Bombay High Court
The State Of Maharashtra Through The ... vs The Official Liquidator Of Devidayal ... on 19 July, 2024
Author: Abhay Ahuja
Bench: Abhay Ahuja
2024:BHC-OS:10693
918. IA 1809-19 in CA 144-19.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION NO. 1809 OF 2019
IN
COMPANY APPLICATION NO. 144 OF 2019
The State of Maharashtra through
the Sales Tax Officer ...Applicant
In the matter between
Mukund Ltd. ...Petitioner
V/s.
The Official Liquidator of M/s Devidayal Industries Ltd. ...Respondent
Mr. Himanshu Takke, AGP for the State.
Ms.Apurva Thipsay for Official Liquidator with Ms. Nikita Yadav,
Assistant Official Liquidator.
CORAM : ABHAY AHUJA, J.
DATE : 19th JULY, 2024
P.C. :
1. Pursuant to the order dated 5th July, 2024, today when the matter is called out, Mr. Takke, learned AGP appears for the State and submits that although he has endeavoured to search for a decision contrary to the decision in the case of Assistant Commissioner of Income Tax Vs. A. K. Menon, Custodian and Ors1, he has been unable to find any such decision. However, Mr. Takke seeks to distinguish the said decision by submitting that the said decision is in the context of income tax and also in the context of income tax law with respect to the Special Court 1 1995 SCC Online Bom 55 Nikita Gadgil 1/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc (Trial of Offences Relating to Transactions in Securities) Act, 1992 ("the Special Courts Act"), whereas the present matter concerns sales tax of Rs. 3,20,637/- in addition to interest and penalty bringing the total claim to Rs. 9,38,721/-.
2. Mr. Takke, also submits that since the notice of demand raised on the basis of an assessment order, had not been complied with, there was levy of interest and penalty and that therefore interest and penalty formed part of the tax and therefore, an amount of Rs. 9,38,721/- should have been adjudicated by the Official Liquidator in favour of the Applicant-State.
3. On 5th July, 2024, this Court had considered the submissions made on behalf of the Applicant-State and the Official Liquidator and passed the following order:-
" 1. Pursuant to the orders of this Court, today when the matter is called out, Mr. Takke, learned AGP for the State appears and submits that he has received copy of the reply and has instructions not to file rejoinder. Accordingly, this Court proceeds with the hearing of the matter.
2. Mr. Takke, submits that although in the claim lodged with the Official Liquidator on the basis of the assessment order claiming Rs. 9,38,721/- consisting of tax, interest and penalty, the Official Liquidator adjudicated the claim only for Rs. 3,20,637/- as preferential claim, which is the amount of tax Nikita Gadgil 2/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc alone and not the interest and penalty, therefore, this appeal/application has been filed seeking quashing of the said order and in the alternative allowing the entire claim of the Applicant as per the assessment order dated 22 nd February, 2017 being the statutory entitlement of the Applicant, who is State of Maharashtra through the Sales Tax Officer.
3. Mr. Takke, learned AGP also draws the attention of this Court to Section 528 of the Companies Act, 1956 to submit that in every winding up, all claims against the company, present or future, shall be admissible to proof against the company and that, therefore, since the adjudicated claim against the company in liquidation does not only contain tax but also interest and penalty, the Official Liquidator ought to have admitted the entire amount of tax.
4. Mr. Takke also refers to Section 530 of the Companies Act, 1956 with regard to preferential claims and submits that apart from the payments to be made as per Section 529A, all revenues, taxes, cesses and rates due from the company to the Central or to the State Government, etc. shall be paid in priority to all other debts and that, therefore, also the Official Liquidator ought to have paid the entire claim including interest and tax and not just the tax amount and that therefore, this Court set aside the order of the Official Liquidator.
5. On the other hand, Ms. Thipsay, learned Counsel appearing for the Official Liquidator submits that the reply has been filed where it has been stated that the amount of tax of Rs. 3,20,637/- has been allowed as preferential claim against the claim for Rs. 9,38,721/- as under Section 530 only tax has to be paid and not interest or penalty.
6. In support of her contention, Ms. Thipsay draws the attention of this Court to a decision of this Court (Coram: S.N. Varivna, J, as his Lordship then was) in the case of Assistant Commissioner of Income Tax Vs. A. K. Menon, Custodian and Ors.2 submitting that the Court while considering Section 11 of the Special Court (Trial of Offences Relating to 2 1995 SCC Online Bom 55 Nikita Gadgil 3/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc Transactions in Securities) Act, 1992 (the "Special Courts Act") and in particular the word 'taxes' as used therein has observed that the term tax has been defined under the Income Tax Act under Section 2(43) to mean income tax chargeable under the provisions of the tax in relation to an assessment year and that not penalty or interest.
7. Ms. Thipsay would submit that it has also been observed that the term tax, penalty and interest are conceptually different and that priority has been given only to tax and nothing else. Learned Counsel submits that the language used in Section 11(2)(a) of the Special Courts Act is identical to the language used in Section 530 (1)(a) of the Companies Act, 1956, which refers to "all revenues, taxes, cesses and rates due from.......". That if this court has already interpreted the word 'taxes' in the decision cited above, the same interpretation would apply to the word 'taxes' in Section 530 (1)(a) and that would not include interest or penalty. Learned Counsel would submit that therefore, the Official Liquidator has correctly allowed the preferential claim in respect of the tax amount of Rs. 3,20,637/- and not the balance amount which consists of interest and penalty as claimed by the Applicant.
8. It is submitted that the amount of tax that had been adjudicated as preferential payment by order dated 24 th April, 2019, has already been paid to the Applicant. Mr. Takke also confirms the same.
9. However, Mr. Takke, learned AGP seeks some time to consider the aforesaid decision in the case of Assistant Commissioner of Income Tax Vs. A. K. Menon, Custodian and Ors. (supra).
10. Accordingly, at his request, list on 19th July, 2024 on the supplementary board."
4. Today the matter has been listed only for Mr. Takke to revert on his consideration of the decision in the case of Assistant Commissioner Nikita Gadgil 4/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc of Income Tax Vs. A. K. Menon, Custodian and Ors (supra) and to come up with any contrary interpretation or decision. Admittedly, Mr. Takke has not been able to come up with any contrary interpretation or decision but seeks to distinguish the decision in the case of Assistant Commissioner of Income Tax Vs. A. K. Menon, Custodian and Ors (supra).
5. I am not impressed with the submissions made by Mr. Takke, learned AGP for the State in view of the principle laid down in the decision of this Court in the case of Assistant Commissioner of Income Tax Vs. A. K. Menon, Custodian and Ors (supra) which clearly holds that the word "taxes" as used in Section 11(2)(a) of the Special Courts Act, means tax as defined under Section 2 (43) of the Income Tax Act to mean income tax chargeable under the provisions of the said Act in relation to the assessment year and not penalty or interest and that only taxes have been given priority under Section 11(2) (a) and not penalty or interest. Paragraphs 56 and 76 of the decision in the case of Assistant Commissioner of Income Tax Vs. A.K. Menon, Custodian and Others (supra), are usefully quoted as under :-
"56. As set out above, the second question is:
"Whether the phrase 'taxes' as used in section 11 of the Special Court (Trial of Offences Relating to Transactions in Securities) Nikita Gadgil 5/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc Act, 1992 can only mean amounts due as and by way of taxes or whether it would also include penalties and interests, if any."
76. I have considered the rival submissions. In my view, the question of interpretation of statute only comes in if there is any ambiguity in the statute. In my view, so far as this question is concerned, the provisions of the Special Courts Act are very clear. Under the Special Courts Act, what is given priority to is only 'revenue, tax cess and rates'. The term "tax" has been defined under the Income Tax Act itself. Under section 2(43), "tax" only means in relation to an Assessment Year the income tax chargeable under the provisions of this Act. There cannot be the slightest doubt that neither penalty nor interest is income tax. The authorities of the Supreme Court which are relied upon and referred to by Mr. Bobde do not lay down that for all purposes penalty must be construed to be an additional tax. As is seen in the Provincial Insolvency Act, 1920 and the Presidency-Towns Insolvency Act, 1909, priority is given to all debts of the Government. If the intention was to give priority to all debts, then the Legislature would have used the same term under the Special Court Act also. Under the Special Court Act, the Legislature has chosen to give priority only to 'lax' and nothing else. The language of the section being clear, it is not open to this Court to try and widen that ambit. In my view, the submission of Dr. Balasubramanian that because all these terms appear in the Income Tax Act, they must all be construed as tax, is a submission which merely needs to be stated to be rejected. The authority of the Supreme Court and the various other Courts are clear. The term 'tax, penalty' and "interest" are conceptually different. Priority has been given only to tax and nothing else.
6. Whether the term Tax is used in the context of the Income Tax Act or in the context of the Sales Tax Act, the word "tax" would have the same connotation. In the case of Assistant Commissioner of Income Tax Vs. A.K. Menon, Custodian and Others (supra), this Court while considering the question whether the phrase 'taxes' as used in Section Nikita Gadgil 6/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc 11 of the Special Courts Act can only mean amounts due as and by way of taxes or whether it would also include penalties and interests, if any, held that since the term "tax" has been defined under the Income Tax Act under Section 2(43) to mean income tax in relation to an assessment year chargeable under the provisions of the Income Tax Act and there cannot be the slightest doubt neither penalty nor interest is income tax.
7. The language used in Section 11(2)(a) of the Special Courts Act, talks of "all revenues, taxes, cesses and rates dues..."
8. The language in Section 530 (1)(a) of the Companies Act, 1956 is identical to the language used in 11(2)(a) of the Special Courts Act and also refers to "all revenues, taxes, cesses and rates due from..."
9. As it can be seen, there is no reference to the word "interest and penalty" in the aforesaid Section 11(2)(a) of the Special Courts Act or in Section 530(1)(a) of the Companies Act, 1956 and if one goes by the judicial principle settled in the case of Assistant Commissioner of Income Tax Vs. A.K. Menon, Custodian and Others (supra), which I am also in agreement with, taxes as referred to in Section 530(1)(a) of the Companies Act, 1956, would mean only the tax and not interest or penalty.
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918. IA 1809-19 in CA 144-19.doc
10. The decision in the case of Assistant Commissioner of Income Tax Vs. A.K. Menon, Custodian and Others (supra), no doubt was in the context of the meaning of the term "tax" as defined under 2(43) of the Income Tax Act, 1956 and Section 11(2)(a) of the Special Courts Act, however even going by the definition of the term "tax" as defined under the Bombay Sales Tax Act, 1959, which is the relevant statute in the facts of this case, in my view, the definition of the term "tax" with reference to the provisions of the Section 530(1)(a) of the Companies Act, 1956 and even under Section 11(2)(a) of the Special Courts Act would have the same connotation as under the Income Tax Act. For the sake of ready reference, the definition of the term "tax" as defined in Section 2(32) of the Bombay Sales Tax Act, 1959 is quoted as under :-
2(32). "tax" means a sales tax, purchase tax, turnover tax surcharge or resale tax, as the case may be, payable under this Act.
11. Under Section 2(32) of the Bombay Sales Tax Act, 1959 tax means a sales tax, purchase tax, turnover tax, surcharge or resale tax, as the case may be, payable under the said Act. The term "tax" neither includes penalty or interest. Therefore, neither penalty nor interest is sales tax.
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918. IA 1809-19 in CA 144-19.doc
12. Under Section 530(1)(a) of the Companies Act, 1956, as noted above, the language used is "all revenues, taxes cesses and rates due from...."
13. If the intention was to give priority to all debts then the legislature would have used those terms in the said Section 530(1)(a) of the Companies Act, 1956. Under the Companies Act, 1956, the legislature has chosen to give priority only to tax. The language of the section being clear, it would not be open to this Court to widen the ambit and scope of the said provision. The terms tax, penalty and interest are conceptually different and priority has been given only to tax and nothing else.
14. Therefore, in my view, the submission by Mr. Takke, learned AGP for the State that the decision in the case of Assistant Commissioner of Income Tax Vs. A.K. Menon, Custodian and Others (supra), is distinguishable as the said decision is in the context of the Income Tax Act with reference to the Special Court Act and the present matter concerns sales tax and not income tax cannot be accepted as it would not make any difference to the principle of law laid down in the case of Assistant Commissioner of Income Tax Vs. A.K. Menon, Custodian and Nikita Gadgil 9/10 ::: Uploaded on - 22/07/2024 ::: Downloaded on - 28/07/2024 00:43:04 :::
918. IA 1809-19 in CA 144-19.doc Others (supra), that the term tax, penalty and interest are conceptually different and priority has been given only to tax and nothing else. Therefore, the amount of interest and penalty cannot be included in the term tax to avail of the priority under Section 530(1)(a) of the Companies Act, 1956.
15. In this view of the matter, the Application / Appeal by the Applicant-State is hereby dismissed. No order as to costs.
(ABHAY AHUJA, J.) Digitally signed by NIKITA NIKITA YOGESH YOGESH GADGIL GADGIL Date:
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