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Issues: (i) Whether the High Court had jurisdiction under Section 226(1) of the Government of India Act, 1935, to examine whether the Income-tax Department could recover the assessed tax by proceedings under Section 46 of the Income-tax Act during the company's winding up; (ii) Whether proceedings for recovery of tax under Section 46 of the Income-tax Act were "legal proceedings" within Section 171 of the Companies Act, 1913, so as to require leave of the winding-up Court.
Issue (i): Whether the High Court had jurisdiction under Section 226(1) of the Government of India Act, 1935, to examine whether the Income-tax Department could recover the assessed tax by proceedings under Section 46 of the Income-tax Act during the company's winding up.
Analysis: The expression "matter concerning the revenue" was distinguished from "any act ordered or done in the collection thereof." The challenge before the Court was not to the levy or validity of the assessment as such, but to the mode of recovery adopted after the winding-up order. The Court held that Section 226(1) did not exclude jurisdiction to determine whether the proposed recovery was in accordance with the law for the time being in force, including the effect of the Companies Act on the collection process.
Conclusion: Jurisdiction was not barred; the High Court was entitled to decide whether recovery under Section 46 could proceed in the circumstances.
Issue (ii): Whether proceedings for recovery of tax under Section 46 of the Income-tax Act were "legal proceedings" within Section 171 of the Companies Act, 1913, so as to require leave of the winding-up Court.
Analysis: The Court rejected a narrow reading that would confine "other legal proceeding" to proceedings ejusdem generis with a suit. Read in the context of the winding-up scheme, Section 171 was held to extend to any proceeding of a legal character commenced or continued against the company. Recovery under Section 46 was a statutory, formal, coercive process through the Collector, with notice, attachment, sale, and other judicially regulated incidents, and therefore possessed the character of a legal proceeding. Since the winding-up provisions aimed at pari passu distribution, such proceedings could not continue outside the winding up without leave.
Conclusion: Proceedings under Section 46 were legal proceedings within Section 171, and leave of the winding-up Court was required.
Final Conclusion: The respondents could not continue tax recovery through the Collector without leave of the winding-up Court, and the petition for restraint was allowed.
Ratio Decidendi: In company winding-up, a statutory tax-recovery process that is legal in character is a "legal proceeding" requiring leave of the Court under Section 171 of the Companies Act, 1913, and the High Court may examine whether the proposed mode of collection is authorised by the law applicable in the circumstances.
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