INCOME TAX OFFICER Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) THIS original side appeal by the Income-tax Officer, Nellore, under Clause 15 of Letters Patent, gives rise to a short but interesting question of law, viz., whether the official liquidator who, under Section 497(6) of the Companies Act, 1956, is in charge of the scrutiny of the books and papers of a company in voluntary liquidation for the purpose of making his report to the court about the affairs of the company in the light of the report that has been submitted by the voluntary liquidator, is the " principal officer " within the meaning of Section 2(35) of the Income-tax Act, 1961.

(2.) IN order to appreciate the scope of the question, it is necessary to briefly state the material facts that gave rise to the same : The company by name Messrs. Civil Supplies Corporation Ltd., Pamur, was registered with the Registrar of Companies on July 19, 1949. The registered office of the company was in Pamur, Kanigiri taluk, Prakasam district. The company went into voluntary liquidation by a special resolution passed by the members of the company on September 9, 1963. One Sri V. Sankara Narayana Rao of Pamur was appointed as voluntary liquidator of the company. The final meeting of the members under Section 497 of the Companies Act had taken place on December 6, 1967, and the return of final winding-up by the voluntary liquidator was filed with the official liquidator on December 14, 1967. The voluntary liquidator furnished all the records available with him to the official liquidator for investigation under Section 497(6) of the Companies Act. The official liquidator is in charge of the scrutiny of the accounts and books of the company which is in voluntary liquidation. The voluntary liquidator died in January, 1974. Subsequent to the death of the voluntary liquidator, no other liquidator has been appointed by the company. The official liquidator, after completion of the scrutiny of the accounts and books of the company, has to submit his report under Section 497(6) of the Companies Act to the court. At that stage, the appellant-INcome-tax Officer who was in charge of the company's assessments, by his letter dated December 3, 1974, requested the official liquidator to file the income-tax return of the company for the assessment year 1966-67 informing him that he was issuing a notice under Section 148 read with Section 139(2) of the INcome-tax Act. Subsequently, the said notice was issued and served on the then official liquidator, Sri K. Ramachandran, on March 29, 1975, treating him as the principal officer within the meaning of Section 2(35) of the INcome-tax Act. The official liquidator objected to the course adopted by the INcome-tax Officer with an assertion that he was only discharging a statutory function under Sub-section (6) of Section 497 of the Companies Act for the limited purpose of filing a report to the court in respect of the company and he could not be treated as the principal officer of the company who could be called upon to file a return of income in respect of the company. Thereupon, the INcome-tax Officer filed an application to this court under Section 518 of the Companies Act and Rule 9 of the Companies (Court) Rules, 1959, to direct the respondent-official liquidator to file the income-tax return of the company in voluntary liquidation for the assessment year 1966-67 on the ground that he is the principal officer of the company who is liable to submit a return. This application has been countered by the official liquidator on the ground that he is only discharging a statutory duty and function of scrutinising the accounts for the purpose of submitting his report to the court and he is not an officer of the company and, therefore, he cannot be considered to be the principal officer of the company in liquidation. The learned acting Chief Justice, Sambasiva Rao, held that the official liquidator is in no manner connected with either the management or administration of the company as the only work that is statutorily entrusted to him is to scrutinize the books and records of the company and submit a report. IN the circumstances, the learned judge was of the view that it is not proper to call the official liquidator who is discharging the functions under Section 497(6) of the Companies Act, the principal officer within the meaning of Section 2(35) of the INcome-tax Act, 1961, and dismissed the application. Hence, this appeal.

(3.) A company is a separate taxable entity under the Income-tax Act. " Company " is defined under Section 2(17). The definition of " company " takes in any Indian company which, in its turn, is defined under Section 2(26) of the Income-tax Act. " Indian company " means a company formed and registered under the Companies Act, 1956. The company with which we are concerned was admittedly a company formed and registered under the Companies Act. A company which is under liquidation including voluntary liquidation is certainly a company which is a separate entity for purposes of income-tax. The definition of "person" under Section 2(31), whose total income of the previous year is chargeable to income-tax under Section 4 takes in a company. Hence, the company with which we are now concerned is a company in respect of whose income the appellant Income-tax Officer is competent to assess under the Income-tax Act. Sub-clause (a) of Clause (35) of Section 2 will not come in aid of the appellant as the official liquidator, in the circumstances, cannot be called to be the secretary, treasurer, manager or agent of the company. We have, therefore, to look to the provisions of Sub-clause (b). In order that a person can be said to be a " principal officer " defined under Section 2(35)(b), the following two ingredients must be satisfied: (i) he must be a person connected with the management or administration of the company; (ii) the Income-tax Officer must have served upon him a notice of his intention of treating him as the principal officer of the company. The satisfaction of any one of the two conditions or ingredients will not attract this clause. There is no dispute about the satisfaction of the second condition, i.e., requiring the service of notice of the intention of the Income-tax Officer treating the respondent-official liquidator as the principal officer of the company in liquidation. The only point that survives for our determination is whether the respondent is or is not connected with the management or administration of the company.