Rajamannar, C. J. -
(1.) THIS appeal against the judgment of Krishnaswami Nayudu J. raises an interesting question of law. It arises in the compulsory winding up of a company incorporated under the Indian Companies Act, called the Peerdan Juhurmal Bank Ltd. The order for winding up was passed on 12-9-1949. On 5-10-1943, a demand under Section 18-A, Indian Income-tax Act, was made on the Bank. The question is whether in the winding up, the State is entitled to preferential payment of the amount of this demand under Section 230, Indian Companies Act. The learned Judge, Krishnaswami Nayudu J. held that the State was entitled to the priority claimed. The Joint Official Liquidators of the Bank are the appellants.
(2.) UNDER Section 230 (1) (a) the State is entitled to be paid in priority to all other debts, all revenue, taxes, cesses and rates due from the company at the date specified in Sub-section (5) of Section 230 and having become due and payable within the twelve months next before that date. Subsection (5) specifies the material date in the case of a company ordered to be wound, up compulsorily, which had not previously commenced to be wound up voluntarily, as the date of the winding-up order; and it is common ground that the company in this case is one such company. The material date is, therefore, 12-9-1949. As already mentioned, the notice of demand UNDER Sec. 18-A of the Income-tax Act was issued on 5-10-1948, that is, within the twelve months next before the date of the winding-up order.
Mr. Vidyasankar, learned counsel for the appellants, contended that the State was not entitled to priority because advance income-tax demanded under Section 18-A, Income-tax Act does not fall within the category of taxes specified in Section 230 (1) (a) because (1) it is not a tax and (2) it is not due as income-tax from the company at the date of the winding-up order and did not become due and payable as income-tax within the prescribed period.
It is impossible to accept the contention of Mr. Vidyasankar that the amount demanded as advance income-tax under Section 18-A of the Income-tax Act is not a tax. "A tax in the general understanding of the term........ signifies an exaction for the support of the Government" (Vide --'United Stater, v. Butler', (1933) 80 Law Ed 477 at p. 486 (A). The primary meaning and object of taKation is raising money for the purposes of Government by means of contributions from individual persons (Vide -- 'The King v. Barger', 6 Com-W LR 41 at p. 68 (B)). Cooley in his Constitutional Law (4th Edn.), at page 61 defines taxes thus:
"The word 'taxes' in its most enlarged sense embraces all the regular impositions made by Government upon the person, property, privileges, occupations and enjoyments of the people for the purpose of raising public revenue."
There can be no doubt whatever that the amount imposed and demanded as advance income-tax is a tax within the accepted meaning of that term.
The argument of Mr. Vidyasankar that advance income-tax was not, properly speaking, income-tax within the meaning of the Act, was based on Section 3, Income-tax Act, which provides for the rate at which the income-tax shall be charged for any year. That section provides that where any Central Act enacts that income-tax snail be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of the Act.
In the first place, it is not correct to say that the liability to income-tax arises by reason of the enactment of any Central Act like the Finance Act other than the Income-tax Act. It is true that it is the Finance Act which makes the Income-tax Act operative. But the Income-tax Act is a permanent enactment, and its provisions may be enforced even if there should be delay in the passing of the Finance Act in any financial year, because then the charge would be according to the rates fixed by the Finance Act of the previous "year or in any Finance Bill then pending before the Legislature (Section 67-B). In the second place, we are not now concerned with the question whether the advance tax would be income-tax falling within Section 3, Income-tax Act. We need not, therefore, deal with the other ancillary argument of Mr. Vidyasankar that the advance tax is not, properly speaking, income-tax, because there is no assessment and there is no provision for an appeal.
Reliance was placed by learned counsel for the appellants on the following passage in Sir Jamshedji E. Kanga's the Law and Practice of Income-tax (2nd Edn.), at p. 5S9:
"It has been noted above that under this Act the subject of charge is the income of the previous year and not the income of the assessment year; in other words, the tax is assessed and paid in the next succeeding year upon the results of the year before. Secondly, there is no liability to tax until the annual Finance Act is passed charging the income of the previous year. This section contrives to reconcile the principle of advance payment of tax with the scheme of the Act which is to tax the income of the pre- vious year. The basis of the section is the principle of "pay as you earn" i.e., paying tax by instalments in respect of the income of the very year in which the tax is paid.
But the section cannot directly levy any tax on the income of the assessment year, because under the charging sections which are Sections 3 and 55, income-tax and super-tax respectively can be levied at the rates specified in the annual Finance Act only in respect of the income of the previous year. So Sub-section (1) of this section provides for the payment of tax in respect of the income-tax of 'the latest previous year', while under Sub-section (11) the tax so paid is treated as having been paid in respect of the income of the year of payment and credit therefore is given to the assessee in the regular assessment made in the next financial year. The advance payment of tax is only provisional, and if after the regular assessment is made the tax paid in advance is found to be in excess of the tax payable, the assessee would be entitled to a refund of such excess."
(3.) WE fail to see how these above features of the advance income tax have a material bearing on the question which falls for decision in this case. That question is whether the amount for which a demand has been issued and which we have already held is in the nature of a tax is due from the company at the date of the winding up order and became due and payable within twelve months next before that order.
Section 29 of the income-tax Act provides that when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of the Act, the Income-tax Officer shall serve upon the assessee or other person liable to pay such tax penalty or interest a notice of demand in the prescribed form specifying the sum so payable. Under Section 45, any amount specified as payable in a notice of demand under Section 29 shall be paid within the time, at the place and to the person mentioned in the notice or order, or if a time is not so mentioned, then on or before the first day of the second month following the date of the service of the notice or order. As observed by the Privy Council in -- 'Doorga Prasad v. Secretary of State', AIR 1945 PC 62 at p. 64 (C), the tax becomes due when demand is made under Section 29 and under Section 45 of the Act. "It then becomes a debt due to the Crown." In the present case, it is common ground that there was a demand of the advance tax within the prescribed period. The tax, therefore, became due and payable on such demand. It would, therefore, fall within the category mentioned in Section 230 (1) (a), Indian Companies Act.
Mr. Vidyasankar sought support from the ruling of a Special Bench of the Calcutta High Court in -- 'Racols (India) Ltd. In re', 1953-4 STC 271 (Cal) (D). On a close analysis of the decision, we are of opinion that far from the decision supporting the appellants, its 'ratio decidendi' is definitely against the contention of the appellants. The material facts in that case were as follows: A private limited company was directed to be wound up by an order made on 18-7-1950. At the time of the settlement of the list of creditors by the liquidator, the Commercial Tax Officer demanded payment of a sum of Rs. 760-10-9 as arrears of sales-tax due from the company for the four quarters ending on 31-3-1948. The notice of demand was issued on 17-5-1950. Prior to the win ding-up proceeding, the company had filed returns on 2-4-1948 and 7-7-1948 for sales tax for four quarters from M-I947 to 31-3-1948 and paid the money as per the returns filed by them. The returns were, however, found by the Assessing Authorities to be insufficient. The company was assessed thereafter under Section 11, Bengal Sales Tax Act, and notice was issued for the balance due after crediting the amounts paid with the returns.
The question was whether the Sales Tax Authorities were entitled to a preferential payment of this amount under Section 230 (1) (a), Companies Act. It was held that the said amount became due and payable on 17-5-1950 when the notice of demand was served and therefore the State was entitled to preferential payment under Section 230 (1) (a), Indian Companies Act. So far as the decision goes, it does not help the appellants. The argument on behalf of the Official Liquidator was founded on the fact that the returns for the four quarters were made beyond the period specified in Section 230 (1) (a), Indian Companies Act.
The provisions in the Bengal Finance (Sales Tax) Act, which are more or less similar to the provisions in our Act, dealing with the submission of returns, are as follows:
"10. (1) Tax payable under this Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed.
(2) Such dealers as may be required so to do by the Commissioner by notice served in the prescribed manner and every registered dealer shall furnish such returns by such dates and to such authority as may be prescribed;
Provided, that if any dealer establishes to the satisfaction of the Commissioner that his average taxable turnover does not exceed ten per centum of his average gross turnover, the returns furnished by such dealer under this sub-section shall be annual returns.
(3) Before any registered dealer furnishes the returns required by Sub-section (2), he shall, in the prescribed manner, pay into a Government Treasury or the Reserve Bank of India the full: amount of tax due from him under this Act according to such returns, and shall furnish along with the returns a receipt from such. Treasury or Bank showing the payment of such amount."
The company had not only submitted their returns as required by the above provisions, but had also paid the full amount of tax due from them according to such returns.
The argument on behalf of the Liquidator was, that all sales taxes, whether subsequently assessed or not, became due and payable as soon as the relevant returns became due to be furnished, and as that date was beyond the prescribed period, though the actual assessment was made subsequently and within the prescribed period, the liability must be traced to the anterior date, namely, the date on which the returns were due. This argument was overruled, and if we may say so with great respect, quite rightly. The learned Judges repelled the contention that the moment a return was made, the tax calculated on the material furnished by the return became due and payable.
Chakravartti C. J. observed that for the purposes of Section 230 (1) (a) a tax is due and payable only when it has been ascertained, quantified and notified to the assessee with a demand for payment and that was the effect of the Sales Tax Act as much as of the Income-tax Act. Ordinarily, a dealer pays along with the return the sales tax due according to the return. In that case, there is no demand at all by the Sales-tax authorities until the final assessment is made. If a balance is still due, then there is a demand for such balance which becomes due and payable. There may be, however, a possible contingency that the tax or the entire tax due according to a return is itself not paid. The learned Chief Justice was inclined to the view that the balance of tax so due might fall within Section 230 (1) (a) of the Indian Companies Act, but that was not the case before them.
We do not think that either the decision or the observations in this case can be of any assistance to the appellants. There is no substantial difference between the scheme of the Sales Tax Act and that of the Income-tax Act. Under the Sales Tax Act, the dealer is expected to pay the tax calculated according to the returns along with the returns. But there is no demand as such ever made by the Sales Tax authorities until a final assessment is made under Section 11 of the Act. On the other hand, the Income-tax authorities make a demand of payment of the advance tax under Section 18-A. Once a tax is demanded, it becomes due and payable. We, therefore, hold, agreeing with Krishnaswami Nayudu J. that advance income-tax demanded under Section 18-A, Income-tax Act, within twelve months before the date of the winding-up order is a tax falling within Section 230 (1) (a), Indian Companies Act, in respect of which the State has got a priority to all other debts.
It only remains to deal with one other contention of Mr. Vidyasankar. It is this: After the winding-up order, there was a final assessment of income-tax. It was argued that the final assessment supersedes the assessment of advance income-tax, and therefore the advance as such ceases to be due and payable.
Learned counsel relied on the decision of a single Judge of the Calcutta High Court, Das Gupta J. in -- 'In re Suburban Bank Ltd.', (C). It was held by the learned Judge that when a regular assessment had taken place subsequent to the issue of the notice under Section 18-A and a notice of demand for the sum due on the regular assessment had been issued on the liquidator, the question of compliance with the notice under Section 18-A no longer subsisted and what was due and payable was under and because of the final assessment. It does not appear clear from the report whether the regular assessment and notice of demand were both subsequent or prior to the winding-up order. If they were prior to the winding-up order and within the period mentioned in Section 230 (1) (a), the decision is obviously right. But if they were subsequent to the winding-up order, then with great respect to the learned Judge, we must dissent from him.
Under Section 230, the material date is the date of the winding-up order and not any subsequent date. If on the date of the winding-up order there was a notice of demand of payment of the tax under Section 18-A, any subsequent assessment after the winding-up would not destroy the preferential right of the State under Section 230 (1)(a) of the Indian Companies Act. It may be that if the final assessment is less than the amount collected under Section 18-A, the company may be entitled to a refund of the excess. But that does not have a bearing on the preferential right under Section 230 (1)(a) of the Indian Companies Act.