Revenue recovery against a company in liquidation needs winding-up leave, but section 226 can bar court restraint of bona fide tax collection.

Revenue recovery proceedings under section 46(2) of the Income-tax Act, 1922 against a company in liquidation were treated as an "other legal proceeding" within section 171 of the Indian Companies Act, 1913, so prior leave of the winding-up court was required before enforcement could continue. However, the High Court lacked jurisdiction to restrain the proceedings because section 226 of the Government of India Act, 1935 barred original jurisdiction in respect of acts done in the collection of revenue, where the revenue officers had bona fide believed the procedure adopted was legally available. The restraining order was therefore set aside on the jurisdictional ground.

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Issues: (i) Whether proceedings by the revenue authorities under section 46(2) of the Income-tax Act, 1922 for recovery of arrears from a company in liquidation required prior leave of the winding-up court under section 171 of the Indian Companies Act, 1913; (ii) Whether the High Court had jurisdiction, in view of section 226 of the Government of India Act, 1935, to restrain the revenue recovery proceedings.

Issue (i): Whether proceedings by the revenue authorities under section 46(2) of the Income-tax Act, 1922 for recovery of arrears from a company in liquidation required prior leave of the winding-up court under section 171 of the Indian Companies Act, 1913.

Analysis: The expression "other legal proceeding" in section 171 was held wide enough to include proceedings taken by the revenue authorities under section 46(2), even though they were not instituted in an ordinary court of law. The scheme of the Companies Act, including the provisions governing liquidation and the pari passu distribution of assets, showed that creditors seeking to enforce claims against a company in liquidation were subject to the control of the winding-up court. The Court rejected a narrow construction limiting section 171 to original civil suits only.

Conclusion: Yes. Prior leave of the winding-up court was required before the revenue authorities could proceed under section 46(2) against the company in liquidation.

Issue (ii): Whether the High Court had jurisdiction, in view of section 226 of the Government of India Act, 1935, to restrain the revenue recovery proceedings.

Analysis: The order of the High Court was treated as an exercise of original jurisdiction in a matter concerning an act done in the collection of revenue. Section 226 was held applicable to the jurisdiction exercised by the High Court under the Companies Act. The Court further held that the phrase "according to the law for the time being in force" covered cases where revenue officers bona fide and not absurdly believed that the adopted procedure was legally available. Since the certificate under section 46(2) had been issued in that belief, the High Court lacked jurisdiction to interfere.

Conclusion: No. Section 226 barred the High Court from exercising jurisdiction in the matter, and the injunction was ultra vires.

Final Conclusion: The appeal succeeded on the jurisdictional objection under section 226 of the Government of India Act, 1935, and the High Court's restraining order was set aside.

Ratio Decidendi: Revenue recovery proceedings taken under statutory machinery for collection of tax arrears can amount to a legal proceeding requiring winding-up leave, but where the High Court's intervention concerns an act in the collection of revenue bona fide believed to be authorized by law, section 226 of the Government of India Act, 1935 excludes original jurisdiction to restrain it.

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