SHIROMANI SUGAR MILLS, LTD IN LIQUIDATION, (THROUGH J C MUKERJI AND S S DHAWAN, OFFICIAL LIQUIDATORS) Vs. GOVERNOR- GENERAL IN COUNCIL (THROUGH FOURTH ADDLINCOME-TAX OFFICER)

JUDGEMENT

(1.) This is an application under the Companies Act, 1913, made in the winding up of the Shiromani Sugar Mills Limited in liquidation. The company prior to its winding up carried on business as the proprietors of Sugar Mills at Khalilabad in the Basti District of the United Provinces. In the course of its business, the company is said to have made profits amounting to Rs. 66,407 in the year ending 30 May 1941, in respect of which it was assessed to income-tax for the year of assessment 1941-42 for the sum of Rupees 18,493-12-0. This assessment was not, however, actually made by the Income-tax Officer until 25 February 1943, by which time an order for the compulsory winding up of the company had been made on the petition of a debenture holder. The date of the presentation of the petition for winding up was 26 November 1941. On 7 December 1941 a provisional liquidator had been appointed and on 17 April 1942 the winding up order was made by this Court. The position, therefore, was that the assessment was actually made by the Income-tax Officer after the date of the winding up order, but was in respect of the assessment year 1941-42 and was based on the profits of the year 1940-41. The liquidators, having received the assessment took the view that the proper course would be for the Income-tax Officer to prove in the liquidation for the tax claimed and they so informed him. After some correspondence, the Income-tax Department intimated that they proposed to proceed under Section 46, Income-tax Act, and that they had issued a recovery certificate in respect of the amount of the assessment of 25 February 1943 to the Collector of Allahabad for recovery of the tax in question under that section "as if it were an arrear of land revenue."

(2.) These are the material facts which, have led to the present application by the liquidators to the High Court in the winding up of the Company. In view of the many points raised, it is important to observe that the relief asked for before us by the liquidators is, in effect, only that the Income-tax Officer may be restrained under Section 169, Companies Act, 1913, from proceeding with the recovery of the amount of the assessment through the machinery of Section 46, Income-tax Act, and may, in consequence, be relegated to his right of proof in the winding up for such amount (if any) as may be payable by the company in respect of tax due. On the hearing of the application we have actually been invited to go a good deal further than this and in effect, to deter-mine the validity of the assessment itself in the sense of deciding whether the assessment or the full assessment, can be sustained by the Income-tax Officer. But that does not appear to us to arise at this stage. The only matter in issue before us on this present application is whether it is open to the Income-tax Officer to proceed with the recovery of the assessed amount under Section 46, Income-tax Act, notwithstanding the winding-up order and notwithstanding the provisions of the Indian Companies Act, 1913, regulating the distribution of the assets of the company in a liquidation. If the rights of the income-tax authorities under Section 46, Income-tax Act, are unaffected by the scheme of distribution of assets in a liquidation contained in the Companies Act, 1913, then "credit quaestio." If, on the other hand, the rights of the income-tax authorities under that section are subordinated to the relevant winding-up provisions of the Companies Act, 1913, then subject to the question whether the Court can and will exercise its discretion under Section 171, Companies Act, 1913, in favour of the Income-tax Officer so as to allow him to continue the recovery proceedings before the Collector, the income-tax department will necessarily be thrown back on to its rights of proof in the liquidation. In our view, therefore, subject to a preliminary point as to jurisdiction, the only question at present before us is whether the income-tax department, without the leave of the winding- up Court, can continue the proceedings for summary collection of the tax claimed "outside the winding up or whether, if they wish to recover the debt, they are bound to prove as creditors in the liquidation. Mr. Pathak, who has appeared on behalf of the income-tax department, has, however, taken the point that this Court has no jurisdiction to entertain this question. This has been argued somewhat late in proceedings, but we shall do well to deal with it first since it is a point which is in the nature of a demurrer and is moreover, one both of difficulty and importance. It rests on Section 226 (1), Government of India Act, 1935, which provides that: Until otherwise provided by Act of the appropriate Legislature, no High Court shall have any original jurisdiction in any matter concerning the revenue or concerning any act ordered or done in the collection thereof according to the usage and practice of the country or the law for the time being in force.

(3.) We do not propose to embark on the entertaining question whether the jurisdiction exercised by the High Court in winding up under the Indian Companies Act, 1913, is original jurisdiction within the meaning of this section, because we think that this demurrer can be better disposed of on other grounds. Mr. Pathak relies on the case in Governor. General in Council V/s. Baleigh Investment Co. Ltd. ( 44) 31 A.I.R. 1944 P.C. 51 in which the Federal Court, reversing a decision of the Calcutta High Court, has recently held that certain proceedings on the original side of the latter Court were excluded from its jurisdiction by Section 226 (1), Government of India Act. In this case the assessee company, having been assessed to income-tax which it disputed nevertheless paid the tax under protest and instituted a suit on the original side in Calcutta for the recovery of the tax so paid on certain grounds which involved a contention that the Indian legislation under which the tax was claimed was ultra vires the Indian Legislature in so far as it purported to authorise the levy of tax on a non-resident company in respect of income from dividends which had accrued outside British India. The dispute, therefore, was one in which the subject challenged, not merely something ordered or done in the collection of the tax, but the validity of the levying of the tax itself. The Calcutta High Court, nevertheless, held that it was entitled, notwithstanding Section 226 (1), Government of India Act, to determine the validity of the legislation under which the tax was levied and that, only after that matter had been determined could any question arise under Section 226. The Federal Court took the view that Section 226 applies generally to all questions of demand or assessment and that the question of the validity of the legislation under which an assessment is made is clearly a matter "concerning the revenue." If the decision of the Federal Court in this case covers the case before us, then that is an end of the matter.