The Judgment of the Court was delivered by

Salil Kumar Roy Chowdhury, J.:— This is an application by the official liquidator for a direction on the I.T authority to condone the payment of interest by the company (in liquidation) being Haralal Harendra Lal Roy Estate Ltd. (in liquidation) for the assessment years 1955–56 to 1976–77. The application is made with notices to all the contributories of the company. This is one of the instances which shows how, due to maladministration by the official liquidator, a solvent estate can be burdened with unnecessary liabilities particularly income-tax. Due to the internecine squable between the directors and shareholders of the company, the said company was wound up by an order dated the 20th of February, 1963. The company held a large number of immovable properties, particularly house properties in Calcutta, which fetched by way of monthly rent a considerable sum of money. Originally, Mr. S.N Bhattacharya, since deceased, was appointed the official liquidator of the company and by a subsequent order the official receiver was appointed liquidator in place and stead of Mr. S.N Bhattacharya after his death. By an order dated the 17th of December, 1962, the official receiver was discharged and the official liquidator attached, to the High Court, Calcutta, was appointed in the place and stead of the said official liquidator of the said company. By an order dated the 10th of April, 1961, this court appointed Mr. Dhiren Dey, Bar-at-Law, since deceased, as special officer to frame a scheme of partition of the assets of the company. The said Dhiren Dey submitted a report to this court which was filed on the 31st of July, 1961. By an order dated the 23rd of February, 1962, made by this court, the assets were allotted to the contributories of the company and the income was directed to be distributed to the said contributories of the company as mentioned in the order except that certain properties were kept earmarked for meeting the liabilities of the company. Several attempts were made by the official liquidator to sell the said properties to meet the liabilities of the company but due to objections made by the contributories from time to time and also due to the price offered being not considered to be enough, the sale of most of the properties could not be held. There was lack of fund for payment of income-tax liabilities which accumulated from year to year. The income by way of rent of the buildings belonging to the company was being distributed after meeting the expenses like corporation taxes, etc., to the contributories of the company in terms of the said order of this court. In these circumstances, the income-tax demands from time to time could not be paid. It may be mentioned that in the course of administration of the company it was discovered that a large amount had been defalcated by the officers and the employees of the official liquidator out of the rents collected from the tenants of the properties belonging to the company and, ultimately, a suit had been filed and criminal cases had been lodged against some of the employees who were alleged to have defalcated the said amount. Subsequently, from time to time various properties of the company were sold leaving only a few properties which could not be sold due to lack of proper offer and also pendency of certain litigations relating thereto. The I.T Dept. has been paid all its outstanding dues out of the sale proceeds but a sum of Rs. 9,56,780 is charged by way of interest under s. 220(2) of the I.T Act, 1961. After the sale of the various properties belonging to the company, the court directed the official liquidator to pay all the arrears of income-tax payable by the company (in liquidation), and apply before the appropriate ITO for determination of the question whether the interest charged by the department under s. 220(2) of the I.T Act, 1961, is to be paid or may be waived. Such application was directed to be made upon notice to the Central Govt. and the contributories. It appeared that there was some delay in payment of the income-tax and, as such, the interest under s. 220(2) of the I.T Act, 1961, became due and payable being a statutory liability. As admittedly some of the demands made by the I.T authority were not paid in time, the liability to pay interest under s. 220(2) of the I.T Act, 1961, became payable. It was also contended on behalf of the company (in liquidation), that the said interest was charged without taking leave of this court and, as such, was illegal and invalid. The Commissioner referred the matter to the CBDT directing the Commissioner to move this court for permission for charging interest under s. 220(2) of the I.T Act, 1961. In these circumstances, the present application is made by the official liquidator for condoning the delay in the payment of income-tax and for remission of the said income-tax for the assessment years as mentioned above.

2. Mr. Pallab Banerjee, appearing for the official liquidator, submitted that the present case is an unfortunate one and very peculiar, where for no fault of the contributories who are the only beneficiaries in the winding-up of the company to get refund of the capital by way of dividends out of the sale proceeds of the properties of the company, most of which have already been sold leaving behind only a few. It is admitted that all the arrears of income-tax have been paid out of the sale proceeds and it is further admitted that pursuant to the previous order dated the 23rd February, 1962, of Mr. Justice S.P Mitra, as he then was, the assets of the company were allotted pursuant to the report of the Commissioner of Partition appointed by the court on the 10th of April, 1961, and the contributories were paid the income of the assets of their respective portions allotted to them. But for some quarrel between the parties the said scheme of partition could not be given effect to by the court and, ultimately, the properties were sold and out of the sale proceeds the dividends were declared from time to time after payment of the liabilities of the I.T Dept. in respect of the arrears of tax. It may be noted that all attempts were made by the company for remission of the interest by the I.T authority and the Commissioner took a sympathetic view having regard to the peculiar and unfortunate condition of the company particularly mismanagement of the company by the liquidators successively for no fault of the contributories. Mr. Pallab Banerjee rightly submitted that had the scheme of partition been given effect to by the contributories, the income-tax liability would not have been there at all due to apportionment of the income among the contributories, but due to the unfortunate quarrel between the contributories, the same could not be given effect to. But on the other hand the liquidator had to pay to the contributories all the income out of their respective shares allotted under the report of the Commissioner of Partition pursuant to an order of the court dated the 3rd of February, 1962, as hereinbefore stated and, as such, he had no fund to pay the income-tax which accrued from time to time on the basis of the income of the company as a whole. It is really amounting to carelessness, default or, to put it mildly, oversight of the official liquidator in not paying the income-tax dues in time after the demands were raised by the department. It is also a fact that a considerable period of time has elapsed due to a scheme which the I.T Dept. was asked to implement by taking over one of the most valuable properties of the company which remained still unsold being 42, Strand Road, Calcutta, and to take over the same by the I.T Dept. in full settlement of all claims and dues of the company in respect of the income-tax. That negotiation consumed a considerable portion of the time and, ultimately, this court was informed that the I.T Dept. is not interested in purchasing the said properties and in this way time passed and the income-tax dues became chargeable by the I.T Dept., under s. 220(2) of the I.T Act, 1961. Mr. Banerjee submitted that, in these circumstances, it will be gross injustice and hardship on the contributories if the said penalty is imposed and the company is made liable to pay the same for no fault of the contributories. It is purely due to mismanagement and misunderstanding to which the I.T authority has contributed considerably. Therefore, Mr. Banerjee submitted that this is a fit case where the court should direct the I.T authority to remit the interest and condone the delay in payment in the interests of justice and the contributories should not be penalised for no fault of their own for non-payment of their income-tax dues of the company by the official liquidator.

3. Mr. Ajit Sengupta, appearing for the respondent, the ITO, submitted that the imposition of the interest for non-payment of the taxes is a statutory provision under s. 220(2) of the I.T Act, 1961, and, therefore, the I.T authority has to impose the said statutory liability. The said liability arose due to default on the part of the liquidator to pay the income-tax which fell due on raising the demands by serving notices on the company represented by the official liquidator. It is submitted that the Commissioner was directed to move this court for payment of the said statutory interest. He submitted that the interest is the statutory liability which is already charged and levied. He further submitted that s. 220(2) of the I.T Act, 1961, is a mandatory provision which becomes operative as soon as default is committed in payment of the taxes. There is no provision in the I.T Act for condonation or waiver of the payment of the interest by the company (in liquidation). But Mr. Sengupta was fair enough to point out that the company is in liquidation and, as such, all the assets and funds of the company are in the custody of the court and if taking into consideration the peculiar circumstances of this present case, the court feels that no payment of interest out of the funds should be made, that is a different matter and it is for the court to decide the same.

4. After hearing both the parties it appears to me that it is a fit case where interest should not be paid out of the funds of the company. Firstly, it appears that as far back as 1961, the Commissioner of Partition was appointed by this court, as hereinbefore stated, who has filed a report before this court and on the basis of the said report, by an order made by this court by S.P Mitra J., as he then was, as far back as on the 3rd of February, 1962, for apportionment of the assets of the company by allotting the properties to the contributories of the company and payment of their respective portions out of the income were directed by the said order. Therefore, strictly speaking, it may be said that the company was not liable to pay the taxes as the same was apportioned between the contributories who were the allottees under the said scheme of partition. Secondly, due to internecine quarrel and litigations the said scheme could not be given effect to and a stalemate was reached and the court directed sale of all the assets of the company and payment of its liabilities which included the income-tax arrears. It is also a strange state of affairs that the official liquidator is a statutory officer under the Companies Act, 1956, who had the obligation to pay income-tax as and when the income was received by him in respect of the properties of the company, but failed to pay the income-tax dues in time after demands were raised. It is alleged by the official liquidator that it was due to lack of funds as on the one hand he was directed to pay to the contributories of the respective allottees under the scheme of partition by the order dated the 3rd of February, 1962, and he had not sufficient funds to pay the income-tax dues.

5. The circumstances of the present case are very peculiar and to some extent unfortunate. As I have already mentioned there was also a huge defalcation out of the rents collected from the properties of the company (in liquidation) by the staff of the official liquidator's office who were entrusted with the said collection. That is also a factor for lack of funds on the part of the official liquidator to pay taxes in time. However, after most of the properties of the company (in liquidation) have been sold and out of the sale proceeds all arrears of income-tax have been paid in full, it will be, in my opinion, unfair and unjust to saddle the company (in liquidation), with the liability to pay the interest under s. 220(2) of the I.T Act, 1961, and in effect deprive the innocent and helpless contributories of the company of their legitimate share by way of dividend and return of capital. It is true that the I.T authorities are not in a position to forgo the statutory interest under s. 220(2) of the I.T Act, 1961, as in fact the official liquidator did not and could not pay the income-tax payable in respect of the company within time. But the factors which I have enumerated before, that is, firstly, the company originally was a solvent company and due to internecine squabbles of the directors and the contributories who belong to the same family of the Roys and in the course of administration of the affairs of the company in winding up which appears to be not very satisfactory by the official liquidator, it was saddled with unnecessary liabilities, particularly the income-tax and the interest payable under s. 220(2) of the I.T Act, 1961, for nonpayment of income-tax within time. Secondly, under a scheme of partition which was directed by this court and, in fact, allotments in terms of the return of the Commissioner of Partition being made by an order dated the 3rd of February, 1962, passed by S.P Mitra J., as he then was, and pursuant to the said allotments the respective contributories being the allottees of the portions were paid the income thereof and as such, the official liquidator was not in a position to pay the income-tax which fell in arrear. Had the said allotments been given effect to finally, there might not have been any liability for income-tax at all as the properties would have been sub-divided in the respective portions of the allottees but unfortunately, the same could not be given effect to due to various reasons, both legal and factual, and ultimately, by the directions of the court in the administration of the company (in liquidation), most of the immovable properties of the company have been sold and out of the sale proceeds the entire arrears of income-tax have been paid off. This court directed representation before the I.T authorities which ultimately felt difficulty and expressed its inability to forgo the statutory provision of interest under s. 220(2) of the I.T Ac, 1961. But that does not mean that this court has no power to direct the official liquidator not to pay the interest in these peculiar and unfortunate circumstances in which the contributories of the company are placed. The court's power under s. 446(2)(b) are overriding of any other law which includes the I.T Act, 1961, particularly s. 220(2) of the I.T Act, 1961, if the court is satisfied in the facts of a particular case that the claim for interest under the said statute would amount to hardship, cause grave miscarriage of justice and injury to the contributories who are innocent and helpless citizens of India. As in this case, if the history of the present company (in liquidation), is gone into, it would appear that due to sheer carelessness on the part of certain contributories and inefficient, irresponsible and to some extent unscrupulous management by the official liquidator's office, it has put the company in liquidation in such an embarrassing condition. As I have already observed that a solvent company was wound up due to the internecine squabble between the ex-directors and the group of contributories which was the cause for the winding up of the company and administration by the official liquidator through the court. Therefore, this is a fit and proper case where the claim of the I.T authorities for the interest should not be allowed as the court has ample power under s. 446(2)(b) read with r. 9 of the Companies (Court) Rules, 1959, which gives the power to this court notwithstanding any Act and any other law which includes the I.T Act, s. 220(2), to pass an order for the ends of justice as may be necessary.

6. Therefore, considering the entire facts in their proper perspective, in my opinion, this is a fit and proper case where the court should exercise its power disallowing the claim for interest under s. 220(2) of the I.T Act, 1961, as made by the I.T Dept. against the company (in liquidation) for non-payment of the income-tax in time. As I have already observed, the entire amount of tax has been paid out of the sale proceeds of the company's properties. Further, a considerable time was consumed by the officer made by the I.T Dept. for purchasing a valuable property of the company being 42, Strand Road, Calcutta, and, ultimately, declined to do so. Had that proposal to purchase by the I.T dept. been given effect to and materialised, the entire claim of the company regarding income-tax would have been cleared earlier.

7. Moreover, I am satisfied that, in the facts and circumstances of this case, the I.T authority should be directed to condone the payment of interest of the company (in liquidation), for the assessment years 1955–56 to 1976–77. I also hold that the claim of the I.T Dept. for interest in respect of the said assessment years under s. 220(2) of the I.T Act, 1961, should be disallowed as it is necessary for the ends of justice in the peculiar and unfortunate facts of this case and that power of disallowing the claim of the I.T authorities, this court derives under s. 446(2)(b) read with r. 9 of the Companies (Court) Rules, 1959. Therefore, I am making the following order:

There will be an order in terms of prayer (a), that is, the claim for interest by the I.T authorities under s. 220(2) of the I.T Act, 1961, against the company (in liquidation), for the said assessment years are disallowed. The official liquidator to pay the costs of the I.T dept. assessed at 30 G.Ms out of the assets in his hands and retain his costs of this application assessed at 20 G.Ms out of the funds in his hands.

8. The official liquidator and the respondent, the ITO, ‘K’ Ward, Companies District III, to act on a signed copy of the minutes.