Case Note & Summary
The dispute arose from the winding up of Imperial Chit Funds Pvt. Ltd., a private company ordered to be wound up on 1.6.1973 by the High Court of Kerala. The Income Tax Officer finalized the assessment for the year 1972-73 on 31.3.1975, assessing income tax of Rs. 934 and levying interest of Rs. 93 under Section 220(2) of the Income-tax Act, 1961, totalling Rs. 1,027. The Official Liquidator informed the Income Tax Officer on 8.5.1975 that the tax and interest constituted a debt provable in the winding up and was not immediately payable, contending that the tax fell within the twelve-month period before the relevant date under Section 530(8)(c) of the Companies Act, 1956, and therefore Section 530(1)(a) priority did not apply. The Income Tax Officer proceeded to issue a certificate to the Tax Recovery Officer, demanded immediate payment by letter dated 8.12.1976, and issued a notice of demand, later writing to the Official Liquidator on 15.1.1977. The Official Liquidator filed report No. 53 dated 20.1.1977 seeking directions that the tax was not payable at that stage and that the Income Tax Officer should wait and prove his claim when the list of creditors was settled. The Company Judge referred the matter to a Division Bench, doubting an earlier Division Bench decision in A.S. No. 224/1968; the Division Bench referred it to a Full Bench by order dated 27.6.1977. The Full Bench, by judgment dated 10.8.1978, negatived the Official Liquidator's prayer. The Official Liquidator appealed to the Supreme Court. The sole legal issue was whether Section 178 of the Income-tax Act overrides the preferential payment provisions of Section 530 of the Companies Act. The appellant argued that Section 178 does not override Section 530 and that the Income Tax Officer must prove his claim; the respondent contended that Section 178(6)'s non obstante clause entitles the Income Tax Officer to demand payment otherwise than as provided in the Companies Act. The Court examined relevant provisions of the Income-tax Act, 1961 (Section 178) and the Companies Act, 1956 (Sections 446, 447, 456, 511, 529, 529A, 530). The provided excerpt does not include the final disposition.
Headnote
A) Income Tax - Priority in Company Liquidation - Section 178 of Income-tax Act, 1961 vis-à-vis Section 530 of Companies Act, 1956 - Section 178 does not override Section 530 preferential payments - The sole question was whether the Income Tax Officer's demand under Section 178 could be satisfied before preferential debts under Section 530; conflicting High Court decisions existed; the Court considered Sections 178(6), 446, 529, 530 and the non obstante clause in Section 178(6). The provided excerpt did not include the final holding. (Paras 3-4)
Issue of Consideration
Whether Section 178 of the Income-tax Act affects or alters the existing law of priority or overrides the provisions of preferential payment provided in Section 530 of the Companies Act.
Law Points
- Section 178 of Income-tax Act imposes obligations on liquidators to notify Assessing Officer and set aside amounts
- with personal liability for default
- Section 178(6) contains a non obstante clause
- Section 530 of Companies Act grants priority to government revenues due within twelve months before relevant date
- Section 446 of Companies Act confers jurisdiction on winding up court to decide priorities
- conflicting High Court decisions existed on whether Section 178 overrides Section 530 preferential payments
Case Details
1996 LawText (SC) (03) 75
K.S. Paripoornan, B.P. Jeevan Reddy
1996 AIR 1887, JT 1996 (3) 410, 1996 SCALE (3)20
K. John Mathew (appellant), J. Ramamurthy (respondent)
Imperial Chit Funds (P) Ltd. (in liquidation), represented by the Official Liquidator, High Court of Kerala
Income Tax Officer, Ernakulam
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Nature of Litigation
Statutory appeal by Official Liquidator against Full Bench order refusing to declare income tax demand not payable at that stage; dispute over priority of tax dues in company liquidation.
Remedy Sought
Official Liquidator sought direction that income tax claimed by respondent is not payable at that stage and that the Income Tax Officer should wait and prove his claim before the Official Liquidator when list of creditors is settled.
Filing Reason
After winding up, Income Tax Officer finalized assessment for 1972-73 and demanded Rs.1,027/- (tax Rs.934/- plus interest Rs.93/- under Section 220(2)); Official Liquidator contended the amount was provable debt and not immediately payable; after Tax Recovery Officer issued demand, liquidator filed report No. 53 seeking directions.
Previous Decisions
Company Judge referred matter to Division Bench doubting earlier Division Bench decision in A.S. No. 224/1968; Division Bench referred to Full Bench; Full Bench by order dated 10.8.1978 negatived liquidator's prayer; appeal to Supreme Court.
Issues
Whether Section 178 of the Income-tax Act affects or alters the existing law of priority or overrides the provisions of preferential payment provided in Section 530 of the Companies Act.
Whether the legal effect of Section 178 of the Income-tax Act is that the Income Tax Officer is entitled to the payment of the tax demanded otherwise than as provided in the Companies Act.
Submissions/Arguments
Appellant/liquidator argued that tax and interest constituted debt provable in winding up, not payable straightaway; tax was due within 12 months before relevant date under Section 530(8)(c) and Section 530(1)(a) priority not applicable; Income Tax Officer should prove claim when list of creditors settled.
Respondent/Revenue contended that Section 178 of Income-tax Act entitles Income Tax Officer to demand payment otherwise than as provided in Companies Act, relying on Section 178(6) non obstante clause.
Judgment Excerpts
The sole question that arises for consideration in this case is, whether section 178 of the Income-tax Act affects or alters the existing law so priority or overrides the provisions of preferential payment provided in Section 530 of the Companies Act.
The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force.
In a winding up, subject to the provisions of Section 529A, there shall be paid in priority to all other debts-- (a) all revenues , taxes, cases 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;
The sole question for our consideration is, which of the rival views is correct.
Procedural History
The company was ordered to be wound up on 1.6.1973 in C.P. No. 7 of 1973 by the High Court of Kerala. The Income Tax Officer finalized assessment for year 1972-73 on 31.3.1975, assessing tax of Rs.934 and interest Rs.93 under Section 220(2), total Rs.1,027. The Official Liquidator intimated the Income Tax Officer on 8.5.1975 that the amount was a debt provable in winding up and not immediately payable. The Income Tax Officer issued a certificate to the Tax Recovery Officer and by letter dated 8.12.1976 demanded immediate payment of Rs.1,027; notice of demand followed, and on 15.1.1977 wrote again to the Liquidator. The Official Liquidator filed report No. 53 dated 20.1.1977 seeking directions. The Company Judge referred the matter to Division Bench doubting earlier Division Bench decision in A.S. No. 224/1968. The Division Bench referred to Full Bench by order dated 27.6.1977. The Full Bench by judgment dated 10.8.1978 negatived the liquidator's prayer. The Official Liquidator appealed to Supreme Court.
Acts & Sections
- Income-tax Act, 1961: 178, 220(2)
- Companies Act, 1956: 446, 447, 456, 511, 529, 529A, 530
