Paripoornan, J. - (1.) The appellant herein is M/s. Imperial Chit Funds Private Limited, a company in liquidation, represented by the Official Liquidator, High Court of Kerala. The respondent is the Income-tax Officer, Ernakulam (the Revenue). The Liquidator has filed this appeal from the order passed by a full Bench of the High Court of Kerala dated 10-8-1978 and rendered in report No. 53 in C.P. No. 7 of 1973. In the said report of Official Liquidator prayed that orders may be passed holding that income-tax claimed by the revenue is not payable at that stage, and that the Income-tax Officer should wait and prove his claim before the Official Liquidator when the list of creditors is settled. The Full Bench, by the judgment appealed against, negatived the said prayer made by the Official Liquidator in his report. It is against the aforesaid judgment the Official Liquidator representing the Imperial Chit Funds Private Limited has come up in appeal.
(2.) The Imperial Chit Funds Pvt. Ltd. is a private company. it wound up as per orders passed by the High Court dated 1-6-1973 in C. P. No. 7 of 1973. After the commencement of the winding up proceedings the Income-tax Officer finalished the assessment of the company for the year 1972-73 by his order dated 31-3-1975. He assessed the company to income-tax in the sum of Rs. 934/- and levied an interest of Rs. 93/- payable under Section 220(2) of Income-tax Act. The total amount thus payable was Rs. 1,027/-. The Official Liquidator intimated the Income-tax Officer by his letter dated 8-5-1975 that the tax and interest constituted debt provable in the winding up proceedings. He stated the he was not in a position to pay amounts straightway. According to the Liquidator, the tax was due and payable within 12 months before the relevant date mentioned in Section 530(8) (c) of the Companies Act and so, Section 530(1) (a) of the said Act will not apply to the instant case. The Income-tax Officer ignored the above intimation of the Official Liquidator. He issued a certificate to the Tax Recovery Officer and by his letter dated 8-12-1976 demanded a sum of Rs. 1,027/- to be paid immediately. A notice of demand was accordingly issued. He also wrote to the Official Liquidator by communication dated 15-1-1077 for payment of the amount as per the notice of demand. Thereupon the Official Liquidator filed report No. 53 dated 20-1-1977, seeking appropriate directions of the Court to the effect that the tax claimed is not payable at that stage, and that the Income-tax Officer should wait and prove his claim, when the list of creditors is settled. The learned Company Judge took the view that an important question arises for consideration, namely, whether the legal effect of Section 178 of the Income-tax Act is that the income-tax Officer is entitled to the payment of the tax demanded otherwise than as provided in the Companies Act. He also referred to an earlier Division Bench decision of the High Court of Kerala rendered in A.S. No. 224/1968 wherein it was held that the amounts "set aside" under Section 178 of the Income-tax Act will be available for distribution in accordance with the provisions of the Companies Act and, therefore, there was no question of any priority in the distribution of assets. In view of some subsequent decisions, the learned Company Judge felt considerable doubt about the correctness of the aforesaid decision and referred the matter for being heard by Division Bench. The Division Bench of the High Court of Kerala before whom the matter came up, by order dated 27th June, 1997 referred the matter to a full bench for decision and accordingly the matter was finally heard and decided by a Full Bench. The judgment of the Full Bench is reported in 116ITR 176 (FB).
(3.) We heard Counsel for the appellant Mr. K. John Mathew and Senior Counsel for the respondent-Revenue Mr. J. Ramamurthy. The sole question that arises for consideration in this case is, whether Section 178 of the Income-tax Act affects or alters the existing law of priority or overrides the provisions of preferential payment provided in Section 530 of the Companies Act. There are conflicting decisions on this point. A learned single judge of the High Court of Kerala, in Income-tax Officer, Ernakulam v. Indian Traders Bank Ltd. (In Liquidation), 1968 Ker LT 595, took the view that Section 178 of the Income-tax Act does not affect the scheme of priority in Section 530 of the Companies Act, but, the amount "set aside" under Section 178 of the Income-tax Act will not be available for distribution in accordance with the provisions of the Companies Act and should be first applied to the satisfaction of the tax liability and gets priority over other debts of the Company, in the same way, as a secured creditor, who stands outside the winding up. The said decision was affirmed in appeal by a Division Bench in A.S. No. 225 of 1968. A Division bench of the Andhra Pradesh High Court in income-tax Officer, B. Ward, Company Circle, Hyderabad v. Official Liquidator, 101 ITR has taken the same view. On the other hand, the High Courts of Mysore, Calcutta, Rajasthan, Gujarat and Delhi, in the decisions reported in income-tax Officer, Company Circle, Bangalore v. Official Liquidator, Mysore High Court, (1967) 63 TR 810 (Mysore), Official Liquidator, High Court, Calcutta v. Commr, of Income-tax, 80 ITR 108, Commr. of Income-tax (Central), New Delhi v. Official Liquidator, Golcha Properties (Pvt.) Ltd., (In Liquidation) 95 ITR 488 (Rajasthan), Baroda Board and Paper Mills Ltd.(In Liquidation) v. Income-tax Officer, Circle I, Ward-E, Ahmedabad, 91976) 102 ITR 153 (Gujarat), Income-tax Officer, Company Circle XVII, New Delhi v. Narula Finance P. Ltd. (In Liquidation), 114 ITR 645 (Delhi), and Income-tax Officer, District Ii (2) Additional, New Delhi v. Official Liquidator, National Conduits (P) Ltd., 128 ITR 228 (Delhi) have taken a contrary view and have held, that the provisions of Section 178 of the Income-tax Act do not affect or alter the existing law of priority and do not override the provisions for preferential payment contained in Section 530 of the Companies Act. (Incidentally, we may state that the decision of Gujarat High Court reported in (1976) 102 ITR 153 was reversed by this Court in the decision reported in 189 ITR 90 (2) on some other aspect and the same is not relevant herein). The sole question for out consideration is, which or the rival views is correct.;