1979 (1) TMI 196 - HC - Companies Law

High Court upholds Tribunal decision on Super Profits Tax Act, 1963. Standard deduction unascertainable for liquidating company.

Commissioner of Income-tax Versus Official Liquidator Palai Central Bank Ltd.

Commissioner of Income-tax Versus Official Liquidator Palai Central Bank Ltd. - [1979] 49 COMP. CAS. 268 (KER.) Issues Involved:1. Justification of the Tribunal's decision that no assessment under the Super Profits Tax Act, 1963, can be made on the assessee-company in liquidation.2. Interpretation of 'chargeable profits' and 'standard deduction' under the Super Profits Tax Act.3. Applicability of section 27 (exemption section) and section 4 (charging section) of the Super Profits Tax Act to a company in liquidation.4. Relevance of the Supreme Court's decision in Girdhardas case and the English decision in IRC v. George Burrell.Issue-wise Detailed Analysis:1. Justification of the Tribunal's Decision:The Tribunal held that no assessment under the Super Profits Tax Act, 1963, could be made on the assessee-company, which was in liquidation. The Tribunal reasoned that liquidation had not altered the status of the company and that the surplus was chargeable to super profits tax only under section 4 of the Act. It further opined that section 27 of the Act exempted a company from the provisions of the Act if it had no share capital, and this exemption could apply to a company in liquidation with no identifiable share capital. The Tribunal also noted that the standard deduction was incapable of ascertainment in the case of a company in liquidation, making the charging section, section 4, inapplicable.2. Interpretation of 'Chargeable Profits' and 'Standard Deduction':Section 2(5) of the Act defines 'chargeable profits' as the total income of an assessee computed under the Income-tax Act, 1961, adjusted according to the First Schedule. Section 2(9) defines 'standard deduction' as an amount equal to six percent of the company's capital or fifty thousand rupees, whichever is greater. The Tribunal found that in the case of a company in liquidation, the concept of share capital becomes irrelevant, and the standard deduction cannot be computed as per the Second Schedule. The Tribunal's view was that the liquidator's accounts do not reflect the capital or reserves required to ascertain the standard deduction.3. Applicability of Section 27 and Section 4:Section 27 exempts companies without share capital from the Act's provisions. The Tribunal interpreted this exemption to include companies in liquidation without identifiable share capital. Section 4, the charging section, imposes super-tax on chargeable profits exceeding the standard deduction. The Tribunal concluded that since the standard deduction could not be determined for a company in liquidation, section 4 could not be applied. The Tribunal's interpretation was supported by the provisions of sections 210 and 211 of the Companies Act and rules 298 and 299 of the Companies (Court) Rules, which indicate that a liquidator's accounts do not distinguish between capital and reserves.4. Relevance of Girdhardas Case and IRC v. George Burrell:The Tribunal referred to the Supreme Court's decision in Girdhardas case [1967] 63 ITR 300, which discussed the principle established in the English case IRC v. George Burrell [1924] 9 TC 27; [1924] 2 KB 52 (CA). The Supreme Court observed that in the hands of a liquidator, there is only one consolidated fund, and the distinction between capital and profits disappears. This principle was initially circumvented in the Indian context by amendments to the Indian Income-tax Act, 1922, but no similar amendment exists in the Super Profits Tax Act. Therefore, the Tribunal's reliance on the Burrell case was deemed appropriate, reinforcing that the fund in a liquidator's hands cannot be disaggregated into capital and profits for tax purposes.Conclusion:The High Court affirmed the Tribunal's decision, concluding that the Tribunal was justified in holding that no assessment under the Super Profits Tax Act, 1963, could be made on the assessee-company in liquidation. The court emphasized that the standard deduction was not ascertainable for a company in liquidation, and thus, the charging section could not be applied. The court also acknowledged the relevance of the Supreme Court's decision in Girdhardas case and the English decision in Burrell case, supporting the Tribunal's reasoning. The question referred was answered in the affirmative, favoring the assessee and against the revenue, with no order as to costs.