P.D.Kudal, J. - (1.) A petition under Section 446(1) of the Companies Act, 1956, has been moved on behalf of the ITO, Central Circle-IV, Jaipur.
(2.) ON behalf of the petitioner, it has been prayed that leave may be granted to the petitioner to make order or orders under Section 210 of the I.T. Act, 1961, requiring the company (in liquidation) to pay to the credit of the Central Government advance tax as contemplated by that section in respect of the assessment year 1978-79 (accounting year 1977-78) and to issue requisite notices for the purpose. On behalf of the official liquidator, it is contended that no leave should be granted to the petitioner for the payment of advance tax as the income-tax of the company in liquidation is not liable to be taxed. It was further contended that notice of this application be issued to all the parties in D.B. Special Appeal No. 4 of 1976, in view of the fact that the official liquidator is estopped from making any payment to the income-tax department or to the creditors of the company in liquidation by the order of the court. On behalf of the petitioner, reliance has been placed on M.R. Agarwal, ITO v. Official Liquidator, Gotcha Properties P. Ltd. [1973] 90 ITR 251, wherein it has been held as under (head note): " Where the business of a company which is in liquidation is carried on under Section 457(1)(b) of the Companies Act' for the beneficial winding up of the company ' the payment of income-tax would be a part of the ' costs and expenses of winding up within the meaning of Section 530(6) of the Companies Act. Section 4 of the Income-tax Act, which is the charging section, provides, inter alia, for the payment of income-tax in advance where it is so payable under any provisions of that Act. Sections 207 to 219 of the Income-tax Act deal with advance payment of income-tax and that payment is really a mode of paying income-tax in a case falling within the purview of those sections. Hence, where liability to pay advance tax arises in the case of a business run by a company which is being wound up, the official liquidator can be required to retain the amount payable therefor under Section 530(6) of the Companies Act as part of the expenses of winding up to the exclusion of the claims for the discharge of preferential debts." Reliance was placed on Kondaskar, Official Liquidator v. Deshpande, 1972 83 ITR 655 (SC), wherein it has been held as under (head note): " The Income-tax Officer is entitled to commence or continue assessment or reassessment proceedings in respect of a company ordered to be wound up by the court, without obtaining leave of the court under Section 446(1) of the Companies Act, 1956. Held, that the Income-tax Officer had jurisdiction to issue reassessment notices under Section 148 of the Income-tax Act, 1961, to reopen the assessments for the assessment years 1950-51 to 1955-56 of a company ordered to be wound up by the High Court in 1959, without obtaining leave of the High Court under Section 446(1) of the Companies Act, 1956. The expression 'other legal proceeding' in Sub-section (1) and the expression ' legal proceeding ' in Sub-section (2) of Section 446 of the Companies Act, 1956, convey the same sense and the proceedings contemplated by both the sub-sections must be such as can appropriately be dealt with by the winding-up court. The liquidation court cannot perform the functions of the Income-tax Officer while assessing the amount of tax payable by the assessee, even if the assessee be a company which is being wound up by the court. There is no principle on which the liquidation court should be vested with the power to stop assessment proceedings for determining the amount of tax payable by the company which is being wound up. The liquidation court would have full power to scrutinise the claim of the revenue after income-tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court then to decide how far, under the law, the amount of income-tax determined by the department should be accepted as a lawful liability on the funds of the company in liquidation. At that stage, the winding-up court can fully safeguard the interests of the company and its creditors." Reliance was also placed on ITO, Ernakulam v. Offl, Liq., Swaraj Motors (P.) Ltd. [1977] TLR 1816; [1978] 111 ITR 77 (Ker), wherein it has been held as under: "The expression 'costs, charges and expenses' referred to in Sections 520 and 476 are very general. In this will come the cost of repairs, payment of rent and tax, cost of preservation of any property, cost of realisation including costs of litigation and all expenses incurred with the leave of the court in the winding up. Income-tax payable at the winding up also is an expense in the winding up. Income-tax is a necessary consequence of the acts performed by the liquidator in the course of the liquidation for the purpose of realising the assets of the company. Consequently, before the assets are distributed among the creditors, tax is payable as provided for in Section 520 read with Section 476 and in the case of an insolvent company the power under the above sections can be invoked by the court and the court can direct the liquidator to pay the tax demand of the Income-tax Officer, before distributing the dividend."
(3.) THE contention of the learned counsel for the petitioner is that the ITO functions under the statutory provisions of the I.T. Act, 1961 and, it is not necessary to obtain any leave from the court for issuing notice for payment of advance tax. It was also contended that in view of the provisions of Sections 476 and 520 of the Companies Act, 1956, income-tax is a necessary consequence of the acts performed by the liquidator in the course of liquidation for the purpose of realising the assets of the company. Reliance was placed on Section 530{l)(a) of the Companies Act, 1956. On behalf of the official liquidator, it was contended that the ITO must take leave of the court before issuing notice under Section 178 of the I.T. Act, 1961. Reliance was placed on Offl Liq., Golcha Properties Pvt. Ltd. v. ITO [1974] 94 ITR 11 (Raj). Reliance was also placed on CIT v. Official Liquidator, Golcha Properties (Pvt.) Ltd. [1974] 95 ITR 488 (Raj), wherein it has been held that though the ITO may quantify the tax and notify the same to the liquidator he cannot further direct for freezing of any amount. Tax debt being an unsecured debt is to be treated pari passu with other unsecured debts. The liquidator has to act under the directions of the company judge and is not bound by directions of income-tax authorities. Reliance was placed on In re Garner Motors Ltd. [1937] 1 Ch. 594 (Ch D), wherein it has been held that the scheme has a statutory operation and is quite different from an agreement signed by the parties, and it is not -necessary for the scheme to reserve the rights of those debtors. ;