TMI Blog1972 (1) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... rs made by the Income-tax Officer in the course of assessment or reassessment proceedings are subject to appeal to the higher hierarchy under the Income-tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income-tax. It would lead to anomalous consequences if the winding-up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The argument on behalf of the appellant by Shri Desai is that the winding-up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of section 446 must be so construed as to eliminate such startling consequences as investing the winding-up court with the powers of an Income-tax Officer conferred on him by the Income-tax Act, because, in our view, the legislature could not have intended such a result. Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer from assessing or reassessing the said company for the assessment years 1950-51 to 1955-56. On appeal by the Income-tax Officer and the Union of India before the appellate Bench of the High Court against the order of injunction, the Division Bench (Modi and Desai JJ.) reversed the order of the learned single judge and set aside the injunction issued by him. Before the appellate Bench two contentions were raised on behalf of the Income-tax Officer: (1) that notices for reassessment issued under section 148 were not legal proceedings within the meaning of that phrase as used in section 446(1) of the Act, and (2) that, assuming the reassessment proceedings started under the said notices to be legal proceedings, leave of the company court under section 446(1) of the Act was not necessary because the Income-tax Officer had exclusive jurisdiction to make reassessment and to determine the tax liability. The proceedings by way of assessment before the Income-tax Officer, according to the contention, were outside the pale of jurisdiction of all civil courts including the company court. The appellate Bench did not consider it necessary to decide the first contention because, on the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction so far as it concerns us in the present controversy, we consider it proper to turn to the scheme of the Act on this aspect. Chapter II of Part VII of the Act beginning with section 433 deals with winding-up by the court. Section 439 provides for applications for winding up and section 441 tells us when the winding up of a company is to be deemed to commence. Section 442 which confers power on courts to stay or restrain proceedings against the company reads: "442. At any time after the presentation of a winding-up petition and before a winding-up order has been made, the company or any creditor or contributory, may ( a )where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the court in which the suit or proceeding is pending for a stay of proceedings therein; and ( b )where any suit or proceeding is pending against the company in any other court, apply to the court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceedings; and the court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit." Section 444 enj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded with or commenced against the company except by leave of the court, and subject to such terms as the court may impose." The words underlined were inserted by the Companies (Amendment) Act, 1936, which followed the English Act. It is hardly necessary to point out that company legislation in India has, ever since the first enactment of 1850 (Registration of Join Stock Companies Act No. XLIII of 1850) broadly been following the lines of development of the company law in England. The object section 171 was designed to achieve was to prevent all litigation against the company in the process of being wound up except with the consent of the court. We have reproduced this section because the decisions to which reference has been made by Shri Desai in the very beginning of his arguments relate to the construction of this section by the Federal Court of India and by this court. The Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. [1946] 14 ITR 248, 257 ; 16 Comp. Cas. 71 , 79 ; [1946] FCR 40 (FC) , while construing this section, held that the words "other legal proceedings" in this section comprise any proceedings by the revenue authorities under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings in the ordinary courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company." In that case a company was ordered to be woundup in April, 1942, and an order of assessment to income-tax of the profits made by the company in the year ending May 31, 1940, was made in 1943, and the Income-tax Officer, without obtaining leave of the winding-up court, commenced proceedings for recovery of tax as if it were an arrear of land revenue. It was on these facts that it was observed that the words "or other legal proceedings" can and should be held to cover distress and execution proceedings. This expression was not held to cover assessment proceedings to which apparently no objection was raised by the parties though they were represented by eminent counsel. The decision of this court to which Shri Desai has next referred is M. K. Ranganathan v. Government of Madras [1965] 2 SCR 374 ; [1955] 25 Comp. Cas. 344 (SC). The head-note which gives a clear idea of the ratio of this decision is in these words: "The secured creditor is outside the winding-up and can realise his security without the leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1913 which was held supplemental to section 171 was also stated to have reference to legal proceedings in the same way as such proceedings were envisaged by section 171. These two decisions in our opinion do not lay down that assessment proceedings under the Income-tax Act should be held to be within the contemplation of section 171 of the Indian Companies Act, 1913. The next decision to which reference has been made by Shri Desai is Union of India v. India Fisheries (P.) Ltd. [1965] 3 SCR 679 ; [1965] 57 ITR 331 ; [1965] 35 Comp. Cas. 669 (SC). In that case the respondents, Fisheries (P.) Ltd., had been directed to be wound up by the winding-up court and an official liquidator had been appointed by an order of the High Court in October, 1950. The head-note in that case gives a clear idea of the facts and the decision. It reads: "The respondent-company was directed to be wound up and an official liquidator was appointed by an order of the High Court in October, 1950. In December, 1950, the respondent was assessed to tax amounting to Rs. 8,737 for the year 1948-49. A claim made for this tax on the official liquidator was adjudged and allowed as an ordinary claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all circumstances; sections 228 and 229 deal with proof of debts and their payment in liquidation. Section 49E can be reconciled with sections 228 and 229 by holding that section 49E applies when insolvency rules do not apply." In our opinion this decision is of no greater assistance to the appellant on the narrow point which requires determination by us. On the contrary, to some extent it goes against Shri Desai because the assessment made in December, 1950, after the appointment of the official liquidator was assumed to be in order. It may be recalled that in Shiromani Sugar Mills case [1946] 14 ITR 248 ; 16 Comp. Cas. 71 ; [1946] FCR 40 (FC) the assessment made after the winding-up order was not challenged though on the argument addressed by Shri Desai before us it could have been challenged. The ratio decidendi or the principle accepted and applied in none of the decisions cited supports the appellant's contention on the precise point of assessment of tax. Shri Desai has next referred us to a more recent decision of this court in Balwant Singh v. Bharupal, Income-tax Officer, New Delhi [1968] 70 ITR 89 (SC). In this case the Income-tax Officer was held to be a cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o was not justified in law. This amount, it appears, consisted of the penalty imposed by the income-tax department. Part of the penalty was imposed by means of an order passed prior to the company's going into liquidation but a sum of Rs. 4,000 related to the penalty imposed after the date of winding-up. The learned single judge, while dealing with this petition, observed: "Section 171 of the Indian Companies Act, 1913, provides that when a winding-up order has been made no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose. The language of this section is wide enough to include proceedings under the Income-tax Act. No leave of the court has been obtained. In view of this, the claim of the petitioner for Rs. 4,000 on account of the penalty order passed on 14th April, 1956, cannot be entertained." In this Mysore case it appears that in the course of winding up of the mills in liquidation large sums of money came into the hands of the liquidator which could not be immediately applied for distribution of dividends to the creditors. Those moneys were invested pursuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny receipt in the course of winding-up which would attract liability to income-tax under appropriate provisions of the Income-tax Act would be liable to income-tax or for payment of tax under the Income-tax Act, but that before any action can be taken by the appropriate Income-tax Officer under the Income-tax Act for the purpose of quantification or collection of the income-tax, he should obtain the leave of the winding-up court under section 446 of the Companies Act, and further that the collection of tax can only be by securing the orders of the winding-up court for payment of tax in the light of the appropriate provisions of the Companies Act." In this case so far as collection of the tax assessed is concerned there can scarcely be any difficulty in agreeing with the view taken there. But it is only when the court said that for the purpose of quantification of the income-tax also leave under section 446 of the Act has to be obtained that we have to consider if this view is correct. It is on this observation that Shri Desai has principally relied. The decisions of the Federal Court and of this court already cited by Shri Desai, it may be recalled, do not support this view. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst section 148 of the Income-tax Act under which Income-tax Officers hold proceedings for assessment or reassessment of income-tax, and that, therefore, the former should prevail over the latter. Turning now to the Income-tax Act, it is noteworthy that section 148 occurs in Chapter XIV which beginning with section 139 prescribes the procedure for assessment and section 147 provides for assessment or reassessment of income escaping assessment. This section empowers the Income-tax Officer concerned subject to the provisions of sections 148 to 153 to assess or reassess escaped income. While holding these assessment proceedings the Income-tax Officer does not, in our view, perform the functions of a court as contemplated by section 446(2) of the Act. Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of section 446 read as a whole, it appears to us that the expression "other legal proceeding" in sub-section (1) and the expression "legal proceeding" in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding-up court. The Income-tax Act is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple on which the liquidation court should be vested with the power to stop assessment proceedings for determining 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. Incidentally, it may be pointed out that at the bar no English decision was brought to our notice under which the assessment proceedings were held to be controlled by the winding-up court. On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd. (In Liquidation ) and the Mysore Spun Silk Mills Ltd. ( In Liquidation ), do not seem to lay down the correct rule of law that the Income-tax Officers must obtain leave of the winding up court for commencing or continuing assessment or rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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