1972 (1) TMI 60 - SC - Companies Law

Income-tax Officer's Exclusive Jurisdiction Upheld for Reassessment Proceedings

The Supreme Court held that the Income-tax Officer has the exclusive jurisdiction to conduct reassessment proceedings and determine tax liabilities ... Whether assessment or reassessment proceedings can be considered to be legal proceedings as contemplated by section 446 of the Act? Held that:- The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under section 446 of the Act. The liquidation court, in our opinion, cannot perform the functions of Income-tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the court. The orders made by the Income-tax Officer in the course of assessment or reassessment proceedings are subject to appeal to the higher hierarchy under the Income-tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income-tax. It would lead to anomalous consequences if the winding-up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The argument on behalf of the appellant by Shri Desai is that the winding-up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of section 446 must be so construed as to eliminate such startling consequences as investing the winding-up court with the powers of an Income-tax Officer conferred on him by the Income-tax Act, because, in our view, the legislature could not have intended such a result. Appeal dismissed. Issues Involved:1. Jurisdiction of the Income-tax Officer to issue reassessment notices without the leave of the High Court.2. Interpretation of the term 'legal proceedings' under section 446(1) of the Companies Act, 1956.3. Whether assessment or reassessment proceedings fall under the jurisdiction of the winding-up court.Detailed Analysis:1. Jurisdiction of the Income-tax Officer to issue reassessment notices without the leave of the High Court:The Colaba Land and Mills Co. Ltd., ordered to be wound up by the Bombay High Court, faced reassessment notices issued by the Income-tax Officer for the years 1950-51 to 1955-56. The official liquidator questioned the jurisdiction of the Income-tax Officer to issue these notices without the High Court's leave, as mandated by section 446(1) of the Companies Act, 1956. The High Court initially restrained the Income-tax Officer from proceeding with the reassessment without obtaining the court's leave. However, upon appeal, the Division Bench reversed this order, accepting the contention that the Income-tax Officer had exclusive jurisdiction to make reassessments and determine tax liabilities, thus not requiring the leave of the company court.2. Interpretation of the term 'legal proceedings' under section 446(1) of the Companies Act, 1956:Section 446(1) stipulates that no suit or other legal proceeding shall commence or continue against a company in liquidation without the court's leave. The appellate Bench did not find it necessary to decide whether reassessment notices under section 148 of the Income-tax Act constituted 'legal proceedings' under section 446(1). Instead, they relied on the precedent set in Damji Vali Shah v. Life Insurance Corporation of India, which supported the view that the Income-tax Officer's reassessment proceedings did not fall within the jurisdiction of the winding-up court.3. Whether assessment or reassessment proceedings fall under the jurisdiction of the winding-up court:The Supreme Court examined the legislative history and scheme of the Companies Act, particularly section 446. It was noted that section 446 aims to prevent litigation against a company in liquidation without the court's leave, ensuring orderly and equitable distribution of the company's assets. However, the court concluded that assessment or reassessment proceedings under the Income-tax Act do not fall within the purview of 'legal proceedings' as intended by section 446. The Income-tax Act is a complete code with specific provisions for assessment and reassessment, which are not subject to the winding-up court's jurisdiction. The liquidation court retains the power to scrutinize the revenue's claim after the tax is determined, ensuring the company's and creditors' interests are protected.Conclusion:The Supreme Court dismissed the appeal, holding that the Income-tax Officer does not require the leave of the winding-up court to initiate or continue assessment or reassessment proceedings. The winding-up court's jurisdiction does not extend to performing the functions of an Income-tax Officer, and the legislative intent does not support such an interpretation. The decisions in Seth Spinning Mills Ltd. (In Liquidation) and Mysore Spun Silk Mills Ltd. (In Liquidation) were deemed incorrect regarding the requirement for the Income-tax Officer to obtain leave from the winding-up court.