1952 (12) TMI 24 - HC - Companies Law

Sales Tax as Preferential Debt under Indian Companies Act Section 230(1)(a): Court Ruling

The court held that the sales tax amount of Rs. 759-8-9 is considered a preferential debt under section 230(1)(a) of the Indian Companies Act. The sales ... Winding up - Preferential payments Issues Involved:1. Whether sales tax is to be treated as a preferential debt within the meaning of section 230 of the Indian Companies Act.2. From which date the sales tax is considered due and payable - from the date of demand, the date when the sale price is received, or any other date.Issue-wise Detailed Analysis:1. Whether sales tax is to be treated as a preferential debt within the meaning of section 230 of the Indian Companies Act:The court examined whether the sales tax amount of Rs. 759-8-9 due from the company should be treated as a preferential debt under section 230(1)(a) of the Indian Companies Act. Section 230(1)(a) states that in a winding up, all revenue, taxes, cesses, and rates due from the company at the date of the winding-up order and having become due and payable within the twelve months next before that date, shall be paid in priority to all other debts.The court clarified that the amount of Rs. 759-8-9 is indeed a tax and must satisfy two conditions to be considered a preferential debt:- It must have been due at the date of the winding-up order.- It must have become due and payable within twelve months before that date.The court concluded that the amount of Rs. 759-8-9 satisfies both conditions, as it was due on the date of the winding-up order (18th July 1950) and became due and payable within twelve months before that date (17th May 1950, when the notice of demand was served). Therefore, the sales tax amount is entitled to preferential payment under section 230(1)(a) of the Indian Companies Act.2. From which date the sales tax is considered due and payable - from the date of demand, the date when the sale price is received, or any other date:The court addressed the contention regarding the date from which the sales tax becomes due and payable. The official liquidator argued that the tax became due only after the last date of payment mentioned in the notice of demand, i.e., 30th June 1950, which was after the relevant date of the winding-up order.The court referred to the principle laid down by the Judicial Committee in the case of Doorga Prosad Chamria v. The Secretary of State, which stated that tax becomes due when a demand is made under the relevant sections of the Income-tax Act. Applying this principle to the Bengal Finance (Sales Tax) Act, the court held that the sales tax became due when the notice of demand was served on the company on 17th May 1950.The court also considered the argument that the tax became due and payable when the returns for the quarters concerned became due to be filed. However, the court rejected this argument, stating that the tax becomes due and payable only when it is assessed and a notice of demand is served. The court emphasized that the sales tax under the Bengal Finance (Sales Tax) Act, similar to income tax, does not become due and payable until an assessment is made and a demand notice is served.The court concluded that the amount of Rs. 759-8-9 became due and payable on 17th May 1950, when the notice of demand was served, and since it remained due on 18th July 1950, the date of the winding-up order, it is entitled to priority under section 230(1)(a) of the Indian Companies Act.Conclusion:The court answered the reference by stating that the sales tax amount of Rs. 759-8-9 is to be treated as a preferential debt under section 230(1)(a) of the Indian Companies Act, as it became due and payable on 17th May 1950, well within twelve months before the winding-up order dated 18th July 1950. The rest of the application of the official liquidator will be dealt with by the Company Judge, and the State of West Bengal will have the costs of this reference, such costs and the costs of the official liquidator to come out of the assets of the company.