Arrears of tax are not entitled to priority under Section 530(1)(a) of the Companies Act, 1956, and therefore, the Income Tax Officer cannot claim any priority for the realization of the debt.

( 1 ) M/s. National Conduits (P) Ltd. , is a company which has gone into liquidation. Shri S. S. Arora one of its directors was drawing a salary from the company. For the period covered by the assessment years 1961-62 to 1965-66, assessments were made by the Income Tax Officer in respect of the income of Shri Arora, who consequently, became liable to pay, in the aggregate, a sum of Rs. 46,719. 00 as tax. Shri Arora submitted certificates of deductions showing that a sum of Rs. 44,000. 00 had been deducted by the company at source. It seems that this amount was never paid by the company. The Income Tax Officer, Special Circle IX, served the Official Liquidator with a notice under Section 226 (3) of the Income Tax Act, 1961, calling upon the Official Liquidator to pay a sum of Rs. 44,000. 00. This was by notice dated 12th January. 1970 Later, the Income Tax Officer 11 (2) (Collection ). New Delhi, dealt with the case and corresponded with the Official Liquidator, who informed him that as the company was being wound up, leave of the Court under Section 446 of the Companies Act, 1956, was necessary.

( 2 ) IN these circumstances, the Income Tax Officer, District 11 (2) Additional has moved this Court under Section 446 of the Companies Act, 1956 and has at the same time stated that the provisions of that section do not apply to the case. The petitioner has explained that the salary of the director in question, Shri Arora, was Rs. 36. 000. 00 annually and the deductions which should have been made under Section 192 of the Income Tax Act, 1961, amounted to Rs. 44,000. 00, which should have been deposited in the Treasury. Having not made the deposit, the company was an assessee in default as provided by Section 201 of the Income Tax Act, 1961. A further sum was claimed as interest under Section 201 (IA) of that Act. The petitioner also explained that after tax had been deducted at source, Shri Arora could not be called upon to pay tax. The prayer in the application is that the Liquidator should be directed to pay a sum of Rs. 44,000. 00 with interest thereon to the Income Tax Officer and also, this Court should permit the petitioner to take proceedings under the Income Tax law for the recovery of the amount. The petition has been contested by the Official Liquidator who has Complained that the account books and the records of the company had not been handed over to the Official Liquidator and a statement of the affairs had also not been filed. It was further stated that the Official Liquidator was not in a position to know whether any tax was deducted at source from the salary of Shri Arora. Lastly, it was stated that the applicant should file a claim before the Official Liquidator as and when invited under Sections 529 and 530 of the Companies Act, 1956. It was submitted that the application should be dismissed.

( 3 ) THE principal question which arises for consideration in this case is, whether the Income Tax Officer can be permitted to take proceedings under the Income Tax Act for the realisation of the amount in question, or whether the arrears of tax due have to be treated in exactly the same way as any other debt due from the company In liquidation. I had passed a preliminary order in this case on 1st August, 1973, after referring to some of the case law. I had particularly REFERRED TO to the judgment of the Supreme Court in S. V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. (in liquidation) V. V. M. Deshpande, Income Tax Officer, Companies Circle 1 (8) Bombay and another, A. I. R. 1972, S. C. 878, (1) where it was observed that the provisions of the Section 446 of the Income Tax Act, 1961, did not debar the Income Tax Department from taking re-assessment proceedings, but the realisation of tax determined had to be made in the same manner as any other debt of the company. I had thought at that stage that the department was to be treated as a creditor of the company and had gi