of any suit or proceeding by or against the company itself. Sub-section (3) gives such court the right to transfer proceedings pending before another court and to dispose it of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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