TMI Blog1968 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... so a tax liability in respect of income arising out of the investments made in the course of winding up. As the liquidator appeared to entertain the opinion that it was a matter for doubt whether the company in liquidation could be held to be liable to tax in the light of the recent amendments of the Income-tax Act and the Companies Act, I asked him to take out a formal application for directions. The above Application No. 16 of 1967 is such an application. So that I may have the benefit of the arguments from both the opposing points of view, I issued notice of the application to the Commissioner of Income-tax in Mysore and also permitted the official liquidator to engage the services of Mr. K. Srinivasan, Advocate. The Commissioner having entered appearance through counsel, his case was presented to me by Mr. Rajasekhara Murthy. In the course of this winding-up, large sums of money came into the hands of the liquidator which could not be immediately applied for distribution of dividends to the creditors. The result was that he had to invest the same pursuant to the relevant provisions of the Companies (Court) Rules. They were mostly by way of bank deposits. The following table ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 4 of the Income-tax Act, 1961, the charge for income-tax rests upon every person who receives income attracting liability. Clause (31) of section 2 of the Act defines a person as including a company. It is also undoubted that an order to wind up a company compulsorily does not put an end to the continued corporate existence of the company. Such existence is terminated only when at the close of the winding-up proceedings an order is made for the dissolution of the company. Hence, prima facie, there should be no difficulty in taking the view that the company is or continues to be liable to income-tax as a person even after an order to wind up its affairs compulsorily by court is made and until it is finally dissolved. That the company in liquidation is a company for the purposes of the Income-tax Act and therefore assessable to tax, was also the view taken by the Allahabad High Court in the case reported in Commissioner of Income-tax v. Agra Spinning Mills Co. The argument addressed in that case in support of the view that a company in liquidation is not assessable to income-tax is more or less the same as the argument addressed before me in this case. That argument is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter or the real question for consideration. It is first necessary to have regard for the change in the legal position in regard to the management of affairs of a company brought about by an order for compulsory winding up of its affairs made by the company court. As already stated, the corporate existence of a company does not come to an end by the passing of such an order. The actual consequence is that the control over its affairs, which till then was being exercised by its directors, is put an end to, all its officers and employees cease to be officers and employees thereof, and all further control and direction are taken over by the court. The purpose of the law in the matter of winding up of affairs of a company is, in principle the same as the purpose of the law of insolvency in the case of individuals, viz., that all the assets of the insolvent company are sequestered and brought under the control of the court with a view to see that they are realised and equitably distributed among its creditors subject to the rules as to priorities or preferential payments which the law stipulates. The liquidator is only an officer of the court. Unlike a receiver in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt through the liquidator in the light of the special provisions of the Companies Act. That the Income-tax Act also substitutes him for the principal officer is apparent from section 178 of the Income-tax Act, under the first sub-section whereof the liquidator is charged with the duty of giving notice to the appropriate Income-tax Officer of his appointment. Thereupon the Income-tax Officer is charged with the duty of notifying the liquidator the amount which, in the opinion of the Income-tax Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company. Taxes then due are also entitled to preference in the matter of payment under section 530 of the Companies Act, if they satisfy the conditions of the said section. At the same time, as the issue of any notice, whether under section 178 of the Income-tax Act or under any other provision thereof, is in the eye of law the commencement of, or the necessary condition for commencing, proceedings for the purpose of quantification and collection of the tax, the Income-tax Officer is bound to obtain the leave of the company court under section 446 of the Companies Act. Any f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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