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TMI Blog1970 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ed August 23, 1966, issued under section 148, the Income-tax Officer, Companies Circle I(8), Bombay, recorded in respect of the assessment years 1950-51 to 1955-56, that the mills company had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961, and that he therefore proposed to reassess the income of the mills company for these assessment years and called upon the liquidator to deliver to him within thirty days a return in the prescribed form of the income of the mills company assessable for these years. It was recorded that the said notices were being issued after obtaining the necessary satisfaction of the Central Board of Direct Taxes. By six different notices for each of the above assessment years dated December 31, 1966, issued under section 142(1), the Income-tax Officer, Companies Circle, referred to the above six notices and called upon the official liquidator to produce certain documents and give in writing duly verified in the prescribed manner information called for in the forms attached thereto and on the points or matters specified to the Income-tax Officer on January 10, 1967. In connection with the above notices, by the judge's summons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n pari materia with the provisions of section 446(1) of the Companies Act, 1956, arose. Reference was also made to the case of Abdul Aziz v. State of Bombay, where a Division Bench of this court came to consider the phrase "legal proceedings" as contained in the Sales Tax Act, 1953, and in that connection referred to the provisions of section 7(e) of the Bombay General Clauses Act. Reference was also made in that very connection to the decision of the Supreme Court in the case of Union of India v. India Fisheries Pvt. Ltd. where the Supreme Court came to consider the true effect of section 446(1). The learned judge negatived the submission made by Mr. Joshi for the appellants that the phrase "legal proceedings" was synonymous with "judicial proceedings". In connection with the above second contention Mr. Joshi for the appellants relied before the learned judge and in this appeal on the decision of the Supreme Court in the case of Damji Valji Shah v. Life Insurance Corporation of India. In that case the Supreme Court had made certain observations which might have been construed as supporting the second contention made by Mr. Joshi but the learned judge held these observations to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submissions on the first contention strong reliance was placed on behalf of the official liquidator on the observations regarding the true construction and effect of the phrase "legal proceedings" of the Division Bench of this court in the case of Abdul Aziz v. State of Bombay. Strong reliance was also placed on the observations of the Federal Court in the case of Governor-General in Council v. Shiromani Sugar Mills Ltd., as regards the meaning of the phrase "legal proceedings" whilst construing that phrase in section 171 of the Indian Companies Act, 1913. Reliance was also placed on the decision in the case of Ranganathan v. Government of Madras, and it was submitted that the meaning of the phrase "legal proceedings" as ascertained by the Federal Court in the case of Shiromani Sugar Mills was affirmed by the Supreme Court in that case. Reliance was also placed on the observations of the Supreme Court in the case of Union of India v. India Fisheries Pvt. Ltd., where the question of the true construction of section 171 of the Indian Companies Act, 1913, had arisen before the Supreme Court. We do not propose to decide the correctness or otherwise of the arguments advanced on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions (2), (3) and (4) were inserted in section 446 by section 165(2) of the Amending Act, 65 of 1960. The provisions of these sub-sections do not form part of the provisions in section 171 of the Indian Companies Act, 1913, which was in all respects in pari materia with sub-section (1) of section 446. Section 530 relates to preferential payments and, inter alia, has the effect of providing that in a winding up the ground rent and/or debts due and tax and/or revenue dues will not have any priority unless the same became due within twelve months next before the date of winding-up. Section 537, inter alia, provides that attachment, distress or execution put in force and execution sales held without leave of the winding-up court shall be void. Sub-section (2) provides : "Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government." This sub-section, however, was inserted into section 537 by section 187 of the Amending Act, 65 of 1960. The facts in the case of Damji Valji Shah v. Life Insurance Corporation of India may be shortly stated as follows : On or about July 1, 1956, a sum of Rs. 82,000 was alleged to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the restriction referred to in sub-section (1) has been imposed on the commencement of the proceedings or proceeding with such proceedings against a company after a winding-up order has been made .... It must follow that the consequential provisions of sub-section (1) of section 446 of the Companies Act will not operate on the proceedings which may be pending before the tribunal or which may be sought to be commenced before it." The reason for the last observation quoted above is in the intervening sentence which we did not quote for convenience and which runs as follows : "In view of section 41 of the Life Insurance Corporation Act the company court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act." In paragraph 19 the Supreme Court stated : "Further, the provisions of the special Act, i.e., the Life Insurance Corporation Act, will override the provisions of the general Act, viz., the Companies Act, which is an Act relating to companies in general." Now Mr. Joshi for the appellants contends that there is no distinction of any consequence which can be made in the facts of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be enforced." Mr. Joshi is right in his submission that the distinction sought to be made by Mr. Chagla in the scheme of the Income-tax Act and the Life Insurance Corporation Act which was before the Supreme Court in the case of Damji Valji Shah v. Life Insurance Corporation of India, that the Income-tax Act does not contain any provision like that contained in section 41 of the Life Insurance Corporation Act ousting the jurisdiction of civil courts is a distinction of no consequence at all. It is quite clear that in connection with the assessment to ascertain the quantum of income-tax a separate independent machinery and/or a complete code is provided in the Income-tax Act. It is not possible to make a study of each and every relevant provision of that Act in this judgment. That the Act provides for assessment of the quantum of income-tax dues by the Income-tax Officer and further provides for an appeal to the Appellate Assistant Commissioner and provides for a reference only on questions of law to High Courts is well-known. There are detailed provisions in the Act in respect of commencing proceedings for reasssessment of escaped income with the sanction of the Income-tax Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia are not applicable, to the facts of the present case. Now it is quite clear that the Supreme Court has held in the above paragraph that the provisions of sub-section (1) of section 446 are consequential to the provisions of sub-section (2) of section 446 and that this is so because under sub-section (2) exclusive jurisdiction is conferred on the company court to dispose of all suits or proceedings by or against a company and further that the consequential provisions of sub-section (1) of section 446 are not attracted and cannot be applied to proceedings (like those before the Life Insurance Tribunal) before an administrative tribunal and/or a tribunal which is given exclusive jurisdiction to decide and determine matters arising under the relevant Act. Apparently, in connection with matters of exclusive jurisdiction triable by special tribunals in paragraph 19 the Supreme Court observed that : "The provisions of the special Act, i.e., the L. I. C. Act, will override the provisions of the general Act, viz., the Companies Act, which is an Act relating to companies in general." It appears that the court formulated a view that in matters which are by special Acts liable to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions in section 446(1). In his submission wherever conflict of jurisdiction for disposing of claims against a company appeared it would be settled by deciding if the jurisdictional provisions are special and/or general. The special would exclude the general. In his submission the provisions in section 148 of the Income-tax Act whereunder the notices in question were issued was a general provision relating to all assessees. On the contrary, in connection with the very same matter section 446(2) was a special provision applicable only to companies in winding-up. In the result, the proceedings under section 148 were liable to be set aside. In this connection he particularly relied upon the observations of the Supreme Court in the case of Union of India v. India Fisheries Pvt. Ltd. In connection with these contentions it first requires to be recorded that in the case of Shiromani Sugar Mills Ltd., the question related to the proceedings commenced under section 46(2) of the Income-tax Act for recovery of already assessed tax. Though the assessment of the quantum of tax had taken place subsequent to the date of the winding-up order, the question that the assessment proceedings were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and in pursuance of law or legal enactment, cannot properly be described as a 'legal proceeding'." Similarly, a Division Bench of this court in the case of Abdul Aziz v. State of Bombay, definitely observed in the context of section 48(2) of the Sales Tax Act, 1953, that " 'legal proceeding' in its normal connotation can only mean a proceeding in accordance with law, and there can be no doubt that assessment proceedings under the Sales Tax Act are such proceedings." The further relevant observation was that : "It must be remembered in this context that the expression 'legal proceeding' is not synonymous with 'judicial proceeding'. Proceedings may be legal even if they are not judicial proceedings, if they are authorised by law ; and Mr. Palkhivala, by his argument, undoubtedly requires us to equate the expression 'legal proceeding' in section 48, sub-section (2)(ii), with judicial proceedings, for which, in our opinion, there is no warrant in law." The ultimate finding of the court in that case was that : "The expression ' legal proceeding' in section 48(2)(ii) includes assessment proceedings ......" Now Mr. Chagla insisted that having regard to the history of the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-sections (1) and (2) of section 446 the Supreme Court did not find it necessary in the case of Damji Valji Shah v. Life Insurance Corporation of India to discuss the connotation of the phrase "legal proceedings". The Supreme Court further found it entirely unnecessary to refer to the provisions in sub-sections (3) and (4) of section 446 and other relevant sections such as sections 442, 530 and 537. (3) The Supreme Court arrived at its findings regarding the true effect of the provisions in sub-sections (2) and (3) of section 446 in spite of, and we must presume with the full and complete knowledge of, the provisions in sub-sections (3) and (4) of section 446 and all relevant sections, including sections 442, 530 and 537. (4) The main ratio of the decision of the Supreme Court was, as already discussed above, that the provisions in sub-section (1) of section 446 were consequential provisions for the reasons discussed in the first part of paragraph 18 of the judgment. For that reason the Supreme Court found that having regard to the special provision conferring jurisdiction on a special tribunal under section 41 of the Life Insurance Corporation Act and the general provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the available assets between the creditors in the proportion of their claims. Sections 228 and 229 enact the above scheme. Provisions like these in respect of companies in winding-up as contained in the chapter relating to companies in liquidation in the Companies Act would always override, as being special provisions, proceedings for recovery of tax dues and the special provisions like section 49E enacted in the Income-tax Act. Even so, the effect of the decision of the Supreme Court in Damji's case is that where claims arise for decision by special tribunals and/or special officers like Income-tax Officers in the present case under special jurisdiction, the provisions in sub-sections (1) and (2) of section 446 must be considered as general provisions only. The matter is not res integra. We are, therefore, unable to accept Mr. Chagla's contention that the impugned notices were liable to be stayed by issuing an order of injunction because the Supreme Court had not changed or restricted the meaning of the phrase "legal proceedings" as construed by the Federal Court and the Supreme Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. and Union of India v. India F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scheme of the Companies Act. We, therefore, reject these alternative submissions made by Mr. Chagla. The result of the above discussion is that the arguments advanced by Mr. Chagla in reply to the above second contention made on behalf of the appellants fail. As we have accepted this second contention, the appellants are entitled to succeed in this appeal and to have the order dated September 28, 1967, set aside. Having arrived at the above conclusion on the above second contention made on behalf of the appellants, we do not find it necessary to deal with the first contention made on behalf of the appellants. It is only necessary to refer in a very summary way to the arguments advanced in support of that contention. Mr. Joshi contended that the proceedings initiated by the above impugned notices, being assessment proceedings, were not covered by the phrase "legal proceedings" as contained in sub-section (1) of section 446. The contention was that up to the stage that the liability to tax was quantified, assessment proceedings would not be such legal proceedings because up to that stage the department does not become a creditor of the company. Up to that stage the debt itself ..... X X X X Extracts X X X X X X X X Extracts X X X X
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