LexIMPERIAL CHIT FUNDS (P) LTD. versus INCOME TAX OFFICER, ERNAKULAM
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
A
IMPERIAL CHIT FUNDS (P) LTD.
v.
INCOME TAX OFFICER, ERNAKULAM
MARCH 19, 1996
B
(B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]
c
D
Income-Tax Act, 1961: Section 178--Scope of
Companies Act, 1956: Section 53()-Scope of
Company-Liquidation-Income-t~Recovery-Pre f ere 11tia1 pay-
ment-Liquidation proceedings-Notice for payment of tax to liquidato1-Tax ·
amount to be set apwt by liquidatoi-Held outside the winding up proceed-
ing.i-Held Section 178 of Income Tax Act does not affect the prio1ity scheme
of section 530 of Companies Act-Held scope of both sections is different.
Central Sales Tax Act, 1956: Section 17.
Company in liquidation-Tax recove1y-lnte1pretation of section 178 of
Income-Tax Act held applicable to section 17 of Central Sales Tax Act.
E
Orders for recovery are sent to liquidator both by Income Tax and
Central Sales Tax AuthOJities-Precedence--Priority shall be decided accord-
ing to date of receipt of orders.
The question in this appeal is whether section 178 of the Income-Tax
Act affects or alters the existing law of priority or overrides the provisions
F
of preferential payment provided in Section 530 of the Companies Act?
Connicting decisions have been rendered by High Courts on this point.
Kerala and Andhra Pradesh High Courts have taken 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
G 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. On the other hand the High Court of Mysore, Calcutta,
Rajasthan, Gujarat and Delhi have taken a contrary view that the
H provisions of Section 178 of the Income-tax Act do not affect or alter the
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IMPERIAL CHIT FUNDS v. I.T. OFFICER
641
existing law of priority and do not override the provision for preferential A
payment contained in Section 530 of the Companies Act.
The appellant-company was wound up under orders passed by the
High C~urt. Subsequent to the commencement of winding up proceedings,
the Income Tax Officer sent a notice to the liquidator demanding an
amount of Rs. 1027 as tax due from the Company. The official liquidator B
tiled his report seeking directions of the Court that income tax claimed by
Revenue was 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 would be settled. Rejecting the contention of the liquidator, a
Full Bench of the ·Kerala High Court held that the effect of Section C
178(3)(b) of the Income Tax Act was that the amount "set aside" by the
liquidator was marked off as outside the area of the winding up proceed-
ings and jurisdiction of winding up Court. In coming to this conclusion
the Full Bench of the High Court relied upon the judgment of a Single
Judge of the High Court in Income Tax Officer, Emakulam v. Indian Traders
Bank, (1968) K.L.T. 595· (later affirmed by Division Bench in A.S. No. D
225/1968) wherein the view stated herein before was taken.
In appeal to this Court it was contended for the appellant that (i)
Section 178 of the Income-Tax Act only provides for the procedure to be
followed by the person incharge of the company in liquidation and infor-
E
mation to be given to appropriate persons regarding income tax dues, and
the said Section does not provide for priority of payments as provided in
Section 530 of the Companies Act; (ii) the view taken by the Kerala High
Court in its impugned judgment that Section 178 of the Income-Tax Act
provides for a preferential payment of income tax dues fails to give effect
to the relevant provisions of the Companies Act and the significance of the
F
winding up proceedings in its proper context and (iii) the contrary view
taken by other High Courts that Section 178 of the Income Tax Act does
not provide for priority of payments regarding income tax lays down the
correct law.
Dismissing the appeal, this Court
HELD : 1. The judgment under appeal does not merit Interference
G
by this Court. It lays down the law correctly. The decision of the Mysore,
Calcutta, Rajasthan, Gujarat and Delhi High Court have failed to give due
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