1977 (3) TMI 22 - HC - Income Tax

Official liquidator not personally liable for interest on tax demands without court approval

The court held that the official liquidator cannot be held personally liable to pay interest on tax demands without court approval. While section 220(2) ... Company Court, Tax Liability Issues:1. Liability of the official liquidator to pay interest on tax demand under section 220(2) of the Income-tax Act.2. Whether the tax demand on the income of the company arising from the sale of assets during winding-up should be treated as a preferential claim, ordinary claim, or an expense of winding-up.Analysis:1. The official liquidator sought a decision on his liability to pay interest of Rs. 6,228 on a tax demand of Rs. 73,187 under section 220(2) of the Income-tax Act. The liquidator had contested the revised tax demand of Rs. 97,037 and filed an appeal. The court had previously ratified a payment of Rs. 40,000 and issued an interim order restraining the Income-tax Officer from enforcing the balance demand until the legality of the assessment was determined. The liquidator eventually paid the balance tax of Rs. 33,187 on September 1, 1976. The Income-tax Officer then demanded interest of Rs. 6,228 under section 220(2), which the liquidator contested, citing procedural delays and lack of court approval for the demand.2. The court analyzed the provisions of sections 220 to 232 of the Income-tax Act, focusing on section 220(2) which imposes liability on the assessee to pay interest for delayed tax payment. The court noted that while the tax assessed post-liquidation is payable as winding-up expenses, the decision on payment of interest should be subject to court scrutiny based on the circumstances of each case. Referring to a Supreme Court judgment, the court highlighted the power of the liquidation court to review revenue claims post-tax assessment and determine the lawful liability on the company's funds. The court emphasized that interest demands post-winding-up commencement should be subject to court approval to safeguard the interests of all creditors.3. The court concluded that while section 220(2) makes the assessee liable for interest, the official liquidator, bound by court approval for fund utilization, cannot pay without court sanction. Therefore, the Income-tax Officer must obtain court approval for interest claims, and failure to do so renders the demand unenforceable against the company in liquidation. The court restrained the Income-tax Officer from enforcing the interest claim unless in accordance with the Companies Act provisions. The order was made accordingly, emphasizing the need for court approval in such matters to protect the interests of all creditors and ensure proper distribution of assets in liquidation proceedings.