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Official Assignee, High Court, Madras Versus T.R. Bhuvaneswari, The Commissioner of Income Tax TDS, The Deputy Commissioner of Income tax

2016 (6) TMI 291 - MADRAS HIGH COURT

Grant of waiver of interest and/or penalty - company in liquidation - whether for the purpose of grant the Official Assignee should approach only the Central Board of Direct Taxes or whether the Official Assignee can get appropriate orders under Section 7 of the Presidency Towns Insolvency Act, 1909 or not? - Held that:- If the ultimate payment to the Department actually depends upon the extent of funds available in the coffers of the Official Liquidator or the Official Assignee, it is unthinkab .....

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o the insolvent or his or her legal heirs. But at that time, the Company Court can as well say that these surplus funds should be paid only towards discharge of the liability on account of interest and/or penalty. - With that leverage in mind, we are of the considered view that this question of waiver can be decided by the Insolvency Court itself without driving the Official Assignee to go before the Central Board of Direct Taxes depending upon the amounts of funds available with the Officia .....

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e order of the learned Judge is modified to the effect that the Official Assignee need not go before the Central Board of Direct Taxes praying for waiver of interest. The Insolvency Court itself can consider the question of waiver of interest in terms of the power conferred under Section 7 and in the light of the provisions of the Income Tax Act, together with the quantum of funds available and the distribution already made - O.S.A. Nos. 91 to 93 of 2016 and CMP. Nos. 5569 and 5570 of 2016 - Dat .....

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sel appearing for the Official Assignee, Mr.J.Narayanaswamy, learned Standing Counsel for the second respondent and Mr.M.Swaminathan, learned Standing Counsel for the third respondent. 3. A lady by name T.R.Bhuvaneswari, who was a partner in a firm that owned a cinema theatre, was adjudged as an insolvent and her share in the partnership firm and in the properties were brought to sale by the learned Official Assignee. Out of the sale proceeds, the Official Assignee set apart one portion represen .....

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st under Sections 234A, 234B and 234C in the income tax assessments that may be made for the aforesaid assessment years. The prayer made in A.No. 32 of 2015 was to permit the Official Assignee to adopt the directions given in the first two applications, for all other cases for future guidance. 6. By a common order passed on 7.3.2016, the learned Judge, sitting in Insolvency Court, directed the Assessing Authority to pass an order of assessment on merits before the cut off date. The learned Judge .....

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e up with the above appeals. 8. The short question that arises for consideration in these three appeals is as to whether for the purpose of grant of waiver of interest and/or penalty, the Official Assignee should approach only the Central Board of Direct Taxes or whether the Official Assignee can get appropriate orders under Section 7 of the Presidency Towns Insolvency Act, 1909 or not. 9. Section 7 of the Act 3 of 1909 reads as follows : "Power of Court to decide all questions arising in i .....

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hereby given shall, for the purpose of deciding any matter arising under Section 36, be exercised only in the manner and to the extent provided in that section." 10. It appears from the express language of Section 7 is that the Insolvency Court has full power to decide (i) all questions of priorities and (ii) all other questions whatsoever. The questions that could be decided by the Insolvency Court could be of law or of fact. These questions may arise in the case of insolvency coming with .....

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e that has now arisen for consideration before this Court. 12. Section 178 of the Income Tax Act, whose provisions are given overriding effect upon the provisions of any other law for the time being in force by virtue of Sub-Section (6), deals with the liability of the Liquidator to set apart amounts that are payable to the Income Tax Department. Sub-Section (4) of Section 178 makes a Liquidator personally liable, if he failed to set apart an amount, which may become due and payable by a company .....

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ned from the Company Court for holding assessment or re-assessment proceedings. 14. But, the above observations were made subject to a caveat in paragraph 22 of the said decision, which reads as follows : "The argument that the proceedings for assessment or reassessment of a company which is being wound up can only be started or continued with the leave of the liquidation court is also, on the scheme both of the Act and of the Income Tax Act, unacceptable. We have not been shown any princip .....

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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) 46 I.T.R. 193 and the Myso .....

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s of the insolvent, is vested only upon the Official Liquidator or the Official Assignee, as the case may be. The Official Liquidator functions within the control of the Company Court and the Official Assignee functions and discharges his duties within the control of the Insolvency Court. 16. Unfortunately for the Department, Section 178 deals only with the obligation on the part of the Official Liquidator to set apart a liability. The question as to whether interest in certain circumstances can .....

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he does not come up, the amount payable to the Income Tax Department, whether it is the principal amount of tax or whether it is interest or whether it is penalty, will have to be decided only by the Official Assignee subject to the control of the Insolvency Court depending upon the amount available in his coffers. Since the amount payable to the Department is a crown debt, which ranks pari pasu with other debts, that will also get a rateable distribution. 18. Therefore, if the ultimate payment .....

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