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1996(3) Supreme 225
SUPREME COURT OF INDIA
B.P. Jeevan Reddy and K.S. Paripoornan, JJ.
Imperial Chit Funds (P) Ltd. -Appellant
versus
Income Tax Officer, Ernakulam -Respondent
Civil Appeal No. 1199 (NT) of 1979
Decided on 19-3-1996
Held that the scope of Section 530(1) (a) is different from that of Section 178 of the Income-tax Act. Under Section 530(1)(a) all taxes which have "become due and payable" alone are entitled to preferential payment. The amount should have been crystalised into a liability. Under Section 178(2) read with Section 178(3) of the Income-tax Act, provision should be made for any tax which is then or is likely thereafter to become payable. Even the amounts whichhave not been crystalised into a liability, but which are "likely to become due thereafter" should be taken note of. And, we should also bear in mind, the non-obstante clause-Section 178(6) of the Income-tax Act. (Para 6)
Further held : The Full Bench has further laid stress on the crucial words occuring in Section 178(2), 178(3)(b) of the Income tax Act, which behoves the Official Liquidator to "set aside the amount" equal to the amount notified by the Income Tax Officer and held that these words mean "keeping separate for special purpose" and the words "set aside" or "set apart" are synonymous with the word "appropriate". The Andhra Pradesh High Court in the decision reported in I.T.O. v. Official Liquidator, 101 ITR 470, has taken a similar view. We are of the opinion that the judgment of the learned single Judge of the Kerala High Court in I.T.O. v. Indian Traders Bank Ltd., 1968 KLT 595, affirmed in A.S. No. 225/68 and approved by the Full Bench in the judgment under appeal as also the decision of the Andhra Pradesh High Court in I.T.O. v. Official Liquidator, (supra), 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 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 occuring in Sections 178(3) and 178(4) of the Income-tax Act to the effect that the Official Liquidator "shall set aside" the amount notified by the Income Tax Officer and if it is not so done, the Official Liquidator is personally liable to pay the amount of tax which the company would be liable to pay. It should be remembered that Section 178 of the Income-tax Act occurs in Chapter XV of the Act. The Object sought to be achieved by the provisions in the said Chapter is "to fasten liability to pay the tax" on the income received and to catch the income at the earliest point of time and tax the same where it is found, instead of waiting for long. We, therefore, hold that the judgment under appeal does not merit interference by this Court.
(ii) Income Tax Act, 1961-Section 178-Preferential payments-Interpretation placed by Supreme Court on Section 178 should govern cases arising under Section 17 of Central Sales Tax Act, 1956 as well-Where authorities under both the Acts send similar orders to Official Liquidator-Priority with respect to date of receipt of orders by Official Liquidator.
JUDGMENT
Paripoornan, J.-The appellant herein is M/s. Imperial Chit Funds Private Limited, a company in liquidation, represented by the Official Liquidator, High Court of Kerala. The respondent is the Income Tax Officer, Ernakulam (the Revenue). The Liquidator has filed this appeal from the order passed by a Full Bench of the High Court of Kerala dated 10.8.1978 and rendered in report No. 53 in C.P. No. 7 of 1973. In the said report the Official Liquidator prayed that orders may be passed holding that income tax claimed by the revenue is not payable at that stage, and that the Income Tax Officer should wait and prove his claim before the Official Liquidator when the list of creditors is settled. The Full Bench, by the Judgment appealed against, negatived the said prayer made by the Official Liquidator in his report. It is against the aforesaid judgment the Official Liquidator representing the Imperial Chit Funds Private Limited has come up in appeal.
2. The Imperial Chit Funds Pvt. Ltd. is a private company. It was wound up as per orders passed by the High Court dated 1.6.1973 in C.P. No. 7 of 1973. After the commencement of the winding up proceedings the Income Tax Officer finalised the assessment of the company for the year 1972-73 by his order dated 31.3.1975. He assessed the company to income tax in the sum of Rs. 934/- and levied an interest of Rs. 93/- payable under Section 220(2) of the Income-tax Act. The total amount thus payable was Rs. 1,027/-. The Official Liquidator intimated the Income Tax Officer by his letter dated 8.5.1975 that the tax and interest constituted debt provable in the winding up proceedings. He stated that he was not in a position to pay the amounts straighaway. According to the Liquidator, the tax was due and payable within 12 months before the relevant date mentioned in Section 530(8)(c) of the Companies Act and so, Section 530(1)(a) of the said Act will not apply to the instant case. The Income Tax Officer ignored the above intimation of the Official Liquidator. He issued a certificate to the Tax Recovery Officer any by his letter dated 8.12.1976 demanded a sum of Rs. 1,027/- to be paid immediately. A notice of demand was accordingly issued. He also wrote to the Official Liquidator by communication dated 15.1.1977 for payment of the amount as per the notice of demand. Thereupon the Official Liquidator filed report No. 53 dated 20.1.1977, seeking appropriate directions of the Court to the effect that the tax claimed is not payable at that stage, and that the Income Tax Officer should wait and prove his claim, when the list of creditors is settled. The learned Company Judge took the view that an important question arises for consideration, namely, whether the legal effect of Section 178 of the Income-tax Act is that the Income Tax Officer is entitled to the payment of the tax demanded otherwise than as provided in the Companies Act. He also referred to an earlier Division Bench decision of the High Court of Kerala rendered in A.S. No. 224/1968 wherein it was held that the amounts "set aside" under section 178 of the Income-tax Act will not be available for distribution in accordance with the provisions of the Companies Act and, therefore, there was no question of any priority in the distribution of assets. In view of some subsequent decisions, the learned Company Judge felt considerable doubt about the correctness of the aforesaid decision and referred the matter for being heard by a Devision Bench. The Division Bench of the High Court of Kerala before whom the matter came up, by order dated 27th June, 1977 referred the matter to a Full Bench for decision and accordingly the matter was finally heard and decided by a Full Bench. The judgment of the Full Bench is reported in 116 ITR 176 (FB).
3. We heard Counsel for the appellant Mr. K. John Mathew and Senior Counsel for the respondent-Revenue Mr. J. Ramamurthy. The sole question that arises for consideration in this case is, whether Section 178 of th
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