KEWALRAMANI BROS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) WHAT is the ambit of the State's claim to priority in relation to revenues, taxes, cesses and rates, due from a company in liquidation, is the question which stands posed in this appeal by certificate granted by the High Court of Gujarat, in O. J. Appeal No. 2 of 1975 (1976 CTR (Guj) 234 : (1976) 102 ITR 153). The question arises within the frame of S. 530(1)(a) of the Companies Act, 1956, as it stood at the relevant time which is set out below :

(2.) THE appellant company was ordered to be wound up by an order of Court made on 26th June, 1967. The liquidator, after obtaining directions of the Court, invited the creditors of the company to prove their debts or claims and simultaneously to establish any title they may have to priority under S. 530. Pursuant to this invitation, the STO, Petlad, submitted a comprehensive claim in the sum of Rs. 70,945.60 as the amount of sales tax plus penalty payable 'by the company and claimed priority for the whole amount. The liquidator rejected the claim for priority in its entirety, but admitted a claim to the tune of Rs. 42,143.63 payable as a debt pari passu with other unsecured creditors of the company. The STO took the matter in appeal before the company Judge under r. 164 of the Companies (Court) Rules, 1959, which was heard by D. A. Desai, J. (as he was then in the Gujarat High Court). It was urged on behalf of the STO that, out of the admitted claim in the amount of Rs. 42,143.83, the liquidator was in error in not granting priority in payment of debt of Rs. 22,280.96 consisting of Rs. 11,064.46 being sales tax payable by the company for the period from 1st April, 1957, to 31st Dec., 1965, under the Bombay ST Act and balance of Rs. 11,216.50 being the amount of sales tax payable under the Central ST Act for the period from 1st July, 1957, to 31st Dec., 1965, because the assessment order was made in respect of the aforementioned claim within a period of 12 months next before the relevant date and the notice of demand which made the tax payable was also issued within period of 12 months next before the relevant date. It was urged that, apart from any other consideration, the petitioner is entitled to priority in payment of the amount of Rs. 22,280.96 as the claim was of sales tax which was due on the relevant date and which became due and payable within 12 months next before the relevant date. It was conceded that the balance of the admitted claim in the amount of Rs. 19,862.87 being the amount of sales tax due and payable under the Bombay ST Act for the period from 1st Jan., 1966, to 26th June, 1967, would not be entitled to priority in payment. It was also conceded that the claim for an amount of Rs. 195.42 had been rightly rejected. It would appear that, from the claim admitted as payable by the liquidator to the extent of Rs. 42,143.83, priority in payment was claimed for the amount of Rs. 22,280.96 on the submission that the claim represented the claim for tax payable to the State Government as it was due on the relevant date and had become due and payable within 12 months next before the relevant date, and, therefore, it was entitled to priority in payment as envisaged by S. 530(1)(a) of the Companies Act.

(3.) TO conclude, the learned Judge observed that the tax becomes due when the taxing event occurs and not when the assessment orders are passed and that the claim for priority was rightly negatived by the liquidator because even though amount for which priority was claimed was the amount of tax arrears that became payable at the time of making assessment orders after giving credit for what was paid along with the return, yet it was due for a period much prior to the 12 months next before the relevant date and even if it had become payable on the assessment order being made and demand notice being issued, as both the conditions did not coexist and were not satisfied, claim for priority had been rightly negatived by the official liquidator, thus requiring no interference in his order. The appeal on that score was rejected but was allowed to the extend of a small amount of Rs. 1,225.35 being the amount of penalty under the Bombay ST Act and the Central ST Act up to the relevant date and the liquidator was directed to admit the said claim over and above the claim admitted by him. The judgment of D. A. Desai J. is reported as STO vs. Rajratna Naranbhai Mills Co. Ltd. (1974) 44 Comp Cas 65 (Guj).