Income-tax assessment in liquidation is only prima facie proof; the liquidator may challenge it where suspicious circumstances exist.

In liquidation proceedings, an income-tax assessment is only prima facie evidence of a tax debt and not conclusive proof. Where suspicious circumstances suggest that the assessment may not reflect real income or profits, the liquidator may ask the court to go behind the assessment and require proof of a real and subsisting debt. The burden then rests on the liquidator to rebut the assessment by showing that no income was in fact earned or that no tax debt exists. A liquidation court should not reject the claim without permitting such rebuttal, so the tax claim should be treated as prima facie proved and investigated further.

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Issues: Whether, in liquidation proceedings, the income-tax authorities could prove their claim merely by producing the assessment order, or whether the liquidator could require proof of a real and subsisting tax debt and challenge the assessment.

Analysis: Under the insolvency rules applied in company winding-up, a creditor must establish a provable debt. An assessment to income-tax is evidence of taxable income and of the tax demand, but it is not conclusive. The Court held that, where circumstances create suspicion that the assessment may not reflect real income or profits, the liquidator is entitled to ask the Court to go behind the assessment. The assessment therefore stands only as prima facie proof, and the burden lies on the liquidator to rebut it by showing that no income was in fact earned or that no real tax debt exists. A liquidation court should not reject the tax claim without allowing such rebuttal.

Conclusion: The liquidator could challenge the assessment, but the assessment was not conclusive proof of the tax debt. The income-tax claim should have been treated as prima facie proved and investigated further, so the rejection of the claim was unsustainable.

Ratio Decidendi: In liquidation, an income-tax assessment is only prima facie evidence of the debt and the court may go behind it where suspicious circumstances exist, but the burden of disproving the assessment rests on the party challenging it.

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