Madras High Court
Commissioner Of Income-Tax vs Tamil Nadu Textile Corporation Ltd. on 29 April, 1999
Equivalent citations: [1999]240ITR390(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. As to whether the person appointed as "authorised controller" under Section 18A of the Industries (Development and Regulation) Act can be regarded as a representative assessee under Section 160(1)(iii) of the Income-tax Act and as to whether an assessment can be made on the authorised controller in respect of the industrial undertaking owned by a company which continues to exist, but in respect of which he has ceased to be the "authorised controller" are the questions which arise for consideration in these references.
2. The Tamil Nadu Textile Corporation Limited was appointed as "authorised controller" of a company known as Cambodia Mills Ltd. with effect from October 22, 1969, it ceased to be the authorised controller from April 1, 1974, when all the assets of the company came to be vested in the Central Government and thereafter in the National Textile Corporation under the provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974.
3. During the period, the authorised controller was in charge of the industrial undertaking that was owned by the company, Cambodia Mills Ltd. Returns were filed under the provisions of the Income-tax Act, the returns having been signed by the authorised controller on behalf of the Cambodia Mills Ltd. For some of the years during which the authorised controller was in charge of the company, Cambodia Mills, the assessments have been made in the name of the authorised controller itself, but as authorised controller of Cambodia Mills Ltd.
4. After the authorised controller ceased to function, as such, some of the assessments were reopened and the authorised controller was called upon to answer the demands made by the Revenue. The Tamil Nadu Textile Corporation Ltd., informed the Revenue that it had ceased to be the authorised controller and it no longer represented the company, Cambodia Mills Ltd., which was the assessee. The Income-tax Officer did not accept that position. The reassessments made by him were, therefore, made the subject-matter of an appeal. The appellate authority accepted the plea of the Tamil Nadu Textile Corporation. The order of the Commissioner was upheld by the Tribunal and thereafter these references have been caused to be made at the instance of the Revenue. The questions referred to us are :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in cancelling the surtax assessment for the assessment year 1974-75 ?
(2) Whether the Appellate Tribunal is correct in law in holding that Messrs. Tamil Nadu Textile Corporation Ltd., appointed as the 'authorised controller' for Cambodia Mills Ltd., is not either 'owner' or 'successor' to the business of the said mills ?
(3) Whether the Appellate Tribunal's view that the manager appointed by the statute has not been made specifically liable as a representative assessee is correct ?
(4) Whether, on the facts and circumstances of the case, the Tribunal's view that the 'manager' appointed by the statute had not been made specifically liable as representative-assessee and that Section 160(1)(iii) of the Income-tax Act, 1961, had no application to the case is correct in law ?
(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the 'authorised controller' 'cannot be made liable either as 'representative assessee' or as 'successor' or as 'others' for an assessment after the assessee had ceased to be the 'authorised controller' though such assessments related to periods for which the authorised controller was managing the business of Cambodia Mills Ltd. ?
(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in cancelling the assessment made under the Income-tax Act, 1961, for the assessment year 1975-76 ?
(2) Whether the Appellate Tribunal is correct in law in holding that Tamil Nadu Textile Corporation Ltd., appointed as the 'authorised controller' for Cambodia Mills Ltd., is not either 'owner' or 'successor' to the business of the said Mills ?
(3) Whether the Appellate Tribunal's view that the 'manager' appointed by the statute has not been made specifically liable as a representative assessee is correct ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal's view that the 'manager' appointed by the statute had not been made specifically liable as representative assessee and that Section 160(1)(iii) of the Income-tax Act, 1961, had no application to the case is correct in law ?
(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the 'authorised controller' cannot be made liable either as 'representative assessee' or as 'successor' or as 'others' for an assessment after the assessee had ceased to be the 'authorised controller' though such assessment related to periods for which the authorised controller was managing the business of Cambodia Mills Ltd.
5. The statement of case submitted by the Tribunal shows that the undertaking, in respect of which the Tamil Nadu Textile Corporation Limited was appointed as an authorised controller under Section 18A of the Industries (Development and Regulation) Act, was owned by the company-Cambodia Mills Ltd. The undertaking was the textile mill at Coimbatore. What came to be taken over was not the company as such, nor the ownership of the assets which belonged to the company, but only the right of management. The company continued to exist, and the properties which belonged to the company remained the properties of the company. There was no change in the ownership. The Cambodia Mills Limited was the assessee even before the authorised controller was appointed, and continued to be the assessee on such appointment also, notwithstanding the fact that in some of the later assessments, instead of mentioning the company, which had been represented by the authorised controller for the time being, the authorised controller was named as the assessee, as even when so named, it was made clear that the assessment was only in respect of Cambodia Mills Ltd. of which it was the authorised controller.
6. The Tamil Nadu Textile Corporation Limited managed Cambodia Mills Ltd. from October 22, 1969, when it was appointed as authorised controller till April 1, 1974, under the Sick Textile Undertakings (Nationalisation) Act, 1974, by which, some of the other mills of Cambodia Mills Ltd. was also nationalised, came into force. A sum of Rs. 64.40 lakhs was under the terms of the Nationalisation Act payable as compensation for the assets belonging to Cambodia Mills Ltd., and taken over by the Central Government under the terms of the Nationalisation Act.
7. The authorised controller, while in charge of the management of the Cambodia Mills Ltd., did not acquire the status of a representative assessee as the entity which was till then being assessed, continued to exist, and all that had been owned by the company continued to belong to it. The fact that the authorised controller replaced the board of directors only meant that instead of directors representing the company, the authorised controller represented the company in relation to the dealings of the company with the outside world including the assessment of the income of the company under the Income-tax Act.
8. Even as the board of directors of the company cannot be regarded as the representative assessees for the company, when the company itself is being assessed, so also the authorised controller did not, and could not become the representative assessee for Cambodia Mills Limited.
9. Section 18B of the Industries (Development and Regulation) Act, 1951, sets out the effect of the notified order under Section 18A. The persons in charge of the management, including those holding office as managers or directors of the industries undertaking immediately before the date of the notified order, shall be deemed to have vacated their office. Clause (e) of Section 18B(1) of the Act provides as under :
"The persons, if any, authorised under Section 18A to take over the management of an industrial undertaking which is a company shall be for all purposes the directors of the industrial undertaking duly constituted under the Indian Companies Act, 1913 (7 of 1913), and shall alone be entitled to exercise all the powers of the directors of the industrial undertaking, whether such powers are derived from the said Act or from the mem orandum or articles of association of the industrial undertaking or from any other source."
10. Section 18B(1)(e) of the Act makes it abundantly clear that the authorised controller merely takes the place of the directors who are deemed to have vacated their office on the appointment of the authorised controller.
11. The reliance placed by the Revenue on the use of the term "manager" in Section 160(1)(iii) of the Income-tax Act for regarding the authorised controller as a representative assessee is wholly misconceived. The Companies Act provides for the appointment of a manager. The manager so appointed under that Act for a company does not by virtue of the title become a representative assessee.
12. The authorised controller being only the person competent to act on behalf of the company while holding office as authorised controller, the assessable entity continues to be the company and all proceedings under the Income-tax Act are required to be taken against the company, and not against the authorised controller, except to the extent permissible under law by reason of the fact that he is for the time being a person competent to represent the company. The company has its own profit and loss account, its balance-sheet, and even during the period when the company was under the control of the authorised controller, the annual accounts of the company were being regularly drawn up, and some were being placed before the annual general meeting of the shareholders of the company, which approved and adopted the accounts. In the statement of the case, the dates on which the general meetings were held, and period for which the accounts were laid and adopted have been set out.
13. The Sick Textile Undertakings (Nationalisation) Act vested the entire undertaking of the Cambodia Mills Ltd., in the Central Government free of all encumbrances. The amount of compensation provided for in that Act was the only amount which the creditors of the undertaking of the nationalised mill could look to for recovery of such part of the dues, as it was permissible for them to claim from out of that fund from the Commissioner of Payments appointed under that Act. Any arrears of income-tax for the period during which the company was under the authorised controller could only have been recovered from out of the compensation provided for under the Nationalisation Act, and not by seeking to treat the authorised controller as being liable for the payment of taxes, which were due from the company, but which had remained unpaid.
14. All the questions referred to us, which arise out of the assessment proceeding's against the Tamil Nadu Textile Corporation Limited for the assessment years 1974-75 and 1975-76 are, therefore, answered against the Revenue, and in favour of the assessee. The assessee shall be entitled to costs in the sum of Rs. 2,500.