Commissioner of Income Tax vs Golecha Properties (P.) Ltd.

The revenue has filed an application u/s 256(2) of the Income Tax Act seeking direction to the Income Tax Appellate Tribunal (for short the Tribunal) to refer the following substantial question of law for opinion of the Court:

Whether on the facts and circumstances of the case, the Tribunal was right in holding that in the case of the companies, which are under liquidation, Section 104 of Income Tax Act would have no application and consequently erred in quashing the proceedings u/s 104 of the Income Tax Act initiated in the case of the assessee company ?

Assessment pertaining to the assessment year 1979-80 was completed on 23-6-1982. During the course of the assessment it was found that the assessee had not declared the dividend for the year ending on 31-3-1979. A notice was issued u/s 104 of the Income Tax Act (for short the Act). The assessee replied the notice stating that the company is under liquidation and the Official Liquidator is managing the affairs of the company for the benefits of the creditors. The assessing authority did not agree with the contention of the assessee and created the liability of payment of tax vide order dated 20-3-1984. The assessee preferred an appeal before the Commissioner (Appeals), which came to be rejected. The assessee further preferred appeal before the Tribunal. The Tribunal held that the provisions of the Act are not applicable to the Official Liquidator and set aside the orders of the lower Courts.

The revenue filed an application before the Tribunal for reference of the aforementioned substantial question of law to the High Court for opinion. The Tribunal rejected the application observing that the Rajasthan High Court in the case of the assessee in Commissioner of Income Tax Vs. Golcha Properties (P.) Ltd. (In liquidation), has , answered the issue. Under these circumstances, this application has been filed u/s 256(2) of the Act for the reference of the aforesaid substantial question of law.

We have heard learned Counsel for the parties and perused the record.

Similar principle of law was involved in the assessment year 1971-72 of the assessee. The reference made by the Tribunal in respect of the assessment year 1971-72 of the same assessee was as under:

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(3) of the Income Tax Act, 1961, and was not liable to pay any interest u/s 217 (1A) of the said Act ?

For the assessment years 1972-73 to 1974-75 of the assessee, the reference of the questions of law made by the Tribunal was as under:

Whether the Tribunal was right in law in Holding that the provisions of Section 220(1) of the Income Tax Act, 1961, were inoperative in the case of a company which was in liquidation by the orders of the winding up court ?

Whether the Tribunal was right in law in holding that interest u/s 220(2) of the Income Tax Act, 1961, was not chargeable .in the case of the assessee-company ?

The dispute pertaining to the assessment years 1972-73 to 1974-75 came to be decided in the reference titled as CIT v. Golcha Properties (P) Ltd. (1987) 167 ITR 737 (Raj). The facts of the case were that the assessee-company went in liquidation and came under the control of Official Liquidator attached with the High Court of Rajasthan. The Income Tax Officer charged interest for the assessment years u/s 220(2) of the Act and issued a notice to the Official Liquidator, The interest remained unpaid. The Official Liquidator-moved an application before the Income Tax Officer u/s 154 of the Act stating therein that the interest u/s 220(2) of the Act was not chargeable in the case of company under liquidation. The Official Liquidator claimed that Section 446(1) of the Companies Act, 1956 read with Rule 179 of the Companies (Court) Rules, 1959 prohibit charging of interest u/s 220(2) of the Act after the order of the winding up of the company. The Income Tax Officer did not agree with the contention of the assessee and held that under Rule 179 of the Companies (Court) Rules, 1959 there is no bar to charge the interest u/s 220(2) of the Act.

The Official Liquidator preferred an appeal against the order of the Income Tax Officer before the Appellate Asstt. CIT who upheld the order of the Income Tax Officer. The Official Liquidator filed further appeal before the Tribunal. The Tribunal set aside the orders of the lower Courts. The department filed an application for making reference to the court which was accordingly made. The court dealing with such a situation observed as under:

Mr. Surolia, learned Counsel for the revenue, was unable to show any later decision of the Hon''ble Supreme Court taking a different view from the view already taken in the cases of S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. Vs. V.M. Deshpande, Income Tax Officer, Companies Circle I(8), Bombay and Another, and Union of India (UOI) and Another Vs. India Fisheries (P) Ltd., The Tribunal has decided the case by placing reliance on the above-mentioned two Supreme Court decisions and no argument has been raised by learned Counsel for the revenue to show that the Tribunal in any manner committed any mistake in taking the above view. As the questions of law referred to us are already concluded by the abovementioned two decisions of the Hon''ble Supreme Court, we answer the above questions in the affirmative and against the revenue. There will be no order as to costs.

Under similar circumstances, the reference made for the assessment year 1971-72 of the same assessee in case title CIT v. Golcha Properties (P) Ltd. (supra) was answered by the court observing as under:

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 totalize 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 Commissioner of Income Tax Vs. Ajit Singh Bhagat Singh, , 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 substantial question of law sought to be referred for opinion of the court is already covered by the aforesaid two judgments passed by this Court pertaining to the same assessee. Therefore, the reference application filed by the revenue is dismissed.