1. These reports have been placed before us on a reference made by the learned Single Judge in view of the importance of the questions raised. The matter arises in connection with the liquidation proceedings of M/s. K.T.C. Tyres (India) Ltd., M/s. Hendez Electronics Ltd. and M/s. Venad Pharmaceuticals and Chemicals Ltd. For the convenient sake we may refer to Report No. 58 in connection with M/s. K.T.C. Tyres (India) Ltd. Statement and reply statement has been filed by the contesting parties in that case. In the report Official Liquidator prayed for the following reliefs.

i) take this report on record,

ii) direct that no income tax is payable from the sale proceeds as capital gain tax, advance tax instalments and additional tax, if any, on the sale of the charged assets of the company in liquidation until the dues of the secured creditors and workmen creditors are paid in full;

iii) declare that no advance tax is payable in respect of this company in liquidation for the assessment year 1997-98 and subsequent assessment years until the claims of the secured creditors and workmen creditors are paid in full; and

iv) pass such other orders as deemed fit and proper in the premises of the case. These are the requests made in other Reports as well.

2. We may refer to the facts in Report No. 58 which is as follows: The Company M/s. K.T.C. Tyres (India) Ltd. was ordered to be wound up by the Company Court as per Order dated 22.1.1993. During the pendency of liquidation Official liquidator had disposed of all the movable and immovable assets by public auction and obtained total sum of Rs. 1,78,37,000/- in May, 1996. Full consideration was received by the Official Liquidator. Entire assets of the Company in liquidation have been charged to Canara Bank, Calicut and Industrial Development Bank of India, IDBI Tower, Cuffe Parade, Mumbai. During the course of the winding up proceedings, Official Liquidator had settled the list of creditors and the total amount admitted to the secured creditors and workmen creditors would come to Rs. 12,57,12,181/-. Out of the admitted amount, the Official Liquidator had paid first dividend of 16 paise in a rupee to the secured creditors and workmen creditors amounting to Rs.1,99,22,706/- vide order dated 17.2.1998 in M.C.A. No. 31 of 1998 in C.P. No. 19 of 1992.

3. The Company in liquidation had filed return of income regularly upto the assessment year 1999-2000. The Company had not earned any income till the assessment year 1996-1997. On the sale of the immovable properties of the Company, a sum of Rs. 1,78,37,000/- was received by the Official Liquidator. The stand of the Official Liquidator is that payment of income tax, capital gain tax, advance tax and additional tax is to be considered only after satisfying the dues of the secured creditors and workmen.

4. A statement has been preferred on behalf of the Income Tax Department. In the return submitted by the Official Liquidator for the assessment year 1997-98 on 25.11.1997 a note was appended which is extracted below:

"Note:- In the instant case, the dues of the secured creditors and workmen are yet to be settled. Hence, in the light of the order dated 25.9.1990 on Report No. 120 in C.P. No. 7 of 1979 and 4 of 1980 in the matter of M/s. Giovanola Binny Ltd. (in liquidation) order dated 8.4.1991 on Report No. 34 in C.P. No. 28 of 1988 in the matter of M/s. Premier Steel (P) Ltd. (in liquidation) and order dated 18.10.1995 on Report No. 56 in CP 6/90 in the matter of M/s. Southern Organics (P) Ltd. (In liquidation) etc. passed by the Hon'ble High Court of Kerala, the payment of tax is to be considered only after the dues of the secured creditors and workmen are paid in full. Therefore, in this case the payment of income-tax for the assessment year 1997-98 does not arise".

Counsel for the Official Liquidator, Sri. K. Moni submitted that as per S.529-A and 530 of the Companies Act special rights are conferred on the workmen and the rights of the workmen a