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of <h1>Court denies application seeking stay based on income tax certificate; Companies Act doesn't override tax procedures.</h1> The court dismissed the application seeking a direction to stay proceedings based on an income tax certificate issued to a company. The applicant, a ... Income Tax, Liability To Tax Issues:Application for direction to stay proceedings in pursuance of income tax certificate; Dispute over amount owed by applicant to company; Allegations of mismanagement by managing director; Application under Companies Act for relief regarding management of company affairs; Application to appoint interim receiver for company management.Analysis:The judgment deals with an application seeking a direction to stay further proceedings based on an income tax certificate issued to a company. The applicant, a shareholder in the company, disputed a substantial sum claimed by the managing director, who is also the applicant's mother. The applicant alleged mismanagement by the managing director, including manipulation of accounts to show false debts owed by the applicant. The applicant sought to stay the tax recovery proceedings and appoint an interim receiver to manage the company's affairs.The managing director and the applicant's mother filed a counter-affidavit, asserting that the applicant was indeed indebted to the company and had benefited from various financial transactions. They argued against the application, stating that the company had improved financially and objected to the jurisdiction of the court in this matter. The income tax department also filed a counter-affidavit, emphasizing that the tax arrears and the applicant's debt to the company were separate issues from the company petition under the Companies Act.During the hearing, the applicant's counsel argued that mismanagement led to the tax liabilities and sought relief under the Companies Act to restrain tax recovery efforts. Conversely, the income tax department contended that the Companies Act provisions did not apply to tax recovery matters and that the applicant should address any objections through the Income-tax Act procedures.The judgment delves into the relevant sections of the Income-tax Act, particularly Section 226(3), which allows individuals to dispute amounts claimed by an assessee in default. The court emphasized that the Companies Act provisions were not intended to override the Income-tax Act's procedures for resolving tax disputes. The court highlighted that Sections 397 and 398 of the Companies Act aimed to address oppression and mismanagement within a company, not tax liabilities. Ultimately, the court dismissed the application, stating that the Companies Act could not be used to contest tax liabilities, and the applicant should pursue remedies under the Income-tax Act for any genuine disputes.
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