Winding-up priority for advance income-tax: statutory demand creates enforceable tax liability and later assessment cannot defeat it.

Advance income-tax demanded under Section 18A was treated as a tax in the accepted sense, and liability became enforceable when statutory demand was served and the amount became payable under the income-tax scheme. On that basis, the demand, having arisen within twelve months before the winding up order, attracted priority under Section 230(1)(a) of the Companies Act. A later final assessment after the winding up order did not defeat that preferential claim, because the material date for priority was the winding up order and any excess on final assessment would only affect refund consequences. The State's priority claim was therefore upheld.

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Issues: (i) Whether advance income-tax demanded under Section 18A of the Indian Income-tax Act is a tax that becomes due and payable on service of demand so as to attract priority under Section 230(1)(a) of the Indian Companies Act; (ii) Whether a subsequent final assessment after the winding up order destroys the State's preferential claim.

Issue (i): Whether advance income-tax demanded under Section 18A of the Indian Income-tax Act is a tax that becomes due and payable on service of demand so as to attract priority under Section 230(1)(a) of the Indian Companies Act.

Analysis: The demand under Section 18A was treated as an exaction for public revenue and therefore a tax in the accepted sense. Under the income-tax scheme, liability becomes enforceable when a notice of demand is issued under Section 29 and the amount becomes payable under Section 45. For the purpose of Section 230(1)(a), the relevant question is whether the tax was due from the company and became due and payable within twelve months before the winding up order. Since the demand was raised within that period, the amount fell within the statutory priority.

Conclusion: Yes. Advance income-tax demanded under Section 18A is a tax within Section 230(1)(a), and the State is entitled to priority.

Issue (ii): Whether a subsequent final assessment after the winding up order destroys the State's preferential claim.

Analysis: The material date under Section 230 is the date of the winding up order. A later assessment cannot displace a preferential right that had already arisen on the date when the demand under Section 18A stood in existence. Any excess, if ultimately found on final assessment, may give rise to refund consequences, but that does not affect the priority already attached under the Companies Act.

Conclusion: No. A subsequent final assessment does not defeat the State's preferential claim.

Final Conclusion: The State's claim to priority over the demanded advance income-tax was upheld, and the appeal failed.

Ratio Decidendi: For winding-up priority, a tax becomes due and payable when a statutory demand is served, and a later assessment cannot extinguish a priority that had already accrued before the winding up order.

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