1985 (4) TMI 53 - HC - Income Tax

Court clarifies tax assessment in liquidation: interest recovery without sanction invalid.

The court held that assessment proceedings for income tax under section 220(2) of the Income Tax Act do not require prior sanction of the winding-up court ... Company, Company In Liquidation, Delay In Paying Tax, Interest Payable U/S 220(2) Issues:1. Whether the assessment of interest under section 220(2) of the Income Tax Act requires prior sanction of the winding-up court as per section 446(1) of the Companies Act, 1956.Analysis:The case involved the assessment of interest under section 220(2) of the Income Tax Act on a company in liquidation, where the official liquidator disputed the imposition of interest without the prior sanction of the winding-up court. The court examined the provisions of section 446(1) of the Companies Act, which require leave of the court for legal proceedings against a company in liquidation. The court referred to previous decisions and held that assessment proceedings for income tax do not fall under section 446 of the Companies Act, as the winding-up court cannot perform the functions of an Income Tax Officer. The court emphasized that the winding-up court's role is to scrutinize the claim of the revenue after tax determination, safeguarding the interests of the company and its creditors under the law.The court further discussed the need for prior sanction of the winding-up court for assessment of interest under the Income Tax Act and referred to a previous case where a Division Bench held that such sanction was necessary. However, the court disagreed with this view and clarified that there is no requirement for prior sanction of the winding-up court for the assessment of interest under section 220(2) of the Income Tax Act. The court highlighted that the question of interest payments and recovery from the company's funds is a matter for the winding-up court to decide under specific provisions of the Companies Act.Moreover, the court addressed a situation where the Income Tax Department adjusted a refund due to the company towards the assessed interest without obtaining prior leave of the court, deeming such recovery invalid. The court directed the Income Tax Officer to refund the interest recovered to the official liquidator of the company in liquidation. The appeal was disposed of accordingly, with no order as to costs.In conclusion, the court clarified that assessment proceedings for income tax do not require prior sanction of the winding-up court under section 446(1) of the Companies Act, and the recovery of interest without such sanction is deemed invalid. The court emphasized the role of the winding-up court in overseeing the claims and payments during liquidation proceedings, ensuring the protection of the company's assets and creditors' interests.