1972 (2) TMI 17 - HC - Income Tax

Court allows Income-tax Officer to pursue advance tax payment in liquidation, deems income-tax an expense.

The court granted leave for the Income-tax Officer to proceed with legal proceedings for advance tax payment by a company in liquidation. It considered ... Winding-up of the company - advance tax - When business is carried on under section 457(1)(b) of the Companies Act for the beneficial winding-up of the company the payment of tax would be part of the costs and expenses of winding-up as per section 530(6) of the Companies Act - it is not necessary to anticipate the total income of the company for the assessment year in question on any hypothetical basis and that the Income-tax Officer should really wait until the close of the year and the filing of the return of income-tax by the company. I do not, however, think this argument can be upheld when the applicant only wants leave to proceed in the matter according to the law Issues:1. Whether a company in liquidation is obligated to pay advance tax under section 210 of the Income-tax Act, 1961 for the assessment year.2. Whether income-tax can be considered an expense of the winding-up process.3. Whether the Income-tax Officer can invoke section 210 of the Income-tax Act in a case involving a company in liquidation.4. Whether the specific provision of section 178 of the Income-tax Act prevails over the general provision of section 210 in cases of companies in liquidation.5. Whether advance tax can be considered an expense of winding-up.6. Whether the Income-tax Officer can proceed with the matter even if the company is under the management and control of the court through the official liquidator.Analysis:1. The judgment involves a summons taken out by the Income-tax Officer for leave to take legal proceedings against a company in liquidation for advance tax payment under section 210 of the Income-tax Act for the assessment year. The official liquidator objected to the grant of leave, arguing that the company is not obligated to pay income tax post liquidation. However, the court considered whether it is permissible for the Income-tax Officer to order advance tax payment by the company for its current business.2. The court analyzed that under section 457(1)(b) of the Companies Act, the liquidator has the power to carry on the business of the company for the beneficial winding-up. The court held that income-tax can be considered an expense of the winding-up process, citing a previous case where income-tax was deemed part of the expenses of winding-up, and sub-section (6) of section 530 of the Companies Act allows for the retention of such expenses.3. The court addressed the argument that the Income-tax Officer should only rely on section 178 of the Income-tax Act for claims against companies in liquidation and not invoke section 210. The court dismissed this argument, stating that section 178 does not cover cases where a company earns profits during the winding-up process, and section 210 can be used in appropriate cases.4. Regarding the conflict between sections 178 and 210, the court rejected the argument that section 178 should prevail over section 210, as section 178 does not consider cases where a company operates for beneficial winding-up and earns profits. The court emphasized that the Income-tax Officer can use section 210 in such scenarios.5. The court addressed the argument that advance tax should not be considered an expense of winding-up as it is paid in advance and not as an actual expense of running the business. The court disagreed, stating that when the liability to pay advance tax exists, it should be treated as an expense of winding-up under sub-section (6) of section 530.6. Lastly, the court rejected the argument that the Income-tax Officer should wait until the end of the year to assess income-tax, considering the company is under the court's management. The court granted leave for the Income-tax Officer to proceed with the matter according to the law, emphasizing the necessity to anticipate the company's income for the assessment year.In conclusion, the court granted leave for the Income-tax Officer to proceed with the legal proceedings for advance tax payment by the company in liquidation, considering income-tax as an expense of the winding-up process and allowing the use of section 210 in appropriate cases, irrespective of the company being under court management.