TMI Blog1991 (2) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... and rates, due from a company in liquidation, is the question which stands posed in this appeal by certificate granted by the High Court of Gujarat, in O.J. Appeal No. 2 of 1975 (see [1976] 46 Comp Cas 25). The question arises within the frame of section 530(1)( a ) of the Companies Act, 1956, as it stood at the relevant time which is set out below: "In a winding up, there shall be paid in priority to all other debts,-- ( a )all revenues, taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause ( c ) of sub-section (8), and having become due and payable within the twelve months next before that date." And sub-section (8)( c ) of section 530 says : "the expression 'the relevant date' means-- ( i )in the case of a company ordered to be wound up compulsorily, the date of appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date ; and ( ii )in any case where sub-clause ( i ) does not apply, the date of the passing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It would appear that, from the claim admitted as payable by the liquidator to the extent of Rs. 42,143.83, priority in payment was claimed for the amount of Rs. 22,280.96 on the submission that the claim represented the claim for tax payable to the State Government as it was due on the relevant date and had become due and payable within 12 months next before the relevant date, and, therefore, it was entitled to priority in payment as envisaged by section 530(1)( a ) of the Companies Act. The learned judge, on interpretation of section 530(1)( a ), took the view that the word "due" implies or conveys different meanings in juxtaposition in which it is used in the two parts of the same clause. The word "due" in the first part of the clause must mean "outstanding at the relevant date". When it occurs in the expression "having become due" in the later part of the clause, it means that the event which brought the debt into existence occurred and also it became payable, meaning thereby that its payment could have been enforced against the company within the twelve months before the relevant date, that is, the date of the order of winding up. Three specific conditions are prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with O.J. Appeal No. 2 of 1975. The Division Bench of the High Court differed from the view of D.A. Desai J. by holding that the only meaning that could be assigned to the word "due" occurring in the section is "it must be presently due" and the words "due and payable" mean the same thing, namely, that it must be presently payable. On this understanding, it was held that all revenues, taxes, cesses and rates due from the company to the Central or State Government or to a local authority must be presently payable, that is, that the liability could be enforced as at the relevant date and, secondly, it must have so become presently payable within the twelve months immediately preceding the relevant date. Further, regarding sales tax, it was held that it becomes due and payable when the tax has been assessed and a notice of demand for payment of that tax is served upon the assessee or the dealer concerned and it is in this sense that the word has to be interpreted. Taking that view, the appeal of the Sales Tax Officer was allowed inasmuch as the sales tax due under the Bombay Sales Tax Act and the Central Sales Tax Act in respect of which the assessment orders were passed within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, and it is these debts which are to be marshalled and paid in accordance with the priority given to them by section 264. With regard to local rates, it is provided that priority shall be given to 'all parochial or other local rates due from the company at the relevant date' the relevant date being the date of appointment of the receiver, in this case, January 28, 1931 'and having become due and payable within twelve months next before that date'. Those words are put in to restrict the amount for which priority is given. It is not priority in respect of all the debts for local rates which may be outstanding at that time ; the priority is in respect only of such rates as became due and payable within twelve months before, in this case, January 28, 1931."(p. 574) And further as follows : "The rate was made on April 1, 1930 ; at that time it became due and payable. The alteration that has been made subsequently in September of the year 1931 is to fit into the section to which I have referred, and by that section it is to be deemed to have had effect as from the commencement of the period in respect of which the rate was made. In those circumstances, it seems quite plain that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty on which they may have lent money to a company at the time of the loan, the unforseeable demands of the income-tax authorities on the company without any time-limit would rank over the claims of such creditors. In these circumstances, it may be extremely difficult for the company to raise capital for its working. In this connection, we would draw attention to the provisions of clause ( a ) of sub-section (1) of section 319 of the English Companies Act, 1948, under which arrears of land tax, income-tax, profits tax, excess profits tax or other assessed taxes rank in priority over other debts of a company only if they have been assessed on the company up to a particular date, namely, 5th April or prior to the appointment of the liquidator or resolution for the winding up of the company and do not exceed in amount the whole of one year's assessment. It will be noticed that by comparison the provision of clause ( a ) of sub-section (1) of section 230 of the Indian Companies Act, is much wider and gives much more latitude to the income-tax authorities for, under these provisions, arrears of taxes would rank in priority if they have become due and payable within the twelve months next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act in Airedale Garage's case [1932] 2 Comp Cas 570, analogous as it is to the provision at hand, warranting the same interpretation, more so when any other interpretation would lead to the results feared by the Company Law Committee extracted above. In such a view of the matter, we need not elaborately comment, discuss or demolish, sentence by sentence, the reasoning given by the single Bench as also the Division Bench of the High Court in interpreting the provision. The words "having become due and payable within 12 months next before the relevant date" need be understood to mean putting a restriction or cordoning off the amount for which priority is claimable and not in respect of each and every debt on account of taxes, rates and cesses, etc., which may be outstanding at that time and payable. And further that such priority is in respect only of those debts which become due and payable because the liability to those is rooted, founded and belonging to that period of twelve months prior to the relevant date and none other, both the conditions existing. For the view taken above, we allow the appeal of the company in liquidation and direct the liquidator to re-examine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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