Subsequent final assessment destroys the preferential right to the advance income tax demanded.

This appeal against the judgment of Krishnaswami Nayudu, J. raises an interesting question of law. It arises in the compulsory winding-up of a company incorporated under the Indian Companies Act, called the Peerdaa Juharmal Bank, Limited. The Order for winding-up was passed on 12th September, 1949. On 5th October, 1948, a demand under section 18-A of the Indian Income-tax Act was made on the Bank. The question is whether in the winding-up the State is entitled to preferential payment of the amount of this demand under section 230 of the Indian Companies Act. The learned Judge, Krishnaswami Nayudu, J., held that the State was entitled to the priority claimed. The joint Official Liquidators of the Bank are the appellants.

Under section 230(1)(a) the State is entitled to be paid in priority to all other debts, all revenue, taxes, cesses and rates due from the company at the date specified in sub-section (5) of section 230 and having become due and payable within the twelve months next before that date. Sub-section (5) specifies the material date in the case of a company ordered to be wound-up compulsorily which had not previously commenced to be wound-up voluntarily, as the date of the winding-up order; and it is common ground that the company in this case is one such company. The material date is, therefore, 12th September, 1949. As already mentioned, the notice of demand under section 18-A of the Income-tax Act was issued on 5th October, 1948, that is, within the twelve months before the date of the winding-up order.

Mr. Vidyasankar, learned counsel for the appellants, contended that the State was not entitled to priority because advance income-tax demanded under section 18-A of the Income-tax Act does not fall within the category of taxes specified in section 230(1)(a) because (1) it is not a tax and (2) it is not due as income-tax from the company at the date of the winding-up order and did not become due and payable as income-tax within the prescribed period.

It is impossible to accept the contention of Mr. Vidyasankar that the amount demanded as advance income-tax under section 18-A of the Income-tax Act is not a tax.

"A tax in the general understanding of the term signifies an exaction for the support of the Government " (vide United States v. Butler)1.

The primary meaning and object of taxation is raising money for the purposes of Government by means of contributions from individual persons (vide The King v. Barger)2. Cooley in his Constitutional Law (4th Edition) at page 61, defines taxes thus:

"The word ‘taxes’ in its most enlarged sense embraces all the regular impositions made by Government upon the person, property, privileges, occupations, and enjoyments of the people for the purpose of raising public revenue."

There can be no doubt whatever that the amount imposed and demanded as advance income-tax is a tax within the accepted meaning of that term.

The argument of Vidyasankar that advance income-tax was. not properly speaking, income-tax within the meaning of the Act, was based on section 3 of the Income-tax Act, which provides for the rate at which the income-tax shall be charged for any year. That section provides that where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of the Act. In the first place, it is not correct to say that the liability to income-tax arises by reason of the enactment of any Central Act like the Finance Act other than the Income-tax Act. It is true that it is the Finance Act which makes the Income-tax Act operative. But the Income-tax Act is a permanent enactment and its provisions may be enforced even if there should be delay in the passing of the Finance Act in any financial year, because then the charge would be according to the rates fixed by the Finance Act of the previous year or in any Finance Bill then pending before t