Court sanction requirement for enforcement in winding up prevents levy of tax interest against the official liquidator.

Whether tax interest under the Income-tax Act can be levied against a company in liquidation was addressed by applying the Companies Act requirement that court sanction is a precondition to enforcement during winding up; the absence of sanction under the statutory scheme invalidates attempts to levy or enforce interest against the official liquidator, and the challenge to the demand was allowed as unenforceable.

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Issues: Whether the levy and demand of interest under section 220(2) of the Income-tax Act, 1961, without obtaining prior sanction of the Court under section 446(2) of the Companies Act, 1956, is legal and enforceable against the official liquidator of a banking company in winding up.

Analysis: The proceedings examined involve corrective action under section 154 of the Income-tax Act, 1961, and subsequent demands for interest under section 220(2) of the Income-tax Act, 1961. The Companies Act, 1956, requires prior sanction of the Court under section 446 and specifically section 446(2) before taking steps to levy or enforce demands against a company undergoing winding up. The statutory requirement for court sanction operates as a precondition to the validity and enforceability of tax demands directed at a company in liquidation. The absence of the mandated sanction renders attempts to levy or enforce such interest inconsistent with the protective regime for companies in winding up.

Conclusion: The demand and levy of interest under section 220(2) of the Income-tax Act, 1961, made without obtaining the sanction of the Court under section 446(2) of the Companies Act, 1956, are illegal and unenforceable against the official liquidator; the application to cancel the demand is allowed, in favour of the assessee.

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