M/S Pure Drinks (New Delhi) Ltd v. Income Tax Department

IN THE, HIGH COURT OF PUNJAB & HARYANA ATCHANDIGARH. Date of Decision: 24.05.2017 1.Company Appeal No. 25 of 2015 M/s Pure Drinks (New Delhi) Ltd. through its Director. …..Appellant versus Income Tax Department through its Commissioner and another …..Respondents 2.Company Appeal No. 26 of 2015 M/s Pure Drinks (New Delhi) Ltd. through its Director. …..Appellant versus Income Tax Department through its Commissioner and another …..Respondents 3.Company Appeal No. 27 of 2015 Commissioner of Income Tax, Patiala …..Appellant/non/applicant versus DCM Financial Services Pvt. Ltd. and another …..Respondents CORAM: HON’BLE MR.JUSTICE S.J.VAZIFDAR, CHIEF JUSTICE HON’BLE MR. JUSTICE ANUPINDER SINGH GREWAL, JUDGE. Present : Mr. A.S.Chandhiok, Senior Advocate with Ms. Manmeet Arora, Advocate, Mr. Aashish Chopra, Advocate, Ms. Sweta Kakkad, Advocate and Mr. Anukrit Gupta, Advocate, for the appellant(s). Mr. Zora Singh Klar, Advocate, for the respondent/revenue. **** S.J.VAZIFDAR, CHIEF JUSTICE This is an appeal against the order and judgment of thelearned Company Judge in an application filed on behalf of the companythat is sought to be wound up. The petition is filed for winding up thecompany inter-alia on the ground that it is unable to pay its debts. By anorder dated 28.08.1997 the company petition was admitted and wasordered to be advertised. In view of the nature of the impugned order, itis necessary to note that the company has not been ordered to bewound up. 2.The question that was raised in the company application inwhich the impugned order was passed is whether the sale proceeds ofthe assets of the company in liquidation under the orders of theCompany Court are amenable to capital gains tax under section 45 of theIncome Tax Act, 1961. Considering the stage at which the proceedingsare before the Company Court and the order that we intend passing it isnot necessary to set out the facts in detail. Suffice it to state that theCompany Court had appointed retired Judges of the High Court atvarious points of time to sell the assets of the company obviously with aview ultimately to distributing the sale proceeds thereof to the creditorsof the company in the event of the company being ordered to be woundUp. | 3.Two properties belonging to the company were sold. Thecompany filed its tax return on 29.09.2011. Reassessment proceedingswere initiated by the Income Tax Department under section 148 of theAct. The company resisted the penalty and interest imposed on accountof it not having filed the returns within the prescribed time. It iscontended on behalf of the company that it bona fide believed that thesale proceeds were not amenable to capital gains as the properties weresold pursuant to the orders of the Company Court. The company has challenged the assessment order before the Commissioner of Income Tax(Appeal). The appeal is pending. 4.Pursuant to an interim order passed by the Company Courtdated 04.08.2012, an amount of=18,34,44,6015/- has been paid to the|Income Tax Department as an interim measure. The applicantquestioned the liability assessed under the Income Tax Act contendingthat the sale of its assets having been conducted under the orders of theCompany Court in respect of the company in liquidation, the saleproceeds are not amenable to capital gains. The learned Judge noticedvarious provisions of the Companies Act, 1996 and the Income Tax Act. challenged the assessment order before the Commissioner of Income Tax(Appeal). The appeal is pending. 4.Pursuant to an interim order passed by the Company Courtdated 04.08.2012, an amount of=18,34,44,6015/- has been paid to the|Income Tax Department as an interim measure. The applicantquestioned the liability assessed under the Income Tax Act contendingthat the sale of its assets having been conducted under the orders of theCompany Court in respect of the company in liquidation, the saleproceeds are not amenable to capital gains. The learned Judge noticedvarious provisions of the Companies Act, 1996 and the Income Tax Act. 5.It is important to note that throughout the judgment thelearned Judge has referred to the company as being ‘in liquidation’ andthat it is the asset of the company ‘in liquidation’ that was sold. Thelearned Judge was obviously aware of the fact that the company had notbeen ordered to be wound up. We do not think that the words ‘inliquidation’ used by the learned Judge indicate that the learned Judgewas under a misapprehension that the company had been ordered to bewound up. That is the reason why the rights and liabilities of the partieshave rightly not been crystallized by the learned Judge. The rights wouldbe finally crystallized and determined only in the event of the companybeing ordered to be wound up. Till then all the interim payments madeare only tentative. The learned Judge for instance noted as follows:- “Section 530(8)(c ) provides for expression, the relevant date|to mean in the case of a company ordered to be wound upcompulsorily, the date of the appointment or first appointment of a.provisional liquidator or 1f no such appointment was made, the date ofthe winding up order.to mean in the case of a company ordered to be wound upcompulsorily, the date of the appointment or first appointment of a.provisional liquidator or 1f no such appointment was made, the date ofthe winding up order. The statutory liabilities incurred by the company on therelevant date thus would have to be satisfied by the Official Liquidator,in the order of prioritization indicated above.relevant date thus would have to be satisfied by the Official Liquidator,in the order of prioritization indicated above. Such 1s not the question here as the disputed lability has beenincurred by the company in winding up on sale of its assets under theorders of this Court after the relevant date and as per the assessmentmade by the Income Tax authorities subsequent to the relevant date.|This means that a liability has been acquired after the relevant date. incurred by the company in winding up on sale of its assets under theorders of this Court after the relevant date and as per the assessmentmade by the Income Tax authorities subsequent to the relevant date.|This means that a liability has been acquired after the relevant date. The question of satisfaction of the statutory liability of a company in)winding up would naturally fall upon the Official Liquidator who hasto discharge such obligations in accordance with law and in terms ofthe precedence provided in the Act itself. The statutory authorities,would naturally have to be in this queue of precedence if the liability,of revenue, tax or cess 1s acquired after the relevant date to get theirshare from the resources of the company in liquidation 1.e. after theclaims of the workers and that of the creditors 1s satisfied.” Theseobservations|indicate thatthelearnedJudge contemplated the rights and liabilities being determined finally onlyhereafter. The question of satisfaction of the statutory liability of a company in)winding up would naturally fall upon the Official Liquidator who hasto discharge such obligations in accordance with law and in terms ofthe precedence provided in the Act itself. The statutory authorities,would naturally have to be in this queue of precedence if the liability,of revenue, tax or cess 1s acquired after the relevant date to get theirshare from the resources of the company in liquidation 1.e. after theclaims of the workers and that of the creditors 1s satisfied.” Theseobservations|indicate thatthelearnedJudge contemplated the rights and liabilities being determined finally onlyhereafter. 6.It was contended before us that the learned Judge positivelyheld that the Company Court cannot determine the liability of thecompany under the Income Tax Act. The learned Judge has referred tothis contention and dealt with the role of the Company Court in suchcases. The learned Judge has also referred to various authorities on thisissue. The grievance is that the learned Judge has held that theCompany Court cannot determine the Habilities under the Income TaxAct. The learned Judge for instance observed that the said satisfaction ofthe statutory liability would arise once the proceedings before thecompetent authority are determined and the Company Court cannot takeupon itself the role of the competent authorities under a statute toestablish a liability which has its genesis in the process initiated by theanother authority. The learned Judge observed that the authoritiesindicated that the Company Court would not take over the functions ofthe authorities under the Act and would leave the company to itsremedies under the law and that once the issue is determinedconclusively the liberty would be granted to the Income Tax Authoritiesto press their claim for satisfaction of the liability in accordance with theprocedure envisaged in the Companies Act. Having said that the learned Judge concluded as follows:- “The plea of the respondents that under Section 178 of the}Income Tax Act, the Official Liquidator would have to set aside the.amount to satisfy statutory obligations is incorrect and has to be. negated for the simple reason that this hability which is now in.question, was not incurred by it prior to the relevant date. The mere.fact that liability was attracted subsequent to the date contemplated under Section 530(8)(1), would require the statutory authorities to.join the queue as per order of precedence given in Sections 529A and930 of the Companies Act. The amount of Rs.18,34,44,615/-.deposited under the order of this Court shall be returned to this.Court to satisfy the hability of the workmen and creditors securedand unsecured and in the eventuality of the liability of the workmenand the creditors secured and unsecured stands largely satisfied,then this amount shall be unhesitatingly given to the share of the.revenue.” T.The views are by no means conclusive. They are onlytentative and rightly so as the order is passed only at the interim stage.The proceedings before the Company Court and betore the authoritiesare pending. They may proceed. The issue whether the findings in theassessment proceedings bind the Company Court or the OfficialLiquidator or not can be decided subsequently. If the answer is in thenegative the assessment order as finally determined would bind theOfficial Liquidator. If not the Company Court or the Official Liquidator,as the case may be, may go into the issue. If the Company is for anyreason not wound up the parties would be left to their remedies inaccordance with law. In any event the assessment order as finally settledwould benefit even the Company Court in determining the issue. | T.The views are by no means conclusive. They are onlytentative and rightly so as the order is passed only at the interim stage.The proceedings before the Company Court and betore the authoritiesare pending. They may proceed. The issue whether the findings in theassessment proceedings bind the Company Court or the OfficialLiquidator or not can be decided subsequently. If the answer is in thenegative the assessment order as finally determined would bind theOfficial Liquidator. If not the Company Court or the Official Liquidator,as the case may be, may go into the issue. If the Company is for anyreason not wound up the parties would be left to their remedies inaccordance with law. In any event the assessment order as finally settledwould benefit even the Company Court in determining the issue. | 8.Company Appeal No. 26 of 2015 was also filed by thecompany against the same order of the learned Single Judge whichdisposed of CA No. 679 of 2012, CA No. 55 of 2014 and CA No. 137 of2015. In CA No. 679 of 2012, the company sought an order from thelearned Company Judge directing the Income Tax Authorities to exerciseits powers under section 119(2) (d) of the Income Tax Act in favour of thecompany by waiving the interest, if any, on the capital gains. Theauthorities under the Income Tax Act, however, refused to waive theinterest. The rate of interest was reduced. The company, therefore, filed CA No. 59 of 2014 to challenge this decision. CA No. 137 of 2015 wasfiled by the company for setting aside the demand notice levying penaltyunder section 271(1)(c ) of the Act tor the financial years 2008-09 and2009-10. The issues raised in these civil applications would also bedecided subsequently alongwith other issues that we have referred toearlier. These applications cannot be dealt with separately at the sametime. QO.The Company Petition No. 27 of 2015 has been filed by theIncome Tax Department insofar as the learned Judge has directed thedepartment to return an amount of aboutL18 crores. As tar as theobservations regarding the priorities are concerned, the same would bedecided by the learned Company Judge subsequently alongwith otherissues referred to above. It is not necessary to deal with the issueregarding the return of a sum Of=18 crores in view of the statements| made by the parties before us. 10.Mr. Chandok rightly agreed that the order of the learnedsingle Judge be modified by permitting the Income Tax Department toretain the amount of about Rs.18 crores as that would safeguard thecompany in the event of it held to be liable to capital gains tax. It is also.agreed that an additional amount of4oo lacs shall also be paid to the Income Tax Department being the additional amount allegedly duetowards the companies basic tax demand. The Registrar General shall by15.07.2017 pay a sum of|=99 lacs to the Income Tax Department from the amounts lying with him to the credit of the company. However, theIncome Tax Department shall be entitled to retain the amounts withoutprejudice to the rights not only of the Company but all other partiesconcerned /interested. The same shall also be retained subject to ordersin any proceedings including under the Income Tax Act or in the aboveproceedings. 11.All the appeals are accordingly disposed of. All thecontentions of the parties including as to whether it is open to theCompany Court/Liquidator to question the findings of the authoritiesunder the Income Tax Act are Kept open. | (S.J. VAZIFDAR)CHIEF JUSTICE (ANUPINDER SINGH GREWAL)JUDGE 24th May, 2017)ravinder| Whether speaking/reasoned Whether reportable √Yes/No Yes/No√