Citation Codes

Equivalent Citations

citation codes

Case Number

Original Side Appeal 4/68 from (1968) 1 Mys. L.J 244

Advocates

For the Appellant: G.R. Ethirajulu Naidu, K. Srinivasan, S.R. Rajasekharamurthy, Advocates.

Judges

Govinda Bhat
Jagannatha Shetty, JJ.

Acts

S. 2(12) of the Indian Income-Tax Act, 1922.
provisions of the Companies (Court) Rules.
S. 2(35)(a) of the Income-tax Act, 1961.
S. 2(35) of the Income Tax Act
S. 4 of the Income Tax Act
INCOME TAX ACT 1961

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Smart Summary

Judgment Summary — Govinda Bhat, J.

Factual and Procedural Background

This appeal was filed by the Official Liquidator of the Mysore Spun Silk Mills Ltd. (in liquidation) against an order of the learned Company Judge (Narayana Pai, J., as he then was) dated 23 January 1968 in Company Application No. 16 of 1967. The impugned order directed the Liquidator to prepare and file returns before the Income‑Tax Officer in respect of income of the company in liquidation derived in the course of the winding up.

During the winding up, the Liquidator held large sums that could not immediately be applied for distribution and invested them pursuant to the Companies (Court) Rules, primarily as bank deposits. These investments generated interest of Rs. 1,95,364.05 for the years 1960‑61 to 1965‑66. The company auditors reported that this interest would attract liability to income‑tax and advised taking steps to resolve the question of liability to avoid excess distribution of dividends. Acting under directions of the Company Judge, the Liquidator made Company Application No. 16 of 1967 (in Company Petition No. 435 of 1958) seeking directions on whether the interest receipts were liable to income‑tax and whether the Liquidator could be directed to file returns.

Before the Company Judge the Liquidator (through the appellant) contended that the company in liquidation was not liable to assessment in respect of receipts by the Liquidator and that, under the Income‑tax Act, 1961, only the 'Principal Officer' of the company could make tax returns and receive notices — the Liquidator not being the Principal Officer, he could not be directed to submit returns. The learned Company Judge ordered the Liquidator to file returns; this appeal challenges that direction.

Legal Issues Presented

Whether a company in the course of winding up continues to be a "person" for the purposes of the Income‑tax Act and, consequently, whether income received in the course of winding up is taxable (this view of the Company Judge was not challenged on appeal).
Whether the Official Liquidator of a company in compulsory winding up is a "Principal Officer" within the meaning of S. 2(35) of the Income‑tax Act, 1961 — in particular, whether the Liquidator falls within clause (a) as the Secretary, Treasurer, Manager or Agent of the company, thereby being competent to make returns and to be the addressee of tax notices.
Whether, in the absence of a formal notice by the Income‑tax Officer treating the Liquidator as Principal Officer (clause (b) of S. 2(35)), the Liquidator nonetheless qualifies under clause (a) and can be directed by the Company Court to file returns.

Arguments of the Parties

Appellant's Arguments

The Liquidator of a company in liquidation under Court orders does not fall within the definition of "Principal Officer" under S. 2(35) of the Income‑tax Act, 1961.
Because the Income‑tax Act contemplates notices and returns in respect of the "Principal Officer", and the Liquidator is not that officer, the Liquidator cannot be directed to submit returns under the Act.

Respondent's Arguments

The Liquidator of a company in liquidation may be regarded as the Manager or the Agent of the company and accordingly falls within clause (a) of S. 2(35) (Secretary, Treasurer, Manager or Agent).
Reliance was placed on precedent and legal authority showing that a Liquidator acts as agent or manager in winding up and that the Income‑tax Officer may treat the Liquidator as the Principal Officer.
The Court, charged with seeing that liabilities (including tax liabilities) of the company are met in winding up, performs the duties of the Principal Officer through the Liquidator; the Income‑tax Act substitutes the Liquidator for the Principal Officer after winding up.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income‑Tax, U.P. v. Official Liquidator of the Agra Spinning and Weaving Mills Co. Ltd. (Allahabad High Court)	The word "manager" in the definition (S. 2(12) of the 1922 Act) is to be construed broadly; a Liquidator in winding up may fall within the meaning of "manager". Also, if the Income‑tax Officer serves a notice treating a person as Principal Officer, that person may be treated as such.	The Court relied on this authority to support the view that the Liquidator can be regarded as a "manager" (and hence as Principal Officer) and noted that treating a Liquidator as Principal Officer is consistent with prior judicial treatment where notice had been served.
Hariprasad Jayantilal & Co. v. V.S. Gupta (Supreme Court)	In voluntary winding up the company continues to have corporate existence until dissolution; property remains vested in the company; upon appointment of a liquidator the powers of directors cease and the liquidator exercises powers for winding up; a liquidator in a members' winding up is an agent of the company to administer its property.	The Court used this explanation to show that a Liquidator acts as an agent or administrator on behalf of the company, supporting the conclusion that a Liquidator falls within the class of persons (e.g., "agent" or "manager") mentioned in S. 2(35)(a).
Knowles v. Scott (English authority)	An observation by Romer J. that a voluntary liquidator is more correctly described as the agent of the company.	The Court cited this authority to further support the characterization of a liquidator as an agent, reinforcing the view that the Liquidator may be treated as Principal Officer under clause (a).
Palmer's Company Law (textbook)	The text states that in winding up by Court a liquidator is an agent employed for the purpose of winding up the company; the same position applies in voluntary winding up.	The Court relied on the authoritativeness of this statement as supportive legal commentary confirming that no substantive difference exists between voluntary and compulsory liquidators as regards their agency role; this supported the conclusion that the Liquidator may be a "Principal Officer" under S. 2(35)(a).

Court's Reasoning and Analysis

The Court proceeded in the following analytical steps, based strictly on the material and reasoning stated in the opinion:

The Court noted that the learned Company Judge had held — and that view was not challenged on appeal — that even after a winding up order a company continues to be a "person" within the meaning of S. 4 of the Income‑tax Act and that receipts of income in the course of winding up which attract liability under the Act are taxable.
Because the Income‑tax Officer had not served any notice of his intention of treating the Liquidator as Principal Officer under clause (b) of S. 2(35), the determinative question was whether the Liquidator falls within clause (a) of S. 2(35) (i.e., is the Secretary, Treasurer, Manager or Agent of the company).
The Court examined the competing contentions: the appellant's submission that a Liquidator is none of those listed in clause (a), and the respondent's submission that the Liquidator could be regarded as Manager or Agent.
To resolve the matter, the Court reviewed judicial authorities and legal commentary. It noted the Allahabad High Court decision which construed "manager" broadly and treated liquidators as falling within that term (and observed that the Income‑tax Officer may, by notice, treat liquidators as Principal Officers). It also cited the Supreme Court's exposition in Hariprasad Jayantilal & Co. v. V.S. Gupta which described the liquidator as an agent/administrator of the company during winding up. The Court further relied on Knowles v. Scott and the statement in Palmer's Company Law that a liquidator acts as an agent in both voluntary and compulsory winding up.
Applying these authorities and the statutory framework, the Court concluded that there is no substantive legal distinction between the position of a liquidator appointed in voluntary liquidation and one appointed in compulsory winding up by Court for purposes of agency. The Liquidator functions as the company's representative in the winding up and acts as its agent for the purposes of winding up the affairs and administering and distributing assets.
The Court emphasized that the Liquidator, as an officer employed under the Companies Act and functioning under orders of the Company Court, is the person through whom the Court ensures liabilities of the company (including income‑tax liabilities) are discharged. On that footing the Liquidator can be properly described as the "Principal Officer" of the company within the meaning of S. 2(35)(a) of the Income‑tax Act.
Accordingly, the Court agreed with the learned Company Judge that the Liquidator could be required to file returns before the Income‑tax Officer in respect of income derived in the course of winding up.

Holding and Implications

Holding: The appeal is dismissed. The Court affirmed the Company Judge's direction that the Official Liquidator is to prepare and file returns before the Income‑tax Officer in respect of income arising in the course of the winding up. The Court concluded that the Liquidator, on an order for winding up being made, becomes the "Principal Officer" of the company within the meaning of S. 2(35)(a) of the Income‑tax Act, 1961.

DISPOSITION: Appeal dismissed; in the circumstances, dismissed without an order as to costs.

Implications

Direct effect on the parties: The Official Liquidator is required to file tax returns and discharge income‑tax liabilities arising from receipts (interest) in the course of the winding up.
Broader implications: The opinion reasons that a Liquidator may be treated as an agent or manager and thus as a "Principal Officer" under S. 2(35)(a) without the Income‑tax Officer having to first issue a specific notice under clause (b). The opinion does not expressly state that it establishes a new precedent beyond the holding in the present case; the Court relied on existing authorities and commentary to reach its conclusion.

This summary is drawn exclusively from the text of the provided opinion and does not add information beyond that opinion.

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Official Liquidator v. Commissioner Of Income Tax .

Govinda Bhat, J.:— This is an appeal brought on behalf of the Official Liquidator of the Mysore Spun Silk Mills Ltd., (in liquidation) against the order of the learned Company Judge (Narayana Pai, J., as he then was) made in Company Application No. 16 of 1967 on 23-1-1968 by which a direction was issued to the Liquidator to prepare and file returns before the Income-Tax Officer with respect to the income of the company in liquidation derived in the course of the winding up.

2. In the course of winding up of the company in liquidation, large sums of money came into the hands of the Liquidator which could not be immediately applied for distribution of dividends to the creditors. The result was that he had to invest the same pursuant to the relative provisions of the Companies (Court) Rules. The investments were mostly by way of bank deposits which earned interest in the course of six years from 1960-1961 to 1965-1966 amounting to Rs. 1,95,364-05 P. The auditors, Messrs B.K Ramadhyani and Company in their report dated 3-3-1966 observed that the above amounts of interest received by the liquidator would attract liability for income-tax and that therefore, appropriate steps should be taken to settle the question of such liability in order to avoid the possibility of any excess distribution of dividends. In accordance with the directions of the learned Company Judge, the Liquidator made Company Application No. 16 of 1967 in Company Petition No. 435 of 1958 seeking necessary directions in regard to the question of liability to income-tax of the aforesaid amount of interest. Before the learned Company Judge it was contended that the Company in liquidation is not at all liable to be assessed to income-tax in respect of the receipts by the liquidator in the course of the winding up of the company. It was further contended that under the Income-Tax Act, 1961, it is only the ‘Principal Officer’ of the Company that is competent to make a return and it is only to the Principal Officer of the Company that notices can be issued in proceedings under the Act and the Liquidator not being the Principal Officer of the Company, he cannot be directed to submit the returns.

3. On the first ground, the learned Company Judge held that even after a winding up order is passed, the Company continues to be a person within the meaning of S. 4 of the Income Tax Act and therefore any receipt of income in the course of the winding up which would attract liability to income-tax under its appropriate provisions, would be liable to Income-tax. At this stage, it is necessary to state that the said view of the learned Company Judge has rightly not been challenged in this appeal.

4. In regard to the second contention, the learned Company Judge held it is the duty of the court to see that all the liabilities of the company are properly met in accordance with the provisions of the law and that the liability to income-tax is one of the liabilities which the Court is expected to provide for in the course of winding up, that the duties of the ‘Principal Officer’ of the company after the winding up are got performed by the court through the Liquidator in the light of the special provisions of the Companies Act and that the Income-Tax Act substitutes him for the ‘Principal Officer’. The question whether the Liquidator answers the definition of the term ‘Principal Officer’ under S. 2(35) of the Income Tax Act however was not specifically answered.

5. Sri K. Srinivasan, the learned Counsel for the appellant, contended that the Liquidator of a company in liquidation under the orders of the Court does not come within the definition of ‘Principal Officer’ under S. 2(35) of the Income-tax Act, 1961.

6. Section 2(35) of the Act reads:

“2. Definitions.—In this Act, unless the context otherwise requires,—

(35) ‘Principal Officer’, used with reference to a local authority or a company, any other public body or any association of persons or any body of individuals, means—

(a) the Secretary, Treasurer, Manager or Agent of the authority, company, association or body, or

(b) any person connected with the management or administration of the local authority, company, association or body upon whom the Income-tax Officer has served a notice of his intention of treating him as the Principal Officer thereof;

*****”

7. When the learned Company Judge made the order, the income-tax Officer had not served any notice of his intention of treating the liquidator as the Principal Officer of the company in liquidation. Therefore the only question is whether the Liquidator comes within the class of persons mentioned in Cl. (a) of S. 2(35) of the Act, namely, the Secretary, Treasurer, Manager or Agent of the company. The argument of Sri Srinivasan was that the Liquidator is not the Secretary, Treasurer, Manager or Agent of the Company. Sri Rajashekhara Murthy, the learned Counsel for the respondent submitted that the Liquidator of a company could be regarded as either the Manager or the Agent of the company in liquidation.

8. In support of his contention, Sri Rajashekhara Murthy relied on the decision in Commissioner of Income-Tax, U.P v. Official Liquidator of the Agra Spinning and Weaving Mills Co., Ltd.(1). In the said case, after the company in question was ordered to be compulsorily wound up, two Advocates of the Court were appointed official liquidators who in the interest of the company were permitted to carry on the business of the company. The question arose whether the company in respect of the profits earned in the course of winding up was liable to income-tax. One of the questions canvassed in the said case was that the Liquidators do not come within the definition of the expression ‘Principal Officer’ found in S. 2(12) of the Indian Income-Tax Act, 1922. The Allahabad High Court observed that the word ‘manager’ used in S. 2(12) has been used in a wide sense and that the Liquidator of a company in winding up would come within the meaning of the word ‘manager’ found in S. 2(12). In any event, it was observed that there would be no difficulty in treating the Liquidators as the Principal Officers of a company if the Income-Tax Officer serves a notice on them of his intention of treating them as the Principal Officers of the company as he had already done in the said case.

9. In Hariprasad Jayantilal & Co. v. V.S Gupta(2), the Supreme Court in dealing with the case of a company in voluntary liquidation, explained the position of the Liquidator thus:

“A company which has resolved to be voluntarily wound up may be dissolved in the manner provided by S. 497(5): till then the company has corporate existence and corporate powers. The property of the company does not vest in the liquidator; it continues to remain vested in the company. On the appointment of a liquidator, all the powers of the board of directors and of the managing or whole-time directors, managing agents, secretaries and treasurers cease (S. 491), and the liquidator may exercise the powers mentioned in S. 512, including the power to do such things as may be necessary for winding up the affairs of the company and distributing its assets. The liquidator appointed in a members' winding up is merely an agent of the company to administer the property of the company for purposes prescribed by the statute. In distributing the assets including accumulated profits, the liquidator acts merely as an agent or administrator for and on behalf of the company.”

(The underlining (italics) are ours).

10. In Knowles v. Scott(3), Romer J. has stated that in his view, a voluntary liquidator is more rightly described as the agent of the company.

11. In Palmer's Company Law, twenty-first edition at page 754, the position of a liquidator in winding up by Court has been stated as that of an agent employed for the purpose of winding up the company. The said statement relies on Knowles v. Scott.

12. With regard to the position of the Liquidator in voluntary winding up, the position is stated to be the same (vide page 798). Therefore, according to the learned author, there is no difference in the legal position of the Liquidator, whether in a voluntary winding up or in a compulsory winding up, by order of Court.

13. Under the provisions of the Companies Act, the Liquidator of a company in liquidation by order of the Court functions subject to the orders of the Company Court. But the legal position of the Liquidator, in our view, whether he is a Liquidator appointed in a voluntary winding up or under the compulsory winding up by order of the Court, is not different. The Liquidator is an officer of the Court employed for the purpose of winding up of the affairs of the Company in liquidation. The company on the making of an order of compulsory winding up does not cease to have its corporate existence. During the course of the winding up, the company is represented by the Liquidator who functions as its agent for the purpose of winding up. One of the duties of the Court, as observed by the learned Company Judge is to see that the liabilities of the company are properly met in accordance with the provisions of the law. The liability to income-tax is one of such liabilities. The Official Liquidator is the officer employed under the Companies Act for discharge of the said liability also. He can be rightly termed as the agent of the company. Therefore, the Liquidator on an order for winding up being made, becomes the ‘Principal Officer’ of the company within the meaning of S. 2(35)(a) of the Income-tax Act, 1961. In that view, the learned Company Judge was right in requiring the Liquidator to file returns before the Income-tax Officer.

14. In the result, this appeal fails and is dismissed, but, in the circumstances, without an order as to costs.

Official Liquidator v. Commissioner Of Income Tax .

Judgment Summary — Govinda Bhat, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Implications

Official Liquidator v. Commissioner Of Income Tax .

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