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1986 Supreme(Cal) 442
High Court Of Calcutta
Dipak Kumar Sen, Monjula Bose
SHAHDARA (DELHI) SAHARANPUR LIGHT RAILWAY CO.LTD. - Appellant
Versus
INCOME-TAX OFFICER - Respondent
Company Petition 76 Of 1981
Decided On : 11/28/1986
The company court has limited jurisdiction to scrutinize the claim of the Revenue after income-tax has been determined and its payment demanded from the liquidator, taking into account the claims of other creditors and the pending liquidation proceedings.
Headnote:
COMPANY LIQUIDATION - INCOME-TAX ASSESSMENT - JURISDICTION - SCOPE OF JUDICIAL REVIEW - RECOVERY OF TAXES - LIQUIDATOR'S POWERS AND DUTIES - PRIORITY OF CLAIMS - COMPANY COURT'S DISCRETION - BALANCE OF FUNDS - SUFFICIENT FUNDS FOR FUTURE LIQUIDATION EXPENSES.
Fact of the Case:
The Shahdara (Delhi) Saharanpur Light Railway Company Ltd. went into voluntary liquidation on December 10, 1970, as a solvent company. Most of the assets of the company have been realized by the liquidators except for a few claims remaining outstanding. The creditors whose claims were due as on the date of the liquidation which were admitted by the liquidator have all been paid in full. 40% of the capital has been returned to the contributories. Two claims of the company against the State Railways aggregating to Rs. 1,14,614 and a claim for damages against the Union of India for Rs. 35 lakhs for which a suit has been filed in this court have remained pending.
Finding of the Court:
The court held that the company court cannot involve itself in the income-tax assessment of the company in liquidation. It was laid down that the assessment proceedings had to be initiated and concluded in a different hierarchy starting from the Income-tax Officer up to the Supreme Court. The winding-up court was not entitled to take part in such proceedings. Only after the assessment proceedings were completed and payment demanded from the liquidators on the basis of such assessment, would the matter come before the liquidation court which could then assume and exercise power to scrutinize the claim of the Revenue.
Issues: 1. Whether the company court has the jurisdiction to assess income tax on a company in liquidation? 2. Whether the liquidators can be held liable to pay income tax on capital gains arising from the sale of the company's assets during liquidation? 3. Whether the Income-tax Officer can initiate recovery proceedings against a company in liquidation without the leave of the company court? 4. Whether the company court can scrutinize the claim of the Revenue after income-tax has been determined and its payment demanded from the liquidator?
Ratio Decidendi: 1. The company court does not have the jurisdiction to assess income tax on a company in liquidation. The assessment proceedings have to be initiated and concluded in a different hierarchy starting from the Income-tax Officer up to the Supreme Court. 2. The liquidators can be held liable to pay income tax on capital gains arising from the sale of the company's assets during liquidation. 3. The Income-tax Officer cannot initiate recovery proceedings against a company in liquidation without the leave of the company court. 4. The company court can scrutinize the claim of the Revenue after income-tax has been determined and its payment demanded from the liquidator. However, the scrutiny is limited to determining the extent to which tax claims should be paid by the liquidators, taking into account the claims of other creditors and the pending liquidation proceedings.
Final Decision: The court directed the liquidators to set apart a sum of Rs. 1,80,000 out of the said amount of Rs. 20 lakhs as against the outstanding claims of other creditors against the company in liquidation and directed the liquidators to pay the balance to the Income-tax Officer against their pending demands. The court also directed that the balance of Rs. 5,53,973 which will remain in the hands of the liquidators will be sufficient to provide for future liquidation expenses.
( 1 ) THE Shahdara (Delhi) Saharanpur Light Railway Company Ltd. went into voluntary liquidation on December 10, 1970, as a solvent company. The liquidation progressed to a considerable extent. Most of the assets of the company have been realised by the liquidators except a few claims remaining outstanding to which we shall advert later. The creditors whose claims were due as on the date of the liquidation which were admitted by the liquidator have all been paid in full. 40% of the capital has been returned to the contributories. Two claims of the company against the State Railways aggregating to Rs. 1,14,614 and a claim for damages against the Union of India for Rs. 35 lakhs for which a suit has been filed in this court have remained pending.
( 2 ) ACCORDING to the liquidators, the claims pending against the company which are admitted aggregate to Rs. 1,48,179 and claims which are disputed aggregate to Rs. 2,61,762. The admitted claims of the State Railways for Rs. 1,44,901 are stated to be subject to set off by the claims of the company against the State Railways for Rs. 1,14,250.
( 3 ) IN the course of liquidation, the liquidators have sold the assets of the company. The Income-tax Officer has assessed the company in liquidation through the liquidators for the years 1972-73 to 1982-83. The assessments were on the capital gains which are stated to have been assessed in the hands of the liquidator by reason of the sale of the assets of the company. The liquidators have disputed their liability to be assessed altogether and contend that, in any event, capital gains cannot be assessed where the assets of the company are sold in liquidation proceedings. Appeals were preferred by the liquidators against the assessments made by the Income-tax Officer up to the Income-tax Appellate Tribunal. The contentions of the liquidators have been rejected by the Tribunal and the assessments have been confirmed. Presently, the income-tax demands aggregate to Rs. 73,41,296. The said demands consist of tax-assessed, interest and penalty.
( 4 ) THE application was made by the Income-tax Officer concerned in the company court, inter alia, for the following orders:" (a) Leave be given to your petitioner to initiate recovery proceedings and to realise the demands due and payable by the company (now in voluntary liquidation) under the provisions of the Income-tax Act, 1961, and the rules framed thereunder ; (b) Alternatively, the liquidators be directed to pay the amounts, due and payable by the company for the assessment years 1972-73, 1974-75, 1977-78 and 1978-79 to your petitioner in such manner and within such time as to this hon'ble court may deem fit and proper ; (c) The liquidators be restrained from operating the bank accounts of the company or dealing with the assets and/or the funds of the company lying in their hands, until the disposal of this application. "
( 5 ) IT is the contention of the Revenue that the income-tax demands have deen duly raised but have not been paid. It is contended that there is no stay of the realisation of the said demands nor any application by the liquidators before any competent authority for such stay. It is contended that the company is an assessee in default and either leave be given to the Revenue to initiate recovery proceedings under the Income-tax Act, 1961, or alternatively, the liquidators be directed to pay the said dues out of the funds lying in their hands.
( 6 ) THE application of the Revenue was contested in the affidavit filed by one of the liquidators affirmed on July 23, 1984. It is, inter alia, contended that after the company was put to winding up, it ceased to be an assessee within the meaning of the Income-tax Act. It is denied that the assessments were lawfully made or that the demands on account of income-tax following such assessments are lawful or payable by the liquidators. Various points have been taken in the affidavit impugning the said assessments which hav
