TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Court quashes demand notices, orders payment of costs. Sales tax department limited to 25% claim.</h1> <h3>Seksaria Cotton Mills Ltd. Versus AE Naik</h3> Seksaria Cotton Mills Ltd. Versus AE Naik - [1967] 37 COMP. CAS. 656 (BOM.) Issues Involved: Applicability of Section 391 of the Companies Act, 1956; Status of the Sales Tax Department as a creditor; Validity of demand notices under Article 226 of the Constitution.Issue-wise Detailed Analysis:1. Applicability of Section 391 of the Companies Act, 1956:The primary issue concerns the scope and effect of Section 391 of the Companies Act, 1956. The court examined whether the sales tax department was bound by a scheme of reconstruction sanctioned under this section. Section 391 allows a court to sanction a compromise or arrangement between a company and its creditors, making it binding on all creditors if approved by a majority representing three-fourths in value. The court noted that Section 391 applies to companies being wound up as well as those not in liquidation, provided they are not in sound financial condition. The court emphasized that the term 'creditor' in Section 391 should be interpreted broadly to include all claims against the company, whether present, future, certain, or contingent.2. Status of the Sales Tax Department as a Creditor:The court addressed whether the sales tax department was a 'creditor' of the company at the time the scheme of reconstruction was sanctioned. The respondents argued that the department did not become a creditor until the assessment orders were passed. However, the court held that the liability to pay tax arises earlier, even though the amount becomes quantified only upon assessment. The court referenced various legal provisions and precedents to conclude that the sales tax department had a claim against the company, making it a creditor in the context of liquidation proceedings. The court cited the case of In re Midland Coal, Coke and Iron Co., which interpreted 'creditor' in the widest sense to include all persons with pecuniary claims against a company.3. Validity of Demand Notices under Article 226 of the Constitution:The company filed a petition under Article 226 to quash the demand notices issued by the sales tax department. The respondents contended that the company should have pursued appeals under the Bombay Sales Tax Act, 1953, instead of invoking the court's extraordinary jurisdiction. The court rejected this preliminary objection, stating that the company's grievance was against the demand notices, not the assessment orders. The court held that the sales tax department, as an unsecured creditor, was bound by the scheme of reconstruction and could only recover 25% of its claim. Since the company had already deposited this amount, the respondents were not entitled to recover the amounts specified in the demand notices.Conclusion:The court granted the petition, quashing the demand notices and ordering the respondents to pay the petitioner's costs. The judgment affirmed that the sales tax department was a creditor under Section 391 and bound by the scheme of reconstruction, limiting its claim to 25% of the assessed amount.
TaxTMI 
TaxTMI 
