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TMI Blog1997 (12) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... ither as "costs, charges and expenses incurred in the winding up" under sections 476 and 520 of the Companies Act, 1956 ('the Act') or as an amount set aside under section 178 of the Income-tax Act, 1961 in priority to the workmen's claim under sections 529 and 529A of the Companies Act. 2. The company, Kosmek Plastic Mfg. Co. Ltd. (in liquidation) was ordered to be wound up by this Court on 22/23-7-1987. During the course of liquidation the assets of the company were sold by the liquidator and the liquidator is having a sum of Rs. 58,47,642 to its credit. The liquidator has received in all 233 claims from the workers amounting to Rs. 1,02,20,324 and unsecured claims to the extent of Rs. 76,449. The sale of the company's assets has resulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, in order that they may be paid in priority to other debts. Section 529A is a subsequent provision which confers rights on secured creditors and workmen notwithstanding anything contained in any other provision of the Companies Act or any other law for the time being in force. The object of section 529A is to ensure that the workmen are not deprived of their legitimate claims in the event of the liquidation of a company. By this provision, the workmen's dues and the secured creditors' dues which rank pari passu should be paid in priority to all other debts. The workmen are statutorily allowed to recover their dues from the securities. If the securities are insufficient, the claims of the workmen and the secured creditors would abate in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator, the amount which, in the opinion of the ITO, would be sufficient to provide for any tax which is then or likely thereafter to become payable by the company. On being so notified the liquidator shall set apart an amount equal to the amount notified. The failure to give notice in accordance with the provisions of the section of the failure to set apart the amount as required by the ITO or parting with the assets of the company otherwise than as provided for in sub-section (3) of section 178 makes the liquidator personally liable for the payment of the tax which the company is liable to pay. This provision shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely wide. In this will come the cost of repairs, payment of rent and tax, cost of preservation of any property, cost of realisation, etc. Mr. Khatri submitted that the income-tax which became payable at the winding up also is an expense in the winding up. Income-tax is a necessary consequence of the acts performed by the liquidator in the course of the liquidation for the purpose of realising, as it was his duty to do, the assets of the company. Mr. Khatri invited my attention to the decision of the Chancery Division in Beni Felkai Mining Co., In re [1934] 2 ITR 309 "...I have a difficulty in seeing how a liquidator who, in the course of his liquidation, carries on the business of the company at a profit, the consequence being the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd taxes falling due subsequently to the winding up are part of the expenses of the winding up and income-tax is a necessary consequence of the acts performed by the liquidator in the course of the liquidation for the purpose of realising the assets of the company. Under sections 520 and 476, the Court can direct the liquidator to pay the demand of the ITO before distributing the dividend. Accordingly, the Kerala High Court directed the liquidator to pay the balance of income-tax demand to the ITO. 7. I am unable to accept the submission of Mr. Khatri based on sections 520 and 476 of the Companies Act. Mr. Bhujle, the learned counsel appearing for the official liquidator pointed out that from the facts of the case relied upon by Mr. Khatri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout their consent. The sections of the Indian Companies Act cited by Mr. Mulla regarding preferential payments and the priority of payments out of the assets of a company of the costs and expenses of winding up refer only to the fund available as assets, ie., after the claims of secured creditors have been satisfied. If the liquidators themselves realise property subject to a specific charge, the proceeds are distributable in priority of the following order, viz., firstly, to the costs of realisation; secondly, in payment of the costs of preservation, strictly so described, so far as the other assets of the company are not sufficient, and thirdly, in payment of the principal, interest and mortgagees' cost, all of which have priority over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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