Income Tax Appellate Tribunal - Jaipur
Golcha Properties (P.) Ltd. vs Income-Tax Officer on 14 June, 1988
Equivalent citations: [1989]28ITD399(JP)
ORDER
A. Kalyanasundharan, Accountant Member
1. The assessee-company, which was under liquidation under the direction of the Hon'ble High Court of Rajasthan based on the creditors' request for winding up of the company, has preferred this appeal against the order of the CIT(Appeals) affirming the action of the ITO passed under Section 104, levying additional tax for non-distribution of dividends.
2. The contention of the learned counsel for the assessee is that the creditors of the company had prayed for winding up of the company in view of the company not being able to pay off its creditors and, accordingly, the High Court had appointed an Official Liquidator as on 10th of May, 1968 and he was in the office till 2nd of November, 1979. During this period, the Official Liquidator had carried on the business in the process of winding up. For the year under review, an income of Rs. 9,55,143 was determined and as a consequence thereof proceedings under Section 104 were initiated. The fact that the company was under liquidation, was looked after by the Official Liquidator of the High Court of Rajasthan is not in dispute. The plea of the assessee was that in view of the creditors winding up, the jurisdiction of the liquidator is derived from the Indian Companies Act, 1956 and he works under the direct supervision of the High Court of Rajasthan. Though the company continues to exist, members or the shareholders do also exist. The directors of the company can no longer have any function to do as they are stripped off of their powers with the Official Liquidator and everything vests with the Official Liquidator, who has to perform in accordance with the directions of the High Court. In the process of carrying on his functions as the liquidator, if he carries on the business, he does so only in the capacity as a liquidator and all incomes arising therefrom if at all any could be assessed on the Official Liquidator only. The assessments have to be made in the capacity as Official Liquidator for the company under liquidation. He, therefore, pleaded that it is no longer an assessment of the company and consequently Section 104 are not attracted. We further pleaded that it is similar to insolvency proceedings being in process. He placed reliance on pages 46 to 745 of Kanga and Palkhivala, seventh Edition and also Girdhardas & Co. Ltd. v. CIT [1957] 31 ITR 82 (Bom.) and Kanhaiya Lal Bhargava v. Official Liquidator [1965] 56 ITR 393 (AII.).
3. The plea of the learned Departmental Representative, on the other hand, was that there is no provision exempting such a situation from the operation of Section 104.
4. We have given our very careful considerations to the arguments advanced by the parties. In respect of a company under liquidation, where Official Liquidator had been appointed by a High Court assessment would have to be made on the Official Liquidator as a representative assessee under Section 160(l)(iii), which provides for representative to include such person, who in fact, manages property on behalf of another appointed by or under any order of a Court;, 4.1 Section 454 of the Indian Companies Act, 1956 provides for statement of affairs to be made to Official Liquidator. Section 456 of the Companies Act provides that where liquidator has been appointed, he shall take into his custody or under his control, all the property, effects and actionable claims to which the company is entitled or appears to be entitled. It also provides that all the property and effects of the company shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company. Section 457 provides that the liquidator with the sanction of the Court shall have the power to carry on the business of the company so far as may be necessary for the beneficial winding up of the company. It also provides that the powers exercised by the liquidator shall be subject to the control of the Court and any creditor or contributory may apply to the Court with respect to exercise or proposed exercise of any of the powers conferred by this Section 460 provides powers to the liquidator in the administration of the assets of the company and the distribution among the creditors. The Act does not provide any power to the liquidator to declare or pay any dividend and this is clear from the plain reading of this section as the liquidator is appointed in a proceeding, which is akin to insolvency proceedings of any individual. It is for this reason only, during the pendency of the winding up proceedings the company is called as in liquidation.
4.2 The declaration of a dividend is normally proposed to by the Board of Directors by taking into account the profits made by the company and is approved, by the shareholders in the Annual General Meeting. This is the normal procedure when the company is a going concern. Once a company is under liquidation and that too at the behest of the creditors due to the company not being able to discharge its indebtedness, the powers having vested with the Court and not with the directors or the shareholders, which is for the reason that the proceedings being an insolvency proceedings, to satisfy and pay off various creditors of the company, Section 104 would not be applicable at all. Section 104 is applicable to companies, which do not fall within the purview of liquidation and which are termed as going concerns. This is obvious from the plain reading of the provisions contained in Sections 104 and 209 of the Income-tax Act, 1961. The directors and the shareholders of the company derive from power of distribution of dividend from out of the Companies Act, 1956. As already elucidated above, the powers of the directors as well as the shareholders are in a suspended animation as the entire property as well as carrying on of the business vests on the liquidator and as ordered by the Rajasthan High Court in the liquidation proceedings, 4.3 One of the arguments advanced by the revenue was that there was no notification by the Government exempting the said company from the application of the provisions of Section 104. The Indian Companies Act while dealing with the various requirements of liquidation has provided powers to the Central Government in regard to the conduct of the liquidators in Section 463 of the Indian Companies Act, 1956. It also provides that in case the Central Government is not satisfied with the functioning of the liquidator it might make a prayer to High Court to appoint the Official Liquidator in place of the liquidator already appointed. It also provides powers to the Central Government in regard to investigation to be made on the books and vouchers of the Official Liquidator. From all this, it could be concluded that the company no longer remains to be company in the strictest sense of the term during the pendency of the liquidation proceedings. When such a situation exists, it would not be termed as a company within the meaning of Indian Companies Act and it is not the company, which is carrying on its business but it is the Official Liquidator carrying on the business in the course of winding up proceedings. Therefore, the various provisions which are applicable to company for normal operations would not apply to the Official Liquidator. As a consequence it has to be concluded that in the case of the companies, which are under liquidation, Section 104 would have no application. We are, accordingly, of the opinion that the proceedings under Section 104 have been wrongly initiated and we quash the proceedings.