The interpretation of the preferential payment clause under section 530 of the Companies Act of 1956 and the relevance of the timing of tax becoming due and payable were central to the judgment.

1. This is an application by the Income Tax Officer, Company Circle, Bangalore, for an order admitting the claim of Rs. 1,44,678.36 nP. against the company in winding up and for a direction to pay the same as a preferential claim.

2. The amount claimed is the total tax liability for two assessment years 1954-55 and 1955-56. The assessment order in respect of the former was passed on March 10, 1959, and that in respect of the latter on March 27, 1962. Action was also taken for recovery under section 46(2) of the Income Tax Act of 1922 in October, 1959, and a certificate for recovery through the Deputy Commissioner was issued on December 19, 1960, followed later by a letter dated April 9, 1963, to recover the entire amount claimed in this application.

3. The company was ordered to be wound up by this court on July 6, 1964.

4. So far as the amount of the claim itself is concerned, there can be no doubt about its accuracy because it is covered by orders of assessment. There appears to have been an appeal in regard to the earlier of the assessment orders, and the amount claimed is the amount as settled by the appellate order.

5. The only question, therefore, is whether the applicant is entitled to preferential payment of this amount under section 530 of the Companies Act of 1956. The relevant portion of that section is clause (a) of sub-section (1), which reads :

"In a winding up, these shall be paid in priority to all other debts -

(a) all revenues, taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date".

6. From the facts already summarised by me, the amount of tax now claimed had become both due and payable and must be held to have become due and payable before action for recovery under section 46(2) of the Income Tax Act of 1922 was commenced.

7. Prima facie, therefore, the claim cannot be said to have become due and payable within twelve months next before the relevant date i.e. the date of winding up, July 6, 1964.

8. Reliance was sought to be placed on a ruling of the a Patna High Court in In the matter of Bihar Bolts and Rivets and Engineering Works (In Liquidation). The tax dealt with there was sales tax and the question was whether the tax claimed was within the ambit of section 530(1)(a) of the Companies Act. It appears to have been argued that the tax had not become due within twelve months next before the winding up, though it might be said to have become payable within that period. The argument was rejected with the following observations :

"Mr. Sreenath Singh has contended that the amount of Rs. 7,934-1-0, due to the sales-tax department is not entitled to priority, because it did not become due during the period of 12 months next before the relevant date. I am of opinion that this contention is without substance. Section 530(1)(a) of the new Act does not require that a claim must become due as well as payable within the period of twelve months. In my judgment its requirements are satisfied if the co-existence of both occurs for the first time within the period. Even if the amounts of sales tax for the three years in question were due from before the period of twelve months, they were not payable previously. As they first became payable within that period, having already been due from before, I hold that the entire amount of Rs. 7,934-1-0 ought to be treated as a preferential claim and to be paid in priority to ordinary debts".

9. The question whether the said interpretation of the sub-section is quite accurate or may require further scrutiny need not be gone into in this application because, upon facts, the Income Tax claimed in this application had become both due and payable long before the period of twelve months immediately preceding the winding up order.

10. Another argument advanced is that it is sufficient