Winding-up tax liabilities: income-tax on asset realisation is not a provable contingent debt, but ranks as winding-up expense.

Income-tax arising from the realisation of company assets during liquidation was not a contingent debt provable under the Companies Act because, on the winding-up date, no existing obligation could mature on a future uncertain event; the liability arose only when income and capital gains were earned during the liquidation process. Section 178 of the Income-tax Act was inapplicable because the tax related to post-winding-up income and the statutory notice procedure for pre-winding-up income had not been invoked. The demand also did not fall within section 530(1)(a) as it was not due within the statutory twelve-month period before winding up. However, tax incurred as a consequence of the liquidator's proper realisation of assets formed part of the costs, charges and expenses of winding up and had priority over unsecured creditors.

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Issues: Whether income-tax arising from the realisation of a company's assets during winding up is a contingent debt provable under the Companies Act or an expense incurred in the winding up payable in priority.

Analysis: Section 178 of the Income-tax Act was held to have no application because the tax in question related to income arising after the winding-up order and the statutory notice procedure had not been invoked in relation to pre-winding-up income. The tax demand was also held not to fall within section 530(1)(a) of the Companies Act because it did not become due within the statutory twelve-month period before winding up. The claim was further held not to be a contingent liability under section 528, since on the date of winding up there was no existing obligation capable of maturing on a future uncertain event; the liability arose only when income was earned and capital gains were realised during liquidation. The Court accepted that income-tax incurred as a consequence of the liquidator's proper acts in realising assets forms part of the costs, charges and expenses of winding up under sections 520 and 476.

Conclusion: The tax demand was not a provable contingent debt, but it was payable as an expense of the winding up in priority to distribution among unsecured creditors.

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