Advance income-tax as debt due and payable retains winding-up priority once demanded under the statutory tax machinery.

Advance income-tax demanded under section 18A was treated as part of the statutory tax-collection scheme and, once quantified by a notice of demand under section 29 and made payable under section 45, it became tax due and payable. The Court held that for winding-up priority purposes under section 230(1)(a) of the Indian Companies Act, the debt retained its character as payable tax even though final assessment and interest issues arose later. The later regular assessment did not displace the priority already attached at the date of the winding-up order. Accordingly, the claim to preferential payment was upheld.

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Issues: Whether advance income-tax demanded under section 18A of the Income-tax Act formed a tax due and payable so as to rank for preferential payment under section 230(1)(a) of the Indian Companies Act in the winding up of the company.

Analysis: Advance tax under section 18A was treated as part of the statutory scheme of tax collection on a "pay as you earn" basis. The demand was issued under the Act, a notice of demand under section 29 was served, and section 45 made the amount payable in accordance with that demand. The Court held that once tax is quantified and demanded under the statutory machinery, it becomes a debt due and payable, and the provision for interest or later final assessment does not alter its character for priority purposes. The later regular assessment did not destroy the priority already attached on the date of the winding up order.

Conclusion: Advance income-tax demanded under section 18A was held to be tax due and payable within the relevant period and therefore entitled to priority under section 230(1)(a) of the Indian Companies Act. The appeal was dismissed and the claim of priority was upheld.

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