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2015 (12) TMI 915 - KARNATAKA HIGH COURT

2015 (12) TMI 915 - KARNATAKA HIGH COURT - TMI - Removal of the attachment orders - praying the respondents not to proceed with auction sale of the property of the Company (in liquidation) - Held that:- Considering the scope of section 530(1)(a) of the Companies Act and section 178 of the Income Tax Act the Official Liquidator is bound to follow it. The attachment made by the Tax Recovery Officer, Raichur range, Raichur, is in force. Therefore, the Official Liquidator cannot take possession or d .....

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aichur Range, Raichur in respect of the property situated at No.24, Kolhar, IDA, Bidar, Karnataka, is hereby set aside. The Official Liquidator is permitted to take possession of the property belonging to the company (in liquidation) and proceed in accordance with law. The respondents 1 and 2 are directed to hand over books and records, if any with them, to the Official Liquidator. Insofar as the appointment of approved valuer is concerned, the Official Liquidator can move this court after takin .....

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n) situated at No.24, Kolhar, IDA, Bidar, Karnataka, and direct the respondents to hand over possession of the property to the Official Liquidator and for other reliefs. 2. It is stated, M/s. Jupiter Bioscience Limited (in liquidation) was ordered to be wound up by order dated 10.1.2014 passed in Company Petition No.32/2011. The Official Liquidator attached to this court was appointed as the Liquidator of the Company. 3. The company in liquidation possessed the following properties. Unit Address .....

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.No.111/E Sold by IFCI Ltd under SARFAESI Act, 2002 3.18 Crores M/s.Reddy Pharmaceuticals Ltd., New Delhi. Unit 3: Survey No.10 & 10/E2/A2, Goddapotharam Village, Jinnaram Mandal, Medak Dist, Andhra Pradesh. Land & Building and plant and machinery Sy.No.10 and 10/E2/A2 Sold by IFCI Ltd under SARFAESI Act, 2002 3.41 crores M/s.Sare Constructions Secunds Ltd., 4. It is stated, the Official Liquidator sent letter dated 11.7.2014 to IFCI Limited asking for information about the conduct of sa .....

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Department i.e., Income Tax Recovery Officer, Raichur Range, has attached Unit-I belonging to the Company (in Liquidation) situated at No.24, Kolhar, IDA, Bidar, Karnataka. From the letter of the Asst. Commissioner of Income Tax, Kalaburagi, bearing No.ACIT/CIR-1/GLB/OL/2014-15 dated 21.7.2014, it appears, the property of the company (in liquidation) situated at No.24, Kolhar, IDA, Bidar, Karnataka has been attached under the provisions of the Income Tax Act, 1961 by the Tax Recovery Officer, R .....

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of presentation of the petition. Therefore, the respondent may be restrained from alienating the property of the company (in liquidation). 7. Further, it is stated, the books and records of the company are also stored at No.24, Kolhar, IDA, Bidar, Karnataka. If the Income Tax authorities are allowed to sell the property, the claims cannot be settled for want of proper records. 8. It is stated, the properties and assets of the company (in liquidation) are required to be valued through Government .....

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961 in the name of the Company on 27.12.2011 specifying that the total sum of ₹ 48.69 crores was recoverable from the defaulter. Consequently, notice under Rule 2 of the second schedule of the I.T. Act, in the Form Number ITCP-1 vide F.N.AAACJ5643HY/TRO/RCR/2011-12 dated 4.1.2012 was issued. The properties attached are: 1. Plot No.24 (A & B) having an area of 8079 sq. mts at Kolhar Industrial Area, Bidar District. 2. Sy.Nos.10 and 10/E2/A2, Gaddapothram, Jinnaram Mandal, Medak District .....

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the amount due to the Government i.e., the respondents herein. The Revenue cannot be restrained from recovering the amount since right of Revenue is preserved under section 335(2) of the Companies Act, 2013. The Revenue s right to recover the amount has to be given much importance than any other amount due. It is stated, the winding up proceedings will not come in the way of Revenue recovering the tax due from the assessee. Therefore, the attachment of property by the Revenue cannot be lifted a .....

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ding up proceedings. The respondents are entitled to claim their dues just like any other claims. It will be considered in accordance with law. For the present, the attachment needs to be raised. When the company is under liquidation, the Income Tax Authorities or any other Authority cannot proceed with the auction sale of the property. If there is any income tax due, the respondents can make a claim and it will be considered in accordance with the provisions of the Companies Act. Unless the att .....

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ot be restrained from recovering the tax due. In response to the communication of the Official Liquidator, the respondents have informed the Official Liquidator about the dues of the company in liquidation. Under Section 178 of the Income Tax Act, on being notified, the Official Liquidator is bound to set apart the amount due and which becomes payable in future. Therefore, the Official Liquidator is bound to comply with the requirement of section 178 of the Income Tax Act. In support of his subm .....

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formation that the company possessed the following properties:- Unit Address Particulars of the property Whether sale has taken Sale consideration Whom it was sold Unit 1: No.24 Kolhar, IDA, Bidar, Karnataka - 585401 Land and Buildings and plant and machinery situated at Sy.No.295, 296, 297 in the industrial area within the village limits of Kolhar Hobli, Kasaba Taluk, Bidar Dist. No Income Tax Attachment is thereon NA NA Unit 2: Survey No.111, Cheriyal Village, Sangareddy Mandal, Medak District .....

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er dated 11.7.2014 to the Dy. Commissioner of Income Tax Circle- I, Ayakar Bhavan, Gulbarga asking for information about the Income Tax attachment on Unit-I property situated at No.24, Kolhar, IDA, Bidar, Karnataka. In response to that, the representative of the Income Tax Authorities has visited the office of the Official Liquidator on 23.7.2014 and informed about the pending tax liability of the company in liquidation to the tune of Rs. .71.23 crores and also regarding attachment of Unit 1 bel .....

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esent case, the winding up order has been passed on 10.1.2014 and Liquidator has been appointed. The claim of the respondents can be only in terms of section 178 of the Income Tax Act and sections 529, 529A and 530(1)(a) of the Companies Act. The Hon ble Supreme Court in Imperial Chit Funds (P) Limited Vs. Income Tax Officer reported in (1996) 219 ITR page 498 (SC) has dealt with the scope of section 178 and the provisions of Section 530(1)(a) of the Companies Act. It is observed as follows; &qu .....

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plicit, but, as I read that provision, I do not think that it affects the scheme of priority in section 530 of the Companies Act although its effect no doubt is that the amount set aside under sub-section (3) thereof has first to be applied to the satisfaction of the tax liability and in that sense the tax liability gets priority over the other debts of the company in the same way as a secured creditor who stands outside the winding up, or whose security is redeemed under sub-section (4) of sect .....

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(4) of section 47 of the Provincial Insolvency Act, or to a creditor who, although he has not relinquished his security, has agreed to the liquidator selling the property free of his incumbrance on condition of his being given the same charge over the sale proceeds - seems to regard these as cases of priority, they are really not so much cases of priority as of the particular asset not being available for distribution among the creditors in the winding up. They stand on the same footing as, for .....

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r payment of the tax that might be admitted to proof. To say as the liquidator has done that the amount is set aside only for the purpose of paying the dividends that might be declared in respect of the tax liability and not the entire liability as proved in the winding up, so that the section serves only the limited purpose of ensuring that the assets of the company are not distributed beyond recall without reserving sufficient funds for the payment of dividends in respect of the tax liability .....

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vidends in respect of the tax eventually found due. And, if this brings the section into conflict with section 530 of the Companies Act, the section must prevail by reason of sub-section (6) thereof - the question why income-tax alone of all Government dues should ride this high horse is not for me to answer. But, for purposes of section 530 of the Companies Act, the tax liability is an ordinary and not a preferential claim and it is only out of the amount set aside under sub-section (3) of sect .....

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y thereafter become payable. When we read this provision with the provision in subsection (4) of section 178 of the Act which makes the liquidator personally liable for the payment of the tax which the company would be liable to pay if the liquidator failed to give notice in accordance with sub-section (1) of section 178, it appears to us that the provision in section 178(3) imports much more than what was contended by counsel for the appellant. This is the view that has been taken in the judgme .....

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e for special purpose" and the words "set aside" or "set apart" are synonymous with the word "appropriate". The Full Bench has observed in paragraph 6 of the judgment thus: "The shades of meaning thus attached to the expression "set aside" convey the idea of an appropriation or an allocation of the income-tax dues; with the result, that it stands outside the winding up by the company Court - an idea suggested in the judgment of Actg CJ, Raman Nay .....

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fficial Liquidator (1975) 101 ITR 470; (1976) 46 Comp Cas 46; lay down the law correctly. On a total view of the relevant statutory provisions, it appears to us, that the Income-Tax Department, is treated as a "secured creditor." The decisions of the Mysore, Calcutta, Rajasthan, Gujarat and the Delhi High Courts have failed to give due importance to the legislative history and background that led to the enactment of the section and the crucial words occurring in section 178(3) and 178( .....

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