Dua, J. - (1.) The Colaba Land and Mills Co., Ltd., (in liquidation) was ordered by the Bombay High Court on October 7, 1959 to be wound up under the provisions of the Companies Act, 1 of 1956 and the Official Liquidator was appointed its liquidator. Earlier on May 1, 1959 the Official Liquidator had been appointed by the High Court its provisional liquidator. On August 23, 1966 the Income-tax Officer (Companies Circle) concerned issued six different notices under S.148 of the Income Tax Act, 1961 proposing to reopen the assessment of the Company and to re-assess it in respect of the assessment years 1950-51 to 1955-56. On December 31, 1966, the Income-tax Officer served further notices under S. 142(1) of the Income-tax Act upon the official Liquidator calling upon him to produce accounts and documents specified at the back of the notices and to furnish any information called for by the said officer. At the foot of the said notices it was stated that failure on the part of the official Liquidator to comply with the terms of those notices would not only result in ex parte assessment against the Company but might also entail penalty under S. 271 of the Income-tax Act. Certain negotiations followed between the Official Liquidator and the Inspecting Assistant Commissioner of Income-tax but they were infructuous. On an application made by the Official Liquidator in the High Court questioning the jurisdiction of the Income-tax Officer to issue the said notices or to proceed with the re-assessment of the Company without the leave of the High Court winding up the Company, Vimadalal J., on 28th September, 1967 held that the income-tax authorities were not entitled to commence the assessment or reassessment proceedings contemplated against the Colaba Land and Mills Co., Ltd., or to continue the same without obtaining leave of the Court under S.446 (1) of the Companies Act, 1956 (Act No.1 of 1956) (hereinafter called the Act). The learned Judge on this view granted an injunction restraining the Income-tax Officer from assessing or re-assessing the said Company for the assessment years 1950-51 to 1955-56.
(2.) On appeal by the Income-tax Officer and the Union of India before the appellate bench of the High Court against the order of injunction, the Division Bench (Modi and Desai JJ.) reversed the order of the learned single Judge and set aside the injunction issued by him. Before the appellate bench two contentions were raised on behalf of the Income-tax Officer:(1) that notices for re-assessment issued under S.148 were not legal proceedings within the meaning of that phrase as used in S.446 (1) of the Act, and (2) that, assuming the re-assessment proceedings started under the said notices to be legal proceedings, leave of the Company Court under S.446 (1) of the Act was not necessary because the Income-tax Officer had exclusive jurisdiction to make re-assessment and to determine the tax liability. The proceedings by way of assessment before the Income-tax Officer according to the contention, were outside the pale of jurisdiction of all civil courts including the Company Court. The appellate bench did not consider it necessary to decide the first contention because, on the authority of Damji Valji Shah v. Life Insurance Corporation of India, AIR 1966 SC 135, the second contention deserved to be accepted and that was considered sufficient to conclude the appeal.
(3.) The Official Liquidator, after securing a certificate of fitness from the High Court under Art. 133 (1) (c) of the Constitution has appealed to this Court and the only question which requires consideration here is, if it is necessary for the Income-tax Officer to obtain leave of the liquidation court when he wants to re-assess the company for escaped income in respect of past years. Section 446 of the Act reads: "(1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose. (2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain; or dispose of- (a) any suit or proceeding by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, the transferred to and disposed of by that Court. (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or High Court". To appreciate and understand the precise scope of this section so far as it concerns us in the present controversy, we consider it proper to turn to the scheme of the Act on this aspect. Chapter II of Part VII of the Act beginning with S.433 deals with winding up by the Court. Section 439 provides for applications for winding up and S.441 tells us when the winding up of a company is to be deemed to commence. Section 442 which confers power on courts to stay or restrain proceedings against the company reads: "442. At any time after presentation of a winding up petition and before a winding up order has been made, the company or any creditor or contributory may- (a) where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein; and (b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceeding; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit". Section 444 enjoins the Court making an order for the winding up of a company to cause intimation thereof to be sent forthwith to the Official Liquidator and the Registrar appointed under the Companies Act. Official Liquidators attached to the High Courts are appointed by the Central Government under S.447 and the Registrars by the Central Government under S.609 of the Act. It is the duty of the petitioner in the winding up proceedings and also of the company to file under S.445 a certified copy of the order of winding up with the Registrar who has to notify in the Official Gazette that such an order has been made. Such order is to be deemed to be a notice of discharge of the officers and employees of the company except when the business of the company is continued:vide S.445 (3). Then comes S.446, which has already been set out. The present sub-s. (2) of this section was substituted for the old one in 1960 by Act 65 of 1960 and sub-s. (4) was also added by that Act, Sub-section (2) is on the lines of S.7 of the Presidency Towns Insolvency Act, 1909, S.4 of the Provincial Insolvency Act, 1920 and S.45B of the Banking Companies Act. The object of this sub-section appears to be to empower "the court as in exercise of insolvency jurisdiction to decide all claims made by or against any company and other questions whatsoever so that winding up proceedings might be expedited". Sub-sections (2) and (3) both seem to have been inserted to give effect to the recommendation of the Company Law Committee Report contained in para 207 (c), namely, that "all suits by or against a company in winding up should, notwithstanding any provisions in any law for the time being in force, be instituted in the court in which the winding up proceedings are pending". This was considered to be to quote the exact words. "on balance an advantage to all concerned, including the parties which have a claim against the companies, to institute suits relating to its affairs in the Court where the winding up proceedings are pending". In the Indian Companies Act, 1913, S.171 provided for preventing litigation against a company in the process of being wound up and it read as: "171. When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose." The words underlined were inserted by the Companies Amendment Act, 1936 which followed the English Act. It is hardly necessary to point out that company legislation in India has, ever since the first enactment of 1850 (Registration of Joint Stock Comapanies Act, No.XLIII of 1850) broadly been following the lines of development of the company law in England. The object Section 171 was designed to achieve was to prevent all litigation against the company in the process of being wound up except with the consent of the court. We have reproduced this section because the decisions to which reference has been made by Shri Desai in the very beginning of his arguments relate to the construction of this section by the Federal Court of India and by this Court. The Federal Court in The Governor-General in Council v. Shiromani Sugar Mills Ltd., 1946 FCR 40, while construing this section held that the words "other legal proceedings" in this section comprise any proceedings by the revenue authorities under S.46 (2) of the Indian Income-tax Act and accordingly, before forwarding the requisitie certificate under S.46 (2) to the Collector, which would put the machinery for the collection of the arrears of land revenue into motion, the Income-tax Officer should have applied under section 171 of the Indian Companies Act for leave of the winding up Court. The passage on which Shri Desai specifically relied is where, disagreeing with the observations of a Full Bench of the Lahore High Court in Shakuntla v. Peoples' Bank of Northern India Ltd. (1941) ILR 22 Lah 760, Spens C.J. observed that the expression "or other legal proceedings" in S.171 need not and, therefore, should ot be confined to "original proceedings in a court of first instance analogous to a suit initiated by means of a petition similar to a plaint". The learned Chief Justice there went on to observe: "Section 171 must, in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act. In particular, we would refer to S.232. Section 232 appears to us to be supplementary to S.171 by providing that any creditor (other than Government) who goes ahead, notwithstanding a winding up order or in ignorance of it with any attachment distress, execution or sale, without the previous leave of the Court, will find that such steps are void. The reference to 'distress' indicates that leave of the Court is required for more than the initiation of original proceedings in the nature of a suit in an ordinary Court of law. Moreover, the scheme of the application of the company's property in the pari passu satisfaction of its liabilities, envisaged in S.211 and other sections of the Act, cannot be made to work in co-ordination, unless all creditors except such secured creditors as are 'outside the winding up' in the sense indicated by Lord Wrenbury in his speech in Food Controller v. Cork, 1923 AC 647 are subjected as to their actions against the property of the company to the control of the Court. Accordingly in our judgment, no narrow construction should be placed upon the words 'or other legal proceeding' in S.171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company". In that case a company was ordered to be wound up in April, 1942 and an order of assessment to income-tax of the profits made by the company in the year ending May 31, 1940 was made in 1943 and the Income-tax Officer, without obtaining leave of the winding up court, commenced proceedings for recovery of tax as if it were an arrear of land revenue. It was on these facts that it was observed that the words "or other legal proceedings" can and should be held to cover distress and execution proceedings. This expression was not held to cover assessment proceedings to which apparently no objection was raised by the parties though they were represented by eminent counsel. The decision of this Court to which Shri Desai has next referred is M. K. Ranganathan v. Government of Madras (1955) 2 SCR 374 . The head-note which gives a clear idea of the ratio of this decision is in these words. "The secured creditor is outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under S.171 of the Indian Comapnies Act to obtain the leave of the winding up Court before he can do so although such leave wound almost automatically be granted. It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them. It is also a well-recognized rule of construction that the legislature does not intend to make a substantial alteration in the law beyond what it explicitly declares either in express words or by clear implication and that the general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the existing policy untouched. Held, therefore, that having regard to the context in which the words 'any sale held without leave of the Court of any of the properties' added in S.232 (1) by the amending Act XXII of 1936 have been used in juxtaposition with "any attachment, distress or execution put into force without leave of the Court against the estate or effects' it would be a legitimate construction to be put upon them that they refer only to sales held through the intervention of the Court and not to sales effected by the secured creditor outside the winding up and without the intervention of the Court, and that the amendment was not intended to bring within the sweep of the general words sales effected by the secured creditor outside the winding up. Held accordingly that in the present case the sale effected by respondent no.2 as the receiver of the trustees of the debenture holders in July 1954 was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the Official Receiver". In this case the observations already reproduced from the judgment of the Federal Court in Shakuntla's case, (supra) were approved. It may also be pointed out that in this decision this Court observed that the winding up court assures pro rata distribution of the assets of the company in the same way in which the court under the Presidency Towns Insolvency Act or the Provincial Insolvency Act ensures such distribution of assets. Section 232 (1) of the Act of 1913 which was held supplemental to S.171 was also stated to have reference to legal proceedings in the same way as such proceedings were envisaged by S.171. These two decisions in our opinion do not lay down that assessment proceedings under the Income-tax Act should be held to be within the contemplation of S.171 of the Indian Companies Act, 1913. The next decision to which reference has been made by Shri Desai is Union of India v. Indian Fisheries (P.) Ltd., (1965) 3 SCR 679 . In that case the responents, Fisheries (P) Ltd., had been directed to be wound up by the winding up court and an Official Liquidator had been appointed by an order of the High Court in October, 1950. The headnote in that case gives a clear idea of the facts and the decision. It reads: "The respondent company was directed to be wound up and an official liquidator appointed by an order of the High Court in October, 1950. In December 1950 the respondent was assessed to tax amounting to Rs.8737 for the year 1948-49. A claim made for this tax on the official liquidator was adjudged and allowed as an ordinary claim and certified as such an ordinary claim and certified as such in April, 1952. The Liquidator declared a dividend of 9 1/2 annas in the Rupees in August, 1954 and paid a sum of Rs.5188 to the Department, leaving a balance of Rs.3549. In June, 1954, the Department made a demand from the respondent and was paid Rs.2565 as advance tax for the year 1955-56. On a regular assessment being made for that year, only Rupees 1126 was assessed as payable so that a sum of Rs.1460, inclusive of interest, became refundable to the respondent. However, the Income Tax Officer, purporting to exercise the power available to him under S.49E of the Income Tax Act, 1922, set off this amount against the balance of Rs.3549 due for the year 1948-49. A revision petition filed by respondent in respect of this set off was rejected by the Commissioner of Income-tax. Thereafter, petition under Art. 226 filed by the respondent to set aside the orders of the Income Tax Officer and Commissioner was allowed by the High Court, mainly on the ground that the demand for Rs.8737 in respect of 1948-49, being adjudged and certified came to have all the incidents and character of an unsecured debt payable by the liquidator to the Department; it was therefore governed by the provisions of Company Law and no other remedy or method to obtain satisfaction of the claim was available to the creditor. In the appeal to this Court it was contended on behalf of the appellant that S.49E gave statutory power to Income Tax Officer to set off a refundable amount against any tax remaining payable and that this power was not subject to any provision of any other law. Held the Income Tax Officer was in error in applying S.49E and setting off the refund due to the respondent. The effect of Ss. 228 and 229 of the Companies Act, 1913, is, inter alia, that an unsecured creditor must prove his debts and all unsecured debts are to be paid pari passu. Once the claim of the Department has to be proved and is proved in liquidation proceedings, it cannot, by exercising the right under S.49E get priority over other unsecured creditors and thus defeat the very object of Ss. 228 and 229 of the Companies Act. Furthermore, if there is an apparent conflict between two independent provisions of law, the special provision must prevail. Section 49E is a general provision applicable to all assessees in all circumstances; Ss. 228 and 229 deal with proof of debts and their payment in liquidation. Section 49E can be reconciled with Section 228 and 229 by holding that Section 49E applies when insolvency rules do not apply". In our opinion this decision is of no greater assistance to the appellant on the narrow point which requires determination by us. On the contrary to some extent it goes against Shri Desai because the assessment made in December, 1950, after the appointment of the Official Liquidator was assumed to be in order. It may be recalled that in Shiromani Sugar Mills Case (supra) the assessment made after the winding up order was not challenged though on the argument addressed by Shri Desai before us it could have been challenged. The ratio decidendi or the principle accepted and applied in none of the decisions cited supports the appellant's contention on the precise point of assessment of tax. Shri Desai has next referred us to a more recent decision of this Court in Balwant Singh v. L. C. Bharumal, Income-tax Officer, New Delhi, (1968) 70 ITR 89 (SC). In this case the Income-tax Officer was held to be a Court for the purpose of Section 195 (1) (b), Criminal P.C. though it was added that the Income-tax Officer could not be treated as a revenue Court and, therefore, neither Section 476 nor Section 479-A. Criminal P.C. would be applicable. This decision has been cited for the purpose of contending that if the expression "other legal proceeding" in Section 446 is to be construed to mean a proceeding in a Court, then, the Income-tax Officer must be considered to be a Court when holding assessment or reassessment proceedings. This contention may be disposed of with the observation that merely because the Income-tax Officer is considered to be a Court for the purpose of Section 195 (1) (b), Criminal P.C. it does not necessary follow that the said officer must be considered to be a Court for the purposes of Section 446 of the Act. There is no justification for extending the scope of this decision beyond its own facts. The decisions which apparently seem to lend more direct support to the appellant's contention are Union of India v. Seth Spinning Mills Ltd. (In Liquidation) (1962) 46 ITR 193 (Pun) and In the matter of Mysore Spun Silk Mills Ltd. (In Liquidation), (1968) 68 ITR 295 (Mys). Both of them are decisions by single Judges, the former by the Punjab High Court and the latter by the Mysore High Court. In Seth Spinning Mills case, (supra) it was observed "that Section 171 of the Indian Companies Act, 1913 provides that when a winding up order has been made no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court may impose. The language of this section is wide enough to include proceedings under the Income-tax Act. No leave of the Court has been obtained. In view of this the claim of the petitioner for Rupees 4,000 on account of the penalty order passed on 14th April, 1956 cannot be entertained". In this case the Union of India through the commissioner of Income-tax had applied to the learned single Judge who was apparently functioning as a company Judge praying that the department's claim amounting to Rupees 16,500 should have been admitted by the Official Liquidator and that his refusal to do so was not justified in law. This amount, it appears, consisted of the penalty imposed by the Income-tax Department. Part of the penalty was imposed by means of an order passed prior to the company's going into liquidation but a sum of Rs.4,000 related to the penalty imposed after the date of winding up. The learned single Judge while dealing with this petition observed: "Section 171 of the Indian Companies Act, 1913, provides that when a winding up order has been made no suit or other legal proceedings shall be proceeded with or commenced against the Company except by leave of the Court and subject to such terms as the Court may impose. The language of this section is wide enough to include proceedings under the Income-tax Act. No leave of the Court has been obtained. In view of this, the claim of the petitioner for Rupees 4000 on account of the penalty order passed on 14th April, 1956, cannot be entertained". In the Mysore case it appears that in the course of winding up of the mills in liquidation large sums of money came into the hands of the liquidator which could not be immediately applied for distribution of dividends to the creditors. Those moneys were invested pursuant to the relevant provisions of the Companies (Court) Rules. The question arose whether in respect of the receipts of income the liquidator was liable to pay income-tax on those receipts. The learned single Judge, after discussing the scheme of the Companies Act, observed: "The liquidator is only an officer of the Court. Unlike a receiver in the case of insolvency, properties of the insolvent do not vest in him but come within the control of the Court. All his actions are subject to the control of the Court for which purpose the Court issues to him appropriate directions from time to time in the course of winding up. No Court or other authority (subject to the exception contained in sub-section (4) of Section 446 of the Companies Act) can take any proceedings or attach or otherwise reach any of the matters, the winding up Court treats the liquidator as its special officer specially charged with the duty of representing the Company and protecting its interests in winding up. In the light of the above principles, it is the duty of the Court to see that all liabilities of a company are properly met in accordance with the provisions of the law and the special provisions in that behalf contained in the Companies Act. Liability to income tax is also one of the liabilities which the court is expected to provide for in the course of winding up. Such being the position, the question is whether, because the liquidator does not answer the description of the principal officer as defined in the Income Tax Act, the liability, if any, of the company for payment of Income-tax itself comes to an end and therefore the winding up Court may ignore that liability". The Court thereafter observed that the corporate existence of the company continues even after the winding up order, but after the winding up order the question of payment of Income-tax has to be dealt with or answered on a joint application of the terms or provisions of the Income-tax Act and the Companies Act. After so observing the Court proceeded: "that even after a winding up order is passed, the company continues to be a person within the meaning of Section 4 of the Income Tax Act, that therefore any receipt in the course of winding up which would attract liability to Income-tax under appropriate provisions of the Income-tax Act would be liable to Income-tax or for payment of tax under the Income Tax Act, but that before any action can be taken by the appropriate Income-tax Officer under the Income-tax Act for the purpose of quantification or collection of the Income-tax he should obtain the leave of the winding up Court under Section 446 of the Companies Act, and further that the collection of the tax can only be by securing the orders of the winding up Court for payment of tax in the light of the appropriate provisions of the Companies Act". In this case so far as collection of the tax assessed is concerned there can scarcely be any difficulty in agreeing with the view taken there. But it is only when the Court said that for the purpose of quantification of the Income-tax also leave under Section 446 of the Act has to be obtained that we have to consider if this view is correct. It is on this observation that Shri Desai has principally relied. The decisions of the Federal Court and of this Court already cited by Shri Desai, it may be recalled, do not support this view.;