Commissioner of Income Tax vs Golcha Properties (P.) Ltd. (In liquidation)

S.N. Bhargava, J.—This is a reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), by which the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal"), has made a reference on the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not under an obligation to file an estimate in terms of Section 212(3A) of the Income Tax Act, 1961, and was not liable to pay any interest u/s 217(1A) of the said Act ?"

The assessee, M/s. Golcha Properties (P.) Ltd., is a private limited company in liquidation. While filing its return of Income Tax for the assessment year 1971-72, it claimed that it had no income and, accordingly, in Part I of the return nil income was shown. But, in Part IV of the return, the assessee declared an income of Rs. 12,94,515 which was claimed to be exempt. The Income Tax Officer, however, brought the entire income of the company in liquidation to assessment and he made a note to the following effect :

"No action u/s 273(c) as the official liquidator could not have filed estimates u/s 212(3A) showing any income in view of his claim in each year that the income is not taxable. For 1972-73, he filed nil estimate in reply to notice u/s 210. Some action u/s 217(1A)."

The Income Tax Officer had with the prior permission of the company judge u/s 446 of the Companies Act, 1956, served on the assessee a notice u/s 210 of the Act on February 25, 1971, asking the official liquidator for payment of advance tax amounting to Rs. 5,20,722. The amount was paid by the official liquidator during the time granted by the High Court The assessee did not file an estimate u/s 212(3A) either on or before March 15, 1971, or even thereafter.

The Commissioner of Income Tax, on June 18, 1981, issued a notice to the assessee u/s 263 of the Act, in the following words :

"A perusal of the record reveals that the Income Tax Officer, while completing the assessment for the assessment year 1971-72, failed to charge interest u/s 217(1A) which was clearly leviable within the meaning of Section 212(3A) of the Income Tax Act, 1961, and the case was not covered by any of the exceptions provided in Rule 40 of the income tax Rules, 1962. Thus, the Income Tax Officer''s order in not charging interest u/s 217 is erroneous and prejudicial to the interests of the Revenue."

The assessee filed a reply to the said notice; but, since nobody appeared on behalf of the assessee, the Commissioner of Income Tax passed the impugned order to the following effect :

"I have considered the various contentions raised in the written reply. The assessee has not indicated that any circumstances exist for the waiver of interest in terms of Rule 40 of the Income Tax Rules, 1962. There is also nothing on record to indicate that at the time of making the original assessment, the Income Tax Officer had taken any conscious decision to waive interest u/s 217(1A). The assessment is, therefore, clearly prejudicial to the interests of the Revenue. The same is accordingly cancelled and the Income Tax Officer is directed to make a fresh assessment after applying his mind to the question whether interest is chargeable u/s 217(1A)."

The assessee appealed to the Tribunal against the Commissioner''s order u/s 263 of the Act and the same was accepted and the order of the Commissioner was quashed. The Commissioner of Income Tax thereafter submitted an application u/s 256(1) of the Act for making a reference of the above question to the High Court. It is in these circumstances that the present reference has come up before this court.

We have heard learned counsel for the Department and learned counsel for the assessee.

In view of the authoritative pronouncement of the Supreme Court in J.K. (Bombay) P. Ltd. Vs. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. and Others, , the effect of a winding-up order is that except for certain preferential payments provided in the Act, the property of the company is to be applied in satisfaction of its liabilities pari passu. Pari passu distribution is to be made in satisfaction of the liabilities as they exist at the commencement of the winding-up. The official liquidator is to realise and pay to its creditors and, as such, the income of the company in liquidation cannot be said to be its income for the purpose of Income Tax and, as such, is not liable to tax. Therefore, it cannot be said that the assessee was not under a bona fide belief that the income of the assessee was not liable to tax and he was right in showing his income as nil. Learned counsel for the assessee has placed reliance on Commissioner of Income Tax Vs. N. Khan and Brothers, , Commissioner of Income Tax, Bombay City-II Vs. Allied Silk Mills, , Commissioner of Income Tax, Gujarat-II Vs. Bharat Machinery and Hardware Mart, and CIT v. Ajit Singh Bhagat Singh [1985] 151 ITR 696 , a Division Bench judgment of this court and Commissioner of Income Tax Vs. Hazari Mal Milap Chand Surana, for the proposition that the assessee cannot be held guilty and was right in not disclosing the income of the assessee-company, being under liquidation, as an income assessable under the Act under a bona fide belief and, therefore, he was not liable to any interest. We are in agreement with the view expressed by this court in the earlier two cases cited above. Therefore, the question referred to above is answered in the affirmative and it is held that the assessee was not under an obligation to file an estimate in terms of Section 212(3A) of the Act and was not liable to pay any interest u/s 217(1A).

The Additional Registrar is directed to send a copy of the judgment to the Tribunal in accordance with Section 260 of the Act.