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Issues: (i) Whether, on nationalisation of the sick textile undertaking, the transferee corporation became the successor of the company for the purpose of section 170(3) of the Income-tax Act, 1961 and was liable for the company's tax arrears. (ii) Whether the provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974 excluded recovery of the company's income-tax arrears from the transferee or its successors, leaving the company itself or the compensation payable under the Act as the proper source for recovery.
Issue (i): Whether, on nationalisation of the sick textile undertaking, the transferee corporation became the successor of the company for the purpose of section 170(3) of the Income-tax Act, 1961 and was liable for the company's tax arrears.
Analysis: The acquisition under the nationalisation statute extended only to the undertaking, not to the company as a legal entity. The company continued to exist and remained the assessable entity. The statutory transfer of the undertaking to the Central Government and thereafter to the corporation did not amount to succession to the business of the company for the purposes of section 170(3). The liabilities enforceable against the transferee were confined to those expressly specified in section 5(2) of the nationalisation statute, and arrears of income-tax were not among them.
Conclusion: The transferee corporation was not the successor-in-interest of the company under section 170(3) and was not liable for the company's income-tax arrears.
Issue (ii): Whether the provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974 excluded recovery of the company's income-tax arrears from the transferee or its successors, leaving the company itself or the compensation payable under the Act as the proper source for recovery.
Analysis: The nationalisation statute is a special enactment governing liabilities arising from sick textile undertakings. It provided a complete mechanism for claims, priorities, and payment out of the compensation amount, with revenue and tax claims falling within the statutory priority scheme. The statute therefore controlled the manner in which such dues could be realised. The Income-tax Officer could not bypass that scheme by treating later transferees from the Central Government as successors, nor could the tax demand be indirectly added to the compensation fixed by Parliament. Recovery, if at all, had to proceed only in the manner authorised by the special statute and against the company or the compensation payable to it.
Conclusion: Recovery of the company's tax arrears against the transferee was impermissible, and the nationalisation statute governed the exclusive mode and source of recovery.
Final Conclusion: The reference was answered against the Revenue, holding that the transferee corporation had no successor liability for the company's income-tax arrears under the special nationalisation regime.
Ratio Decidendi: Where a special nationalisation statute acquires only the undertaking and preserves the existence of the company, the transferee of that undertaking does not become the company's successor for income-tax recovery unless the statute expressly so provides, and recovery must conform to the statutory liability and priority scheme laid down in the special Act.
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