Commissioner Of Income Tax-Ii v. Official Liquidator Of M/S Gujarat Telephone Cables Ltd & 1

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION NO. 245 of 2012 In COMPANY PETITION NO. 253 of 2008 In COMPANY APPLICATION NO. 525 of 2008 With OFFICIAL LIQUDATOR REPORT NO. 35 of 2012 In COMPANY PETITION NO. 253 of 2000With COMPANY APPLICATION NO. 208 of 2013 In COMPANY APPLICATION NO. 286 of 2011 With COMPANY APPLICATION NO. 209 of 2013 In COMPANY APPLICATION NO. 399 of 2010 With COMPANY APPLICATION NO. 210 of 2013 In COMPANY APPLICATION NO. 295 of 2011 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE K.M.THAKER =========================================================== 05.Whether it is to be circulated to the civil judge?No=========================================================== COMMISSIONER OF INCOME TAX-II....Applicant(s) VersusOFFICIAL LIQUIDATOR OF M/S GUJARAT TELEPHONE CABLES LTD & 1....Respondent(s) ================================================================ Appearance: MR M.R. BHATT, SENIOR COUSNEL WITH MRS MAUNA M BHATT, ADVOCATE for the Applicant(s) No. 1 MR SHALIN MEHTA, SENIOR COUNSEL WITH MR HEMANG M SHAH, ADVOCATE for the Respondent(s) No. 2MR J.S. YADAV, ADVOCATE for the Respondent(s) No. 1MR D.S. VASAVADA, ADVOCATE for the Textile Labour Association ================================================================ CORAM: HONOURABLE MR.JUSTICE K.M.THAKER Date : 30/06/2014 COMMON CAV JUDGMENT 1.Heard Mr.Yadav, learned advocate appeared for the Official Liquidator, Mr.M.R. Bhatt, learned senior counsel for the applicant Income Tax Department (hereinafter referred to as 'the Department' for sake of convenience) and Mr.Vasavada, learned advocate has made submissions on behalf of the Textile Labour Association. 2.In Company Petition No.253/2000, the Official Liquidator of M/s. Gujarat Telephone Cables Ltd. has taken out the captioned report being OLR No.35/2012. 2.1In the said Company Petition No.253 of 2000, the learned Company Court passed winding up order on 12.3.2008. 2.2 From the details mentioned by the Official Liquidator in the captioned OLR No.35/2012, it has emerged that subsequently somewhere in 2009, the liquidator, pursuant to an order passed by the Hon'ble Company Court, put up for auction – sale some assets of the company in liquidation viz. certain parcels of land. 2.3It has also emerged that upon completion of process of auction sale, Hon'ble Company Court confirmed the sale vide order dated 30.7.2009 in OLR No.92/2008. 2.4Subsequently, after seeking permission from the learned Company Company, Official Liquidator published an advertisement somewhere in September 2010 and invited claims from the secured creditors and workmen. 2.5In response to the said advertisement, some workmen and ARCIL, as assignee of State Bank of India, ICICI Bank Ltd., IDBI Bank Ltd., Bank of India, Indus Ind Bank, IFCI Ltd., Bank of Baroda, etc., submitted their claims. 2.6It also appears that after the Official Liquidator received the sale proceeds upon sale of certain parcels of land, the Department approached the liquidator and called upon the liquidator to file income tax return and to pay the tax dues. In this context, the liquidator has averred in OLR No.35/2012 that: “12.That, the Official Liquidator further submits that Income Tax Department has been issuing various letters, notices, to the Official Liquidator as liquidator of Companies (In Liqn.) invoking various provisions of Income Tax Act. Calling upon the Official Liquidator to file Income Tax Returns and to pay Income Tax on realizations of sale of assets to the company, as well as initiating the proceedings, enforcing the requirement of the filing of Income Tax Returns and Recovery of Income Tax including consequential penal provisions of penalty etc. “12.That, the Official Liquidator further submits that Income Tax Department has been issuing various letters, notices, to the Official Liquidator as liquidator of Companies (In Liqn.) invoking various provisions of Income Tax Act. Calling upon the Official Liquidator to file Income Tax Returns and to pay Income Tax on realizations of sale of assets to the company, as well as initiating the proceedings, enforcing the requirement of the filing of Income Tax Returns and Recovery of Income Tax including consequential penal provisions of penalty etc. 13.In this connection, the Official Liquidator most respectfully submits that before passing any orders of disbursement, this Hon'ble Court may be pleased to hear Respondent No.2, i.e. Commissioner of Income Tax, Range-4, Ahmedabad in this matter.” 2.7In this background, Official Liquidator has filed this report and prayed, inter alia, that: “14(A) This Hon'ble Court may be pleased to permit the Official Liquidator to disburse an amount of Rs.6,52,99,161 or such other amount as may be decided by this Hon'ble Court to Respondent No.1 i.e. ARCIL and worker of the company (In Liqn.) subject to condition that, if any demand raised by Income Tax Department in respect of sale of property of the company as Capital Gain Tax, the same shall be paid by the Respondent No.1 i.e. ARCIL on intimation by the Official Liquidator.” 3.On the other hand, the Department has taken out Judge's Summons which is registered as Company Application No.245/2012. In the said summons dated 2.7.2012, the Department has prayed, inter alia, that: “(A)That this Hon'ble Court may be pleased to direct the Official Liquidator to file return of income tax under Section 139 of the Income Tax Act, 1961 and as a necessary corollary, to comply with the provisions of Section 140A and other provisions with regard to payment of taxes, interest, penalty, etc.; (B)That pending hearing and final disposal and compliance by the Official Liquidator with the above referred direction, this Hon'ble Court may be pleased to direct the Official Liquidator not to disburse any amount out of the sale proceeds either to the secured creditors and/or workers;” 4.The learned senior counsel for the Department submitted that in backdrop of similar facts and for almost similar relief, the Department has taken out identical applications which also may be heard and decided together. Therefore, with consent of the official liquidator and learned advocates for the workmen and secured creditors, the said applications are also heard and decided by this common order. 5.During the hearing of the said OLR, the Department filed an affidavit dated 30.3.2012 stating, inter alia, that: “2.I submit that the Official Liquidator has sold the land of the company in liquidation for a sale consideration of Rs. 11.50 crores. I submit that there is no exemption provided under the Income Tax Act in respect of a company in liquidation and the provisions of the Act are equally applicable to the said assessee. I submit that the taxability of capital gains under the Income Tax Act on sale of the said land, is required to be examined upon the Official Liquidator filing return of income and offering capital gain for tax. company in liquidation for a sale consideration of Rs. 11.50 crores. I submit that there is no exemption provided under the Income Tax Act in respect of a company in liquidation and the provisions of the Act are equally applicable to the said assessee. I submit that the taxability of capital gains under the Income Tax Act on sale of the said land, is required to be examined upon the Official Liquidator filing return of income and offering capital gain for tax. 3.I submit that the department does not agree to the assertions made in para 7 of the report to the effect that the Income Tax Department's claim is to be considered as time barred or that its due are required to be taken note of only under section 530 of the Companies Act. I also crave leave to refer to and rely upon provisions of the Income Tax Act. 4.I submit that as per the provisions of section 178 of the I.T. Act, the duties of the Official Liquidator in the matter of payment of income tax dues are well defined. I reiterated and state that there is no exemption to a company in liquidation from the liability to pay taxes of any income that may be earned during the course of liquidation proceedings, by way of interest income or on realization of sale proceeds of assets, etc. I submit that on going through the statement of receipts and payments from part of the Liquidator's Report, it can be seen that there are receipts in the nature of interest, land fees account, land interest account, misc. receipts, sale proceeds, etc. All these receipts are subject to Income-tax in the year of receipt for the relevant assessment years. I submit that a company in liquidation is required to file the return of income regularly as per the provisions of section 139 of the Act, and the aforesaid income is required to be reflected in the return of income. In respect of sale proceeds, the nature of assets sold would decide its treatment under the Income Tax i.e. sale of depreciable assets and non-depreciable assets would have separate treatment and profit/gain, as the case may be, arising on such sale would be required to be disclosed in the income tax return.” 5.1The Department filed another affidavit dated 2.7.2012 and claimed that: “4.I humbly submit that on realization of the sale proceeds from the sale of the company's assets, capital gains under Chapter-IV-E are to be computed and taxed accordingly. I humbly submit that upon the sale realization being deposited by the Liquidator in any Fixed Deposit and interest being accrued or received thereon, tax is required to be computed as per provisions of Chapter-IV-F. I therefore humbly submit that in the first instance, the Official Liquidator may be directed to file a return of income tax and as a necessary corollary to comply other provisions of the Act, including payment of self-assessment taxes, etc. I humbly submit that until this exercise is completed, the Income Tax Department objects to any appropriation or disbursement of the amounts to the secured creditors and/or the workers. I humbly submit that taxes as aforesaid would be the costs in the winding up and are required to be paid prior to disbursement to secured creditors/workers.” 5.2The contentions raised by the department have been opposed by the Assets Reconstruction Company (India) Ltd. (hereinafter referred to as 'ARCIL') assignee of certain Banks / Financial Institutions, viz. State Bank of India, ICICI Bank Ltd., IDBI Bank Ltd., Bank of India, Bank of Baroda, Axis Bank, etc. who was filed an affidavit dated 20.4.2012. In response to the said affidavit by ARCIL, the assessing officer of the department filed further affidavit dated 2.7.2012, wherein it is averred, inter alia, that: “2.I submit that subsequent to the order of winding up, the Official Liquidator, after having been so appointed by this Hon'ble Court, has initiated steps for sale of the assets of the company in liquidation and in that process, has realized sale proceeds. As per the averments made in the report, an amount of Rs. 11.50 Crore has been received pursuant to the sale of company's assets. Bank Ltd., IDBI Bank Ltd., Bank of India, Bank of Baroda, Axis Bank, etc. who was filed an affidavit dated 20.4.2012. In response to the said affidavit by ARCIL, the assessing officer of the department filed further affidavit dated 2.7.2012, wherein it is averred, inter alia, that: “2.I submit that subsequent to the order of winding up, the Official Liquidator, after having been so appointed by this Hon'ble Court, has initiated steps for sale of the assets of the company in liquidation and in that process, has realized sale proceeds. As per the averments made in the report, an amount of Rs. 11.50 Crore has been received pursuant to the sale of company's assets. 4.I humbly submit that on realization of the sale proceeds from the sale of the company's assets, capital gains under Chapter-IV-E are to be computed and taxed accordingly. I humbly submit that upon the sale realization being deposited by the Liquidator in any Fixed Deposit and interest being accrued or received thereon, tax is required to be computed as per provisions of Chapter-IV-F. I therefore humbly submit that in the first instance, the Official Liquidator may be direct to file a return of income tax and as a necessary corollary to comply with other provisions of the Act, including payment of self-assessment t axes, etc. I humbly submit that until this exercise is completed, the Income Tax Department objects to any appropriation or disbursement of the amounts to the secured creditors and/or the works. I humbly submit that taxes as aforesaid would be the costs in the winding up and are required to be paid prior to disbursement to secured creditors/workers.” 6.One relevant aspect which has emerged from Department's affidavit and so also from the submissions by learned senior counsel is that in present case the Assessing Officer has not passed any order under section 178(2) for the company in liquidation. It is not even the case of the Department that the Assessing Officer has passed order under section 178(2) and the demand by the Income Tax Department is not made in light of and on the basis of any order under section 178(2) of the Income Tax Act. 7.Another relevant aspect which also has emerged from the said affidavits, summons and submissions by the learned senior counsel is that the Department has raised the claim in respect of income received after the 'relevant date'. 8.During the hearing of the captioned applications, learned senior counsel for the Department submitted, inter alia, that the claim of the Department for tax dues is preferential claim and it ranks higher than any other claim and in view of section 178 of the Income Tax Act, 1961 the Official Liquidator should, before disposing the properties and assets of the company in liquidation and/or before disbursing the sale proceeds amongst the creditors including the workmen of the company in liquidation, set aside the dues of the Department and that the claim of the Department should be paid first before making payment to the creditors including the workmen of the company in liquidation. Learned senior counsel for the Department relied on the decision by Hon'ble Apex Court in the case of Imperial Chit Funds (P) Ltd. [(1996) 86 Company Cases 555]. He also submitted that since the official liquidator / the company has not filed returns, the Department has issued notices under the Income Tax Act asking the liquidator to file the returns. Learned senior counsel for the Department contended that the dues of the Department i.e. the taxes should be classified and considered as costs and charges incurred in the winding up and that, therefore, in view of section 520 of the Companies Act, the dues of the Department qualify for payment out of the assets of the company in priority to other claims. It is also claimed that Official Liquidator is not exempted from obligation to file return and/or payment of self-assessment tax. Learned senior counsel appearing for the Department further submitted that the Official Liquidator appears to have received income which are liable to be classified and treated as (i) capital gain and (ii) interest on fixed deposit which are subject to tax liability which also qualify for preference. He further submitted that the Official Liquidator may be directed to file return of income under the provisions of the Income Tax Act, 1961 as also to pay the taxes and other dues as per the provisions of the Income Tax Act and until the said exercise is completed, the Official Liquidator may be restrained from disbursing any amount to the secured creditors/workers. 9.The claim of the Department is opposed by learned counsel for Official Liquidator and learned senior counsel for ARCIL. Learned senior counsel for ARCIL submitted that Official Liquidator is obliged to make payment to secured creditors out of the amount received upon sale of the assets of the company in liquidation and that, therefore, the Official Liquidator has taken out report seeking permission for disbursement to secured creditors. He further submitted that such payment is required to be made according to the priority under section 529A read with section 530 of the Companies Act which does not provide for any right of preferential payment in favour of the tax dues over the claim of the secured creditors. Learned counsel for Official Liquidator adopted the said submissions and further contended that the Official Liquidator is under statutory obligation, in view of provisions under Section 529A of the Companies Act, to make payment to the secured creditors and workmen and the tax dues, if any, are not recognized for preferential payment under Section 529A of the Companies Act and that, therefore, the claim of the Department which is put forward by way of affidavit in OLR No.35 of 2012 and also by filing separate applications, is not justified and does not deserve to be granted. The learned counsel for the workmen claimed that any claim in preference over the claim of workmen should not be entertained. 10.In light of the rival claims and submissions, the issue which arises for consideration is: whether the Department has a preferential right in matter of payment of dues over the right of the secured creditors (including the workmen) from the proceeds received upon sale of assets. 11.At the outset, it is relevant and necessary to note that the Department has taken out the summons to counter the liquidator's request for permission to disburse the sale proceeds amongst the creditors covered under section 529A of the Companies Act. Under the report, the liquidator has proposed to disburse the proceeds received from sale of assets which were loaded with “charge” created by the company in favour of the Banks / Financial Institutions. So as to support its claim the Department has invoked provision under section 178 of Income Tax Act and claimed that its dues should be paid in priority over other dues and for that purpose the liquidator should set aside amount equal to its dues before making payment to any creditor or workmen. The said section 178 reads thus: The Income Tax Act, 1961 The Income Tax Act, 1961 “178.Company in liquidation. – (1) Every person (a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or (b) who has been appointed the receiver of any assets of a company, (hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company. (2) The Assessing Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company.(3) The liquidator (a) shall not, without the leave of the Chief Commissioner or Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Assessing Officer under sub-section (2); and (b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands:Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the company as are in the opinion of the Chief Commissioner or Commissioner reasonable. (Other part of the section omitted.)” 12.Plain reading of the said section 178 of the Income Tax Act, 1961, on strength of which the Department has raised the claim and based its contention, brings out that sub-section (1) of the said section postulates that the liquidator should, within 30 days of his appointment inform the concerned Income Tax Officer who is entitled and authorized to assess the income of the company (hereinafter referred to as 'the authorized assessing officer') under the Income Tax Act, that he (i.e. the liquidator) has been appointed as such. In turn, the concerned officer the Department shall, as contemplated under sub-section (2) of section 178, after calling for necessary information and necessary inquiries, notify to the liquidator, within 3 months, the amount which, in his opinion, would be sufficient to provide for tax which is payable then or likely to become payable thereafter. Sub-section (3) by its Clause (a) provides that without leave of the Chief Commissioner or Commissioner the liquidator shall not part with any assets of the company or the properties in his hands until he has been notified by the Assessing Officer under Sub-section (2) and clause (b) thereof provides that on being so notified the liquidator shall set aside an amount equal to the amount notified and until he so sets aside such amount, he shall not part with any of the assets of the company or the properties in his hands. Differently put, until the liquidator makes provision for tax liability as assessed by the Assessing Officer the liquidator is prohibited from parting with the assets and properties of the company in his hands. 13.When the claim and submission of the Department and rival submissions are examined in light of the relevant provisions, it emerges that first and major answer or explanation is available in the section itself, i.e. in the proviso 13.When the claim and submission of the Department and rival submissions are examined in light of the relevant provisions, it emerges that first and major answer or explanation is available in the section itself, i.e. in the proviso of sub-section (3). As regards the said section 178 what is relevant is that the proviso of sub-section (3) provides, inter alia, that nothing in sub-section (3) shall debar the liquidator from parting with such assets or properties of the company for the purpose of payment of the tax payable by the company or for making any payment to the secured creditors whose debts are, under law, entitled to priority of payment over the dues of the Government on the date of liquidation or for meeting such costs and expenses of the winding up of the company as are, in the opinion of the Chief Commissioner or Commissioner, reasonable. Thus, the bar prescribed under the section is not absolute. 14.The section itself has, by virtue of its proviso, opened a window and provided a passage i.e. an exception. Consequently, the restriction imposed by sub-clauses (a) and (b) of Sub-section (3) will not stand in the way of the liquidator and he can walk through that window in the event he (the liquidator) has to dispose of the assets and properties and make the payments, of course for the purposes specified under the proviso. 14.1Meaning thereby the said proviso not only carves out an exception to sub-section (2) as well as to clauses (a) and (b) of sub-section (3) of section 178 but it also confers power on the liquidator to part with the assets or properties, though, of course, for the purpose specified in the proviso. 14.2It is pertinent that section 530 of Companies Act prescribes order of priority, amongst various categories of creditors and section 529A of Companies Act confers right of priority and preference in matter of payment in favour of secured creditors and workmen. Meaning thereby the said two sections put the dues of secured creditors and workmen within the purview of the expression “… … … whose debts are entitled under law to priority of payment over debts due to the government….” used in section 178 of Income Tax Act. 15.The Department claims priority or preference in the matter of payment of tax on the strength of section 178 of the Income Tax Act, however, there is a fundamental flow in the Department's perception about the said section since the Department perceives the said provision as if it has a deeper as well as wider ambit, which, actually it does not have and it does not embrace or affect, muchless takes away or even dilutes the right and claims by unsecured creditors. 15.1Besides this aspect related to the said section 178 of Income Tax Act, there is another feature as well. It is pertinent that the proviso of sub-section (3) also clarifies that the obligation and restriction imposed on the liquidator is in respect of those dues of Government which are “due to the Government on the date of liquidation” and not qua the dues which would be due from and after relevant date. 15.2There is yet another aspect of section 178 of Income Tax Act. 15.3The claim of the Department and submissions by the learned senior counsel overlook the object, scope and effect of said section 178. The said section aims at reserving sufficient assets for recovering tax dues and it is enacted for the purpose of ensuring that the Government's existing rights and the tax liability are not defeated by sale of the company's assets, or distribution of divided among the shareholders and/or creditors. 15.4However, the Department wants to read something 15.2There is yet another aspect of section 178 of Income Tax Act. 15.3The claim of the Department and submissions by the learned senior counsel overlook the object, scope and effect of said section 178. The said section aims at reserving sufficient assets for recovering tax dues and it is enacted for the purpose of ensuring that the Government's existing rights and the tax liability are not defeated by sale of the company's assets, or distribution of divided among the shareholders and/or creditors. 15.4However, the Department wants to read something more into said section than what is contemplated. In light of its own perception and understanding about the section, the Department claims that the said section creates preference in favour of tax – dues over all other dues, whereas in effect it does not give any right of priority to the tax – dues over and above the preference granted under the Companies Act, 1956. 16.On examination and analysis of the said section 178 it emerges that throughout the section there is nothing in the said section which, apart from asking the liquidator to set aside assets sufficient to meet possible tax liabilities (or to set aside sufficient amount), commands the liquidator to pay the tax dues in preference over all other dues and it neither creates any special right nor does it confer preferential ranking or higher priority in favour of Government or the Department or tax dues, and it does not place tax dues or the dues of State / Department in a position higher or better than what is conferred by and what is available under Companies Act. 16.1Actually, the order of priority in matter of payment is prescribed by virtue of section 529A read with section 530 of the Companies Act and not in the Income Tax Act and the obligation which is created under section 178 of the Income Tax Act, does not override the right of priority and preference created by and under section 529A of the Companies Act. 16.2On the contrary, the said section 178, by virtue of the proviso of sub-section (3), vocally and apparently acknowledges the priority and preference of the secured creditors and workmen whose debts are entitled to priority as available to them under law (viz. Section 529A of the Companies Act) and it makes the Department's claim subject to that of the secured creditors and workmen under said section 529A . 16.3When section 178(3) of the Income Tax Act and sections 529, 529A and 530 of the Companies Act are conjointly read, it becomes clear that the order passed under section 178(2) of the Income Tax Act will prevail over the rights of 'creditors' covered within the purview of section 530 of the Companies Act, 1956 and not over the rights of the creditors covered under section 529A of the Act (viz. the secured creditors and the workmen). That is so also for the reason that the operation and effect of said section 530 itself is subject to the superiority of section 529A of the Companies Act. 17.Moreover, in facts of present case there is an additional feature viz. In the cases on hand the Department has not even passed any order under section 178(2). The Department's affidavit does not claim that the competent assessing officer has passed order under section 178(2) of the Income Tax Act. That is not the case or claim even of the Department. 17.1According to the said provision, the obligation cast on the liquidator under section 178(3) will arise after he is notified by the authorised assessing officer under sub-section (2) of section 178. 17.2The right to claim payment under the said provision will spring from assessing officer's order under sub-section (2) of section 178 of the Income Tax Act. 17.3Thus, unless and until the liquidator is notified by order under section 178(2) any occasion to claim and enforce payment/recovery does not arise. 17.4Hence, at this stage, the claim and demand by the Department is, even otherwise, not sustainable. 17.1According to the said provision, the obligation cast on the liquidator under section 178(3) will arise after he is notified by the authorised assessing officer under sub-section (2) of section 178. 17.2The right to claim payment under the said provision will spring from assessing officer's order under sub-section (2) of section 178 of the Income Tax Act. 17.3Thus, unless and until the liquidator is notified by order under section 178(2) any occasion to claim and enforce payment/recovery does not arise. 17.4Hence, at this stage, the claim and demand by the Department is, even otherwise, not sustainable. 17.5From the foregoing discussion, it follows that the submission and claim raised by the Department on strength of the said section 178 cannot be entertained and it must fail. 18.So as to support the claim and submissions the learned senior counsel for the Department relied on the decision in case of Imperial Chit Fund (supra) so far as the said decision is concerned, it is relevant to mention that in the said case, the issue for consideration did not arise in light of section 529A of the Act. Moreover, as observed in the decision in the case of Re Ktc Tyres (India) Ltd. vs. Unknown [(2002) 125 Taxman 899], the issue under consideration before Hon'ble Apex Court was whether the order passed under section 178 of the Income Tax Act would have preference over right of unsecured creditors. In that context, Hon'ble Apex Court held that the Income Tax Department is to be treated as secured creditor and amongst the unsecured creditors, the claim for tax dues under section 178 will have preference over other claims of unsecured creditors. On reading of the said judgment, it also emerges that priority attached to the order of assessing officer under sub-section (2) of section 178 vis-a-vis the right of priority and preference conferred on secured creditors (holding charge – in accordance with the sections 124 to 127 of the Companies Act – over the assets of the company in liquidation) and the right of priority conferred in favour of the dues of the workmen under section 529 of the Act, was not an issue before Hon'ble Apex Court. The issue under consideration before Hon'ble Apex Court was right of priority of order under section 178(2) over the creditors covered within purview of section 530(1)(a) of the Companies Act and it was in that context that Hon'ble Apex Court observed that if the assessing officer has passed order under section 178(2), then it will have preference over the creditors covered within purview of section 531A of the Act. The creditors and workmen and their respective rights within purview of section 529A of the Act was not under consideration before Hon'ble Apex Court. At this stage, it would be appropriate to refer to the observations in the said decision in case of Re KTC Tyres (India) Ltd. [2002 (125) Taxman 899], wherein it is observed that: “What was raised before the Apex Court was whether order passed under section 178 of the Income Tax Act would have preference over rights of unsecured creditors. The Apex Court held that Income Tax Department is to be treated as secured creditor and would get priority in the matter of payment. Imperial Chit Funds (P) Ltd.'s case (supra), is an authority for the proposition that between unsecured creditors the claim of tax due under section 178 of the Income Tax Act would have preference over all other claims of unsecured creditors.under section 178 of the Income Tax Act would have preference over rights of unsecured creditors. The Apex Court held that Income Tax Department is to be treated as secured creditor and would get priority in the matter of payment. Imperial Chit Funds (P) Ltd.'s case (supra), is an authority for the proposition that between unsecured creditors the claim of tax due under section 178 of the Income Tax Act would have preference over all other claims of unsecured creditors. We are of the view, Apex Court in Imperial Chit Funds (P) Ltd.'s case (supra) as well as the decision of the Division Bench is Swaraj Motors (P) Ltd.'s case (supra) had no occasion to deal with the scope of section 529A of the Companies Act, as amended.” 18.1In the facts of the present case, the said decision in case of Imperial Chit Funds (supra) would otherwise also not be applicable and will not help the case of the Department inasmuch as the assessing officer, in present case, has not passed any order under section 178(2). 19.Now I may turn to the other contention of the Department, which is raised on the strength of section 520 and section 476 of the Companies Act. 19.1In light of the sections 520 and 476, learned senior counsel for the Department would submit that capital gain tax and other tax dues claimed by the Department are costs and charges in the winding up and that, therefore, by virtue of the said provision, they enjoy priority. According to the learned senior counsel for the Department, the liquidator is, consequently, obliged to pay costs and charges incurred in the winding up, in priority to other claims and dues. The said section 520 and section 476 read thus: “520. Costs of voluntary winding up. – All costs, charges and expenses properly incurred in the winding up, including the remuneration of the liquidator, shall subject to the rights of secured creditors, if any, be payable out of the assets of the company in priority to all other claims.” “476. Power to order costs. – The Court may, in the event of the assets being insufficient to satisfy the liabilities, make an order for the payment out of the assets, of the costs, charges and expenses incurred in the winding up, in such order of priority inter se as the Court thinks just.” 19.2At the outset, it is relevant to note and necessary to keep in focus a vital distinction. The said section 476 is part of the family comprising sections 433 to 483. The said family is Chapter II (Part VII) of the Companies Act and contains provisions related to and necessary for and applicable in cases of winding up by the Tribunal (Court). 19.3On the other hand section 520 belongs to different family which is made-up of section 484 to section 520. The said family is within the territory of Chapter III (Part VII) and the provisions thereunder are related to and deal with the aspects concerning “voluntary winding-up”. 19.4The said section 520 provides for “costs of 'voluntary' winding up” i.e. for “costs, charges and expenses properly incurred in voluntary winding up”. That is the scope and extent of its applicability. 19.5Moreover, the said expression and its operation and its effect are qualified or rather restricted by use of words “subject to the rights of secured creditors” and thereby it is made subject to the rights of secured creditors, which are created and conferred by section 529A of said Act. 19.6Now, so far as the said section 529A of Companies Act is concerned, it falls within the purview of Chapter V (Part VII) which houses the sections 528 to 560 which are applicable -to “every mode of windingup”. 19.7Thus, said section 529A has universal application in cases of winding up and it is relevant and applicable in all types and modes of winding-up. 19.8This aspect, in addition to the fact that it is a non-obstante provision and is introduced subsequently (i.e. w.e.f. 24.5.1985) establishes its superiority over other provisions. 19.9 The said section 476 is an enabling provision which enables the Court, or rather lifts all barriers in the way and in the matter of payments to pay the cost and expenses which the liquidator has to incur to take the winding up process to its conclusion and final destination in accordance with the procedure prescribed under the Act. Like section 520 this section 476 does not contain the expression “in priority to all other claims”. 19.7Thus, said section 529A has universal application in cases of winding up and it is relevant and applicable in all types and modes of winding-up. 19.8This aspect, in addition to the fact that it is a non-obstante provision and is introduced subsequently (i.e. w.e.f. 24.5.1985) establishes its superiority over other provisions. 19.9 The said section 476 is an enabling provision which enables the Court, or rather lifts all barriers in the way and in the matter of payments to pay the cost and expenses which the liquidator has to incur to take the winding up process to its conclusion and final destination in accordance with the procedure prescribed under the Act. Like section 520 this section 476 does not contain the expression “in priority to all other claims”. 19.10So far as section 520 is concerned, as mentioned earlier, it provides for payment of cost and expenses in the process of winding up and before payment of other dues, but subject to rights of secured creditors. 19.11The rights of secured creditors referred to in section 520 of Companies Act (and also in section 178 of Income Tax Act) are created by virtue of section 529A of the Companies Act. 20. The scheme of the Companies Act and more particularly the provision under sections 529A and 530 of the Companies Act make it clear that the priority under section 520 is subject to the right of preference and priority in the matter of payment of dues created by virtue of section 529A of the Companies Act. The said relevant part of sections 529A and 530 of the Companies Act reads thus: “529A. Overriding preferential payment. – Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company – (a)workmen's dues; and (b)debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.” “530. Preferential payments. (1) In a winding up, 5[ subject to the provisions of section 529A, there shall be paid] in priority to all other debts- (a) all revenues, taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub- section (8), and having become due and payable within the twelve months next before that date; (b) all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of any employee, in respect of services rendered to the company and due for a period not exceeding four months within the twelve months next before the relevant date 1[ subject to the limit specified in sub- section (2); (c) … … … … … to (g) … … … … … (4) Where any payment has been made to any employee of a company,- (i) on account of wages or salary; or (ii)… … … … … (5) The foregoing debts shall- (a)rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b)so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) … … … … … (9) … … … … …” 20.1On conjoint reading of sections 476, 520, 529, 529A and 530 of the Companies Act, it emerges that (a) it is section 530 whereby order of priority in the matter of payment is created which are in substitution of the creditors' remedy (ii)… … … … … (5) The foregoing debts shall- (a)rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b)so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) … … … … … (9) … … … … …” 20.1On conjoint reading of sections 476, 520, 529, 529A and 530 of the Companies Act, it emerges that (a) it is section 530 whereby order of priority in the matter of payment is created which are in substitution of the creditors' remedy under ordinary law against an insolvent; (b) the priority under the said sections 520 and 476 of the Companies Act are subject to section 529A of the Companies Act; (c) by virtue of the very same provision and also by virtue of the provision under section 529A of the Companies Act, the said latter provision has overriding effect; (d) consequently the special right, priority and preference created by section 529A has overriding effect against all other claims and dues; (e) the order of priority prescribed under section 530 is itself subject to the preference and priority conferred by section 529A in favour of the dues specified under the said section i.e. section 529A of the Companies Act. 20.2Therefore, any claim on the strength of section 476 and/or section 520 of the Companies Act in disregard to the order of priority mentioned under section 530 and right of preference created by section 529A of the Companies Act, cannot be sustained. 20.3In view of the fact that section 529A is a non-obstante clause and since the said section 529A is introduced and brought in force subsequently (i.e. From 24.5.1985) it will have overriding effect, and it shall prevail, over other provisions. Therefore (as observed hereinabove earlier with reference to section 178 of the Income Tax Act) all other rights and claims would be subservient to, and must yield to, the superiority of section 529A and the priority and preference conferred in favour of secured creditors and workmen covered under section 529A of the Companies Act. 20.4Thus, the claim and contention that the cost, charges and expenses contemplated under section 520 of the Companies Act should be paid in priority over other dues overlooks the above-mentioned aspects. When the submission is considered in light of said aspects, it becomes clear that the submission is not sustainable. 21. The said claim and contention is required to be examined from other perspective also. It is true that according to section 520 of the Companies Act, the costs and charges properly incurred in the process of winding up have to be paid before other dues are paid. 21.1However, in this context, it is pertinent that the De