The Income Tax Officer v. M/S. Kienzle India Samay Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH (The Income Tax Officer vs. M/s. Kienzle India Samay Ltd.) Date of Order : 02.09.2016 HON'BLE MR. JUSTICE ALOK SHARMA Ms. Parinitoo Jain, for appellant.Mr. K.J. Mehta, for respondent. This company appeal under Rule 164 of the Company(Court) Rules, 1959 (hereinafter 'the Rules of 1959') has been filedagainst the order dated 14.02.2005 passed by the Official Liquidatordismissing the claim of the Income Tax Officer Ward 2(3) Alwar forrecovery of amounts due against the company in liquidation. Counsel for the appellant submitted that no disbursementcould have been made to secured creditors of the company inliquidation without payment of the outstanding of the Income TaxDepartment against the company in liquidation more so without resortto the procedure prescribed under Section 178 of the Income Tax Act,1961 (hereinafter 'the Act of 1961'). She submitted that the OfficialLiquidator was appointed on 07.04.1995 and was then under anobligation to inform the Assessing Officer having jurisdiction over thecompany in the liquidation such that the due outstandings against thecompany could have been conveyed to him and recovery thereof made.It was submitted that without requisite information the liquidator hasdisbursed the amounts realised from the sale of the assets properties of the company in liquidation to the secured creditors without providingfor payment of the dues of the department for penalty levied on thecompany in the liquidation under Section 271(1) (c) of the Act of 1961for assessment year 1992-93 to an extent of Rs.30,65,623/-. It wassubmitted that in the circumstances, in terms of Section 178 (4) of theAct of 1961 the OL is personally liable to the amounts due andoutstanding to the income tax department by the company inliquidation and it be so directed. Mr. K.J. Mehta appearing for the O.L. has submitted that theentire argument of the appellant based on Section 178 of the Act of1961 over looks the proviso to Section 178 (3) aforesaid which inter aliastates that it shall be open to the O.L. to part with the assets or theproperties of the company in the liquidation for the purpose of paymentinteralia of the amount dues to the secured creditors whose debts areentitled under law to priority over payment over debt due to theGovernment on the date of the liquidation. It was submitted that interms of the Section 529-A (1) of the Companies Act, 1956 (hereinafter'the Act of 1956'), preferential payments of the debts of company inliquidation have been set out and it has provided that notwithstandinganything under the Act itself or any other law for the time being in force,in the winding up of a company the debts due to secured creditors tothe extent such debts rank under clause (c) of the proviso to sub-Section(1) of Section 529 pari passu which such dues, shall be paid in priority toall other debts. It was submitted that Section 529-A was incorporated inthe Act of 1956 by way of an amendment effective 24-5-1985. The non- obstant clause in Section 529-A of the Act of 1956 thus overridesSection 178 of the Act of 1961 a prior Act if it were to be so required. Butin fact the proviso to Section 178 (3) of the Act of 1961 itself saves theaction of the O.L. in paying out the dues of the secured creditors withoutprior notice to the jurisdictional Assessing Officer under Section 178 (2)of the Act of 1961. It was submitted that consequently, thedisbursement of the amounts obtained from the liquidation of theassets of the company in winding up to the secured creditors of thecompany does not fall in the cross-hairs of Section 178 (1) (2) and (4) ofthe Act of 1961. Mr. K.J. Mehta further submitted that in any event theamount of penalty visited upon the company in liquidation for theAssessment Year 1992-1993 by the Income Tax Department withreference to the Section 271 (1) (c) of the Act of 1961 does not partakeas tax as defined under Section 2 (43) of the Act of 1961 due to theIncome Tax Department. Heard. Considered. Besides the submissions made before this Court, it transpiresthat subsequent to the disbursement of the amounts with the companyin liquidation to its secured creditors following the liquidation of itsassets, a sum of merely Rs.2,000/- remains with the O.L. Even the saidamount in terms of the proviso to Section 178-(3) of the Act of 1961 isto be expanded as a priority on the expenses of the O.L. is dissolving thecompany in liquidation over the tax dues of the Income Tax Department.This fact is not disputed. In my considered view, consequently in thefacts obtaining the claim of the Income Tax Department in the present appeal is sterile and of mere form. No liability can personally attach tothe O.L. in view of the proviso to Section 178 (3) of the Act of 1961 readwith Section 529-A of the Act of 1956. The issue whether the amount ofpenalty visited upon the assessee company in proceedings underSection 271 (1) (c) of Act of 1961 partakes the character of tax due isredundant and merely academic in the facts of the case and presentlyneeds no address. In the circumstances, the appeal filed by the appellant-Income Tax Department is dismissed. (ALOK SHARMA), J Himanshu Soni