1977 (12) TMI 109 - HC - Companies Law

Court Grants Leave for Advance Tax Notice in Liquidation: Balancing Statutory Provisions for Company Protection

The court granted leave to the Income Tax Officer to issue a notice for advance tax for the specified year for a company in liquidation under section 210 ... Winding up – Suits stayed on winding-up order Issues:- Whether leave should be granted to the petitioner to make orders under section 210 of the Income Tax Act, 1961, requiring a company in liquidation to pay advance tax to the Central Government.- Whether the Income Tax Officer (ITO) needs to obtain leave from the court before issuing notice for payment of advance tax in the case of a company in liquidation.- Whether income tax is a necessary expense in the winding up of a company and should be paid before distribution of assets to creditors.- Whether the scheme drawn up for a company in liquidation binds the income tax authorities.- Whether the court should grant leave to issue notice to the official liquidator under the Income Tax Act.Analysis:The petitioner, an Income Tax Officer, sought leave to make orders under section 210 of the Income Tax Act, 1961, for a company in liquidation to pay advance tax for the assessment year 1978-79. The official liquidator opposed this, arguing that income tax of a company in liquidation is not taxable and that the official liquidator is estopped from making payments due to a court order. The petitioner relied on legal precedents to support the position that income tax is a part of winding up expenses and the official liquidator can be required to retain the amount payable under the Companies Act.In a previous case, it was held that the ITO can commence or continue assessment proceedings for a company in liquidation without obtaining leave from the court. The court emphasized that the liquidation court can safeguard the interests of the company and creditors regarding income tax liabilities. Another ruling highlighted that the ITO must seek leave of the court before issuing notices under the Income Tax Act.Considering the legal precedents, the court granted leave to the petitioner to issue notice for advance tax for the specified year. However, the court reserved the right to pass further orders after quantifying the tax liability to protect the interests of the company and its creditors. The court acknowledged the pending appeals related to previous orders and refrained from expressing opinions on those matters due to their sub judice status.The judgment underscored the importance of balancing the statutory provisions of the Income Tax Act with the interests of the company in liquidation and its creditors. It affirmed that while the ITO can proceed with tax assessments, the court retains the authority to ensure fair treatment of tax liabilities in the winding-up process.