MOHAMMED AMIN BROS LTD Vs. DOMINION OF INDIA

JUDGEMENT

(1.) This is an appeal from a Judgment & order of Sinha, J., winding up the appellant co. The appellants are a limited Company with a nominal capital of Rs. 15,00,000/- divided into 1,500 shares of Rs. 1,000/- each. The amount of capital paid up or credited as paid up is Rs. 15,00,000. The Company carries on the business of Exporters & Importers of hides & skins & other commodities. On 30-3-1948 the Company was assessed to income-tax & corporation tax for the assessment years 1944-45, 1945-46, & 1946-1947 in the amount of Rs. 4,56,562-5-0. On the same date the Company was also assessed for the periods ending 31-10-1943, 31-10-1944, & 31-10-1945 at Rs. 30,44, 234/- on account of excess profits tax & compulsory deposits. The total amount of tax for which the co. was assessed was therefore Rs. 35,00,796-5-0. The income-tax assessments for the years 1947-48 & 1948-49 have not been completed & are still pending. On 9-4-1948 notices of demand of the amounts due were served on the Company & some of the assets of the Company were attached in execution & that attachment is still subsisting. On 26-1-1949, the directors of the Company made & filed a declaration of solvency under Section 207, Companies Act The Company passed a resolution for a voluntary winding up & Mr. B. C. Bhattacharjee, a Pleader, who acted for the Company was appointed Liquidator. The declaration of solvency made by Gulam Mohiuddin & Abdul Rezak, two directors of the Company, showed that the Company owed in respect of income-tax, excess profits tax, etc., a sum of Rs. 3,50,000/- though long before that date the Company had been assessed to the sum of Rs. 35,00,796-5-0. On 7-2-1949 an application was made on behalf of the revenue authorities to wind up this Company, & directions were given for advertisements. On the same date an application was made for the appointment of a provisional liquidator & Mr. G. Basu, an Incorporated Accountant, was appointed provisional liquidator pending the hearing of the application. Later M. G. Basu & Mr. B. C. Bhattacharjee, the liquidator appointed in the voluntary winding up, were appointed provisional liquidators pending the hearing of the winding up application.

(2.) The Company opposed the application on a number of grounds. In the first place it was said that the assessments to income-tax, super-tax, etc., were illegal & arbitrary. In the affidavit tiled on behalf of the co. it was said that the Income-tax Officer originally made an assessment of Rs. 1,50,000/- but the Commissioner of Income-tax being dissatisfied with this assessment arbitrarily raised the assessment from Rs. 1,50,000/- to over Rs. 35,00,000/-. It is to be observed that there is no evidence of this alleged arbitrary action of the Commissioner of Income-tax beyond the statement in this affidavit. It was said, in objection to be petition for winding up, that appeals had been preferred from the various assessments which went to make up the sum of over Rs. 35,00,000/- & that these appeals were pending & had not been disposed of. It appears that one appeal had been disposed of by the Assistant Appellate Commissioner when Sinha, J., heard this application, but this appeal was unsuccessful & an appeal had been filed against this order before the Income-tax : apellate Tribunal. It was also urged that the Court should not make a winding up order at the instance of the revenue authorities as steps had been already taken by the authorities under the Public Demands Recovery Act to recover the sums due. It appears that the Company had applied under Section 45, Income-tax Act, which gives discretion to the Income-tax Officer not to treat the assessee as a defaulter as long as an appeal or appeals against the assessment order or orders were pending. This application, however, was summarily rejected & steps were taken to realise the tax. The Company contended that the application to wind up the Company was not bona fide & that the revenue authorities were taking every step they could to stifle the appeals preferred, by the company. It was also contended that there was no reason why the voluntary winding up should be superseded by an order for compulsory winding up. All the creditors except the revenue authorities had supported the action of the Company in going into voluntary liquidation & it was urged that the wishes of the other creditors should be respected & that the voluntary liquidation should be allowed to continue. The Company denied the allegations of the taxing authorities that the statements made in the declaration of solvency were not true & the Company contended that the amount shown in that declaration as due in respect of income-tax etc. was a correct figure & that the amount claimed by the, authorities was grossly excessive. Lastly it was urged before the learned Judge that no order for winding up should be made until it was known what amount was due from the Company in respect of income-tax. The learned Judge was asked to adjourn the application for winding up for a reasonable time & to consider the matter again when the result of these appeals was known. It is to be observed that one appeal which was filed before the Income-tax Appellate Tribunal has succeeded & the amount of tax due from the Company has been reduced very materially. According to the revenue authorities this appeal has resulted in a reduction of slightly over Rs. 7,00,000/- whereas the appellants contend that the total assessment has been reduced by Rs. 8,00,000/-. In any event it is clear that with respect to this assessment the income-tax authorities were grievously at fault & had grossly over-assessed the assessees. Before us it was contended in the first place that the application to wind up this Company made by the Income-tax authorities was not a 'bona fide' one & therefore the Court should not accede to it. It is clear that before the Income-tax authorities made this application to wind up the Company they had taken steps to realise their dues, as they were entitled to do, through the machinery of the Public Demands Recovery Act. As I have said previously, the application to wind up was made on 7-2-1949 & a provisional liquidator was also appointed as a result of another application made on that date. Nevertheless it is clear that the income-tax authorities proceeded thereafter to realize the amount assessed by other means. For example, on 23-3-1949 the Income-tax Officer addressed a notice to the Collector of Customs requiring him under Section 46 (5) (a), Income-tax Act to pay any amount due from or held by him for & on account of the appellants to the taxing authorities & also requiring him to pay any money which might subsequently become due from him to the Company to the authorities. In this notice it was categorically stated that if the Collector discharged any liability to the Company after receipt of the notice he would be personally liable to the extent of the liabilities discharged. Similar notices were issued to Moulvi Mohammad Amin & to the Ocean Fabrics Traders Limited & also to G. Mohiuddin & the Asiatic Engineering Company Limited.

(3.) On 21-3-1949 a sale was held by the Certificate Officer of certain lands & buildings situate at 37 Tangra Road which belonged to the co. This sale was in execution of certificates obtained by the Taxing authorities, but the bids made were thought to be insufficient & the sale was adjourned to 28-3-1949. On 28-3-1949 no bidders were present & the sale was again adjourned until 4-4-1949. It is therefore clear that after making this -application to wind up the co. the taxing authorities proceeded to realise or attempted to realise the amounts due without reference to a possible winding up of the Company. This it is said, shows that the taxing authorities are endeavoring by every possible means to harass the appellants & to make it impossible for them to prosecute their appeals & obtain a reduction of the grossly exaggerated assessments made on them. The appellants also relied on another incident which they suggest shows that the income-tax authorities are not acting 'bona fide' in this matter. On 8-2-1949, that is a day after the Income-tax authorities had presented the petition for winding up an application was made to the Presidency Magistrate for a search warrant against the Company their directors, officers & liquidators. It was alleged in this application which was made by the police that the Company, their directors, officers & liquidator were suspected of being in possession of a large number of forged currency notes & the means of forging such notes. The police therefore asked for a search warrant to enable them to search the premises of the Company & their various officers with a view to recovering these forged notes & information concerning them. A search warrant was issued & it appears that the police executed the warrant but found nothing incriminating. They however appear to have collected every document which was in possession of the Company & their various officers including those belonging to other Companies connected with the appellants. These documents were collected & deposited in one room. On 16-3-1949 five Income-tax Officers were permitted by the police to examine all the documents which had been collected & which had been deposited, as I have said, in a room on the premises. This appears to have been done as a result of a notice dated 12-3-1949 served upon the D. C. of Police, Detective Department, Lal Bazar, under Section 37, Income-tax Act. On 19-3-1949 the matter was reported to the Chief Presidency Magistrate & by an order which he made on that day it is clear that he thought that this order had been abused & he directed that the books & papers not required by the police should be returned. They were however not returned but examined thoroughly by the Income-tax authorities. It is suggested on behalf of the appellants that the application made for a search warrant must have been made at the instance of the income-tax authorities. As I have said, the application was made on the ground that it was suspected that the Company & their various officers & liquidator held quantities of forged notes & moulds for manufacturing such notes. The search warrant was asked for with a view to recovering these articles & with a view to collecting information relating to a gang operating in these forged notes. Nothing incriminating was found & no proceedings of any sort appear to have been instituted by the police against the co. or any of their officers. The only result of the granting of a search warrant was that all the documents in the possession of the Company & their officers were collected & placed in one room & were later examined by five Income-tax Officers. It might be suggested that a notice under Section 37, Income-tax Act, was served on the Deputy Commissioner of Police when the Income-tax authorities heard of this search. But the fact that this notice was served after all the papers had been collected together by the police does raise in my mind a very grave suspicion that the Income-tax authorities were behind this application for a search warrant. It is difficult to believe that the application for a search warrant & the notice under Section 37 served later on the police are wholly unconnected. Another incident is relied upon by the appellants to show the want of 'bona fides' on the part of the taxing authorities. The declaration of solvency made by the directors under Section 207, Companies Act was supported by a statement of affairs of the Company on 25-1-1949 signed by Mr. N. C. Chowdhury, an Incorporated Accountant, carrying on his profession at No. 26-C Creek Row, Calcutta. Mr. Chowdhury later signed a letter addressed to the Eegistrar of Joint Stock Companies, dated 29-1-1949 & the suggestion is that this letter was obtained from Mr. Chowdhury to support the application for winding up which was filed on 7-2-1949. It is said in the affidavit of Gulam Mohiuddin which was filed in this Court on 24-3-1949 that Mr. Chowdhury on Saturday morning, 29-1-1949 appeared before the Income-tax Officer pursuant to a notice served on him under Section 37, Income-tax Act. It is said that he was immediately taken to the Commissioner's room where he was examined by the Commissioner, Mr. Nargolwalla, & Mr. Chowdhury wrote at the direction of the said Commissioner a letter addressed to the Registrar of the Joint Stock Companies to the effect that if it had been disclosed to him that there was a claim for Rs. 35,00,000/- & over in respect of income-tax he would not have given the certificate of solvency because in that event the Company was insolvent. He stated in that letter that the fact that this very large claim had been made against the Company had not been disclosed to him. In the affidavit it is suggested that the Income-tax Officer, at the instance of the Commissioner, telephoned to the Registrar of Joint Stock Companies & asked him to wait in his office as there was an urgent matter which required his attention concerning Messrs. Mohammad Amin Brothers Limited. Later the Income-tax Officer together with Mr. Chowdhury went to the office of the Registrar of Joint Stock Companies & made over this letter. The letter was typed in the office of the Income-tax authorities on paper provided by the authorities & the account given of the method of obtaining this letter from Mr. Chowdhury does not reflect any great credit on the Taxing authorities.