1953 (11) TMI 23 - HC - Income Tax

Court affirms priority of advance income-tax in winding-up, costs awarded to liquidators.

Joint Official Liquidators of The Peerdan Juharmal Bank Ltd. Versus Commissioner of Income-Tax, Madras

Joint Official Liquidators of The Peerdan Juharmal Bank Ltd. Versus Commissioner of Income-Tax, Madras - [1954] 25 ITR 140 (Mad) Issues Involved:1. Whether the State is entitled to preferential payment of advance income-tax demanded under Section 18A of the Indian Income-tax Act in the winding up of a company under Section 230 of the Indian Companies Act.2. Whether advance income-tax qualifies as a tax under Section 230(1)(a) of the Indian Companies Act.3. Whether the final assessment of income-tax supersedes the advance income-tax assessment after the winding-up order.Detailed Analysis:Issue 1: Preferential Payment of Advance Income-TaxThe core issue in this appeal is whether the State is entitled to preferential payment of the amount demanded as advance income-tax under Section 18A of the Indian Income-tax Act during the winding up of a company, specifically under Section 230 of the Indian Companies Act. The company in question, Peerdan Juhurmal Bank Ltd., was ordered to be wound up on 12th September 1949. A demand under Section 18A was made on 5th October 1948, which falls within the twelve months preceding the winding-up order. The learned Judge, Krishnaswami Nayudu, J., had ruled in favor of the State's claim for priority.Issue 2: Qualification of Advance Income-Tax as a TaxThe appellants contended that advance income-tax does not fall within the category of taxes specified in Section 230(1)(a) because it is not a tax and was not due as income-tax at the date of the winding-up order. However, the court rejected this argument, stating that 'a tax in the general understanding of the term signifies an exaction for the support of the Government.' The court referred to various definitions and precedents to establish that the amount imposed and demanded as advance income-tax is indeed a tax within the accepted meaning of that term. The court also clarified that the liability to pay income-tax arises under the Income-tax Act, which is a permanent enactment, and not merely due to the Finance Act.Issue 3: Final Assessment vs. Advance Income-TaxThe appellants argued that the final assessment of income-tax, conducted after the winding-up order, supersedes the advance income-tax assessment, and therefore, the advance tax ceases to be due and payable. The court, however, disagreed, stating that under Section 230, the material date is the date of the winding-up order. If a notice of demand for payment of tax under Section 18A exists on the date of the winding-up order, any subsequent assessment does not nullify the State's preferential right under Section 230(1)(a). The court cited the Privy Council's observation that tax becomes due when demand is made under Section 29 and Section 45 of the Income-tax Act. Therefore, the advance tax demanded within the prescribed period falls within the category mentioned in Section 230(1)(a).Supporting Case Law:The court referred to the decision of a Special Bench of the Calcutta High Court in Recols (India) Ltd., which supported the view that taxes become due and payable only when they are ascertained, quantified, and notified to the assessee with a demand for payment. This principle was applied to both the Sales Tax Act and the Income-tax Act, reinforcing the court's decision that advance income-tax demanded under Section 18A is a tax due and payable within the meaning of Section 230(1)(a).Conclusion:The court upheld the judgment of Krishnaswami Nayudu, J., and dismissed the appeal, affirming that advance income-tax demanded under Section 18A within twelve months before the date of the winding-up order is a tax falling within Section 230(1)(a) of the Indian Companies Act. Consequently, the State is entitled to priority over other debts. The appeal was dismissed with costs, and the liquidators were allowed to recover their costs from the assets of the company.Judgment:The appeal is dismissed with costs. The liquidators can have their costs from the assets of the company. Appeal dismissed.