Final income-tax assessment binds liquidator in liquidation unless fraud is proved, so the tax claim must be admitted.

A final income-tax assessment made under section 23(4) of the Income-tax Act, 1922, after the assessee failed to file returns and produce books, and after statutory remedies were exhausted or not pursued, bound the liquidator in liquidation. The liquidator could not reject the tax claim merely because the books suggested a smaller profit or loss or because the assessment had not been fully contested. The claim could be displaced only if the assessment was shown to be vitiated by fraud. The income-tax claim therefore had to be admitted.

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Issues: Whether an income-tax claim founded on assessments completed under section 23(4) of the Income-tax Act, 1922, and left unchallenged after dismissal of the assessee's appeals, could be rejected by the liquidator in liquidation proceedings on the ground that the books indicated only a small profit or loss and that the assessments had not been properly contested.

Analysis: The assessments were made after the company failed to file returns and failed to produce books despite notices under sections 34 and 22(2) of the Income-tax Act, 1922, and the Income-tax Officer assessed the income under section 23(4). Applications under section 27 were rejected, the appeals before the Appellate Assistant Commissioner were dismissed, and no further appeal was pursued. In these circumstances, the assessments had become final. The Court distinguished cases where the tax had not become due before winding up or where special facts justified a different result, and followed the principle that an assessed tax, once final, cannot be reopened by the liquidator in liquidation proceedings unless the assessment is shown to be vitiated by fraud.

Conclusion: The liquidator was not justified in rejecting the income-tax claim, and the claim had to be admitted.

Final Conclusion: A final and unchallenged income-tax assessment, in the absence of fraud, binds the liquidator and cannot be disregarded in liquidation proceedings merely because the books suggest a different income position.

Ratio Decidendi: An assessment under the Income-tax Act, 1922, which has become final after the assessee's statutory remedies are exhausted or not pursued, is a binding provable claim in liquidation and cannot be reopened by the liquidator except on proof of fraud.

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