STARIT INDIA LTD Vs. STARIT INDIA LTD

JUDGEMENT

(1.) THE short but interesting question that arises in the matter is whether capital gains tax payable under S. 45 of the IT Act, 1961, has precedence over the claims of other secured creditors covered by S. 530 r/w S. 529A of the Companies Act, 1956.

(2.) THE company is under liquidation. The workers of the company in liquidation had filed claims for payment of their dues as secured creditors. By order dt. 31st Aug., 1996, the Court allowed the application and also directed payment of interest. The said order has not been challenged. The present dispute is regarding payment of interest pursuant to the order of this Court dt. 31st Aug., 1996. On behalf of the Department of Income tax, Government of India, the same has been opposed on the ground that the Department has a preferential right in respect of the properties sold by the liquidator and that the capital gains tax has preference over dues of other secured creditors. The Department has claimed two amounts one in an amount of Rs. 10 lakhs and the other of about Rs. 90 lakhs as capital gains tax pursuant to the sale of a property. The amount of Rs. 10 lakhs is not in issue here. The official liquidator as per para. 7 has averred that the present fund position of the company is around Rs. 43,68,230.25. If the demand of the Department is to be satisfied then no amount would be available to be paid to other secured creditors including the workers. It is, further, contended on behalf of the Department that the order of this Court is dt. 31st Aug., 1996, and the learned judge while passing the order has not taken into consideration the judgment of the apex Court dt. 19th March, 1996, in the case of Imperial Chit Funds (P) Ltd. (In Liquidation) vs. ITO (1996) 219 ITR 498 (SC) : 86 Comp Cas 555. If the said judgment is considered it is contended then it must be held that under S. 178 of the IT Act, tax dues of the Department are a preferential claim over all secured creditors.

(3.) PREVIOUS to the judgment in Imperial Chit Funds (P) Ltd. (In Liquidation) vs. ITO (1996) 219 ITR 498 (SC) there was a conflict of views amongst the High Courts as to the interpretation of S. 178 (1) and (2) of the IT Act and S. 520 of the Companies Act. The question which the apex Court was called upon to answer was whether the dues of secured creditors under S. 529A of the Companies Act had prior claim over the claims of the Department under S. 178(1) and (2) of the IT Act. The apex Court held, considering the purpose for which the section was introduced in the year 1961, that the object sought to be achieved by the provisions in Chapter XV was "to fasten liability to pay the tax". The apex Court while so holding upheld the views taken by the High Courts of Kerala and Andhra Pradesh. The apex Court held that the claim under S. 178(1) and (2) has preference over the claims of the other secured creditors under S. 529A of the Companies Act. It is based on this judgments that the Department has contended that they have a preferential claim over all other secured creditors in respect of properties sold by the liquidator.