Legal proceeding definition limits post winding up tax recovery; tax collection requires leave of the winding up court.

The article clarifies that recovery steps under the income tax statutory recovery code constitute "a suit, or other legal proceeding" within the winding up framework, so tax recovery initiated after a winding up order cannot proceed without leave of the winding up court. It reasons that the phrase "law for the time being in force" embraces the Companies Act distribution scheme, that the pari passu and preferential payment rules limit any prerogative to prefer Crown debts, and that the Collector's statutory and quasi judicial recovery powers amount to legal proceedings for which leave or proof as a creditor is required.

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Issues: Whether the Income-tax Department may, without leave of the winding-up Court, proceed under Section 46 of the Indian Income-tax Act, 1922, to recover an assessment issued after the winding-up order, or whether it is bound to seek leave or prove as a creditor in the liquidation.

Analysis: The Court examined the scope of Section 226(1) of the Government of India Act, 1935, and held that where the challenge concerns whether an act of collection is being carried out according to the law for the time being in force, the High Court retains jurisdiction to determine that question. The Court interpreted the expression "law for the time being in force" as encompassing the whole body of applicable law, including the winding-up provisions of the Indian Companies Act, 1913. The Court analysed the Companies Act scheme, noting the pari passu principle in Section 211 and the preferential payment provisions in Section 230, and concluded that the Crown's prerogative to prefer its debts has been curtailed by the statutory distribution scheme. The Court construed Section 171's phrase "suit, or other legal proceeding" broadly to include proceedings of a legal character (not limited to suits in the strict technical sense). It examined the nature of recovery under Section 46(2) of the Income-tax Act and the Land Revenue Act recovery code, finding that the Collector's powers and the formal, statutory, and quasi-judicial processes involved make such recovery "legal proceedings" within the meaning of Section 171.

Conclusion: The Income-tax Department cannot, without leave of the winding-up Court, proceed under Section 46 of the Indian Income-tax Act, 1922, to recover the assessed amount; the recovery steps under Section 46 constitute "a suit, or other legal proceeding" within Section 171 of the Indian Companies Act, 1913, and are restrained unless leave is granted (ruling in favour of the liquidators/assessee).

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