Antarim Zila Parishad v. Official Liquidator — 1962 DIGILAW 278 (ALL)

JUDGMENT Brijlal Gupta, J. - This is a Special Appeal under section 202 of the Indian Companies Act, VII of 1913, read with Chapter VIII, rule 5 of the Rules of Court against the decision of the learned Company Judge of this Court. 2. The appellant, which is the Antarim Zila Parishad Deoria, claimed a sum of Rs. 4,000 as circumstances and property tax under the U. P. District Boards Act in respect of the years 1955-56 and 1956-57 from the Jagdish Sugar Mills Ltd., gone into liquidation since, at the rate of Rs. 2,000 per year. To prove its claim the appellant produced the assessment order, annexure 'B', dated 4th February, 1956, for the assessment year 1955-56 and annexure 'A', dated 22nd June, 1956, for the assessment year 1956-57. The liquidator did not admit the claim, whereupon the appellant sought to prove it before the learned Company Judge under section 202 of the Indian Companies Act, 1913. 3. The case of the appellant was that the Company had been paying circumstances and property tax at the rate of Rs. 2,000 per year regularly from the year 1949-50 up to the year 1954-55. For the year 1955-56, a notice was issued to the Company for its assessment to tax on 6th August, 1955, and for the year 1956-57 on 19th May, 1956. No objection was filed to assessment for the year 1956-57, and accordingly by order, dated 22nd June, 1956, the assessment was confirmed and notice of demand for Rs. 2,000 was issued to the Company, and served on it on 29th June, 1956. 4. For the year 1955-56 the Company, by letter, dated 5th September, 1955, asked for 15 days time for filing objections. Time was granted, where after a representative of the Company appeared before the assessing authority, and again asked for time, which was also granted, but no objection was filed according to law, nor any evidence or account books produced by the Company, with the result that the provisional assessment was confirmed by order, dated 4th February, 1956, and a notice of demand for Rs. 2,000 was issued to the Company, and served on it on 7th February, 1956. Thus the total demand due from the Company for the two years in question came to a sum of Rs. 4,000. 5. 2,000 was issued to the Company, and served on it on 7th February, 1956. Thus the total demand due from the Company for the two years in question came to a sum of Rs. 4,000. 5. Subsequently, on 10th March, 1960, the Tax Inspector of the appellant reported to the taxing authority that the mill had been sold, and was being worked by the vendee, and the sale proceeds were in deposit with "some officer" in the High Court. On enquiry it was learnt that the sale proceeds were with the Official Liquidator of the Company, which had since gone into liquidation, whereupon a letter was addressed to the Official Liquidator on 14th October,11960, but in the letter instead of the years 1955-56 and 1956-57 being mentioned, the years 1954-55 and 1955-56 were wrongly mentioned, even though the tax of Rs. 2,000 for the year 1954-55 had already been paid, long before,on 5th February, 1955. The demand for the two years in question was still outstanding on' the date of the claim though a representative of the Official Liquidator had gone to the office of the appellant in November- December 1960, and had verified the liability for the tax from the register of the appellant. It is common ground that the winding-up order was made on 21st February, 1958, that is to say, nearly two years after the dates of the confirmation of the provisional assessment by the final assessment orders, annexures 'A' and 'B'. 6. The Official Liquidator filed a brief objection to the claim, namely that (i) the entire property of the mills having been sold by the Collector, Deoria, by auction, for realisation of the dues of the State Government, on 10th November, 1955, the ownership of the assets of the company vested in the vendee as from that date, and the vendee became liable for the payment of the tax. (ii) proper service of notices on the Company was denied. (iii) liability for tax for 1956-57 was denied in to and liability for 1955-56 was alleged to be reducable in the ratio of 11:7 that is to say to Rs. 1,222.22 nP. 7. The learned Company Judge was taken into numerous questions which were not. raised by the Official Liquidator in his objection, and held as follows : 8. (iii) liability for tax for 1956-57 was denied in to and liability for 1955-56 was alleged to be reducable in the ratio of 11:7 that is to say to Rs. 1,222.22 nP. 7. The learned Company Judge was taken into numerous questions which were not. raised by the Official Liquidator in his objection, and held as follows : 8. That the Official Liquidator not having admitted the claim, the burden to prove the same lay on the appellant. 9. That the claim of the appellant related to the financial years 1955-56 and 1956-57 and not to the calendar years 1954 and 1955. 10. That even though the mills were sold on 10th November, 1955, yet the actual management of the mills continued to remain with the Company until 4th July, 1956, upto which date the company should be deemed to be carrying on its business in Deoria. Accordingly the appellant could require it to pay the tax for 1955-56 (i.e. from 1st April, 1955 to 31st March, 1956) if the other requirements for the imposition of tax were fulfilled but could not claim any tax for the year 1956-57 (i.e., from 1st April, 1956 to 4th July, 1956) because the period was less than six months ride section 114 (a) of the U. P. District Boards Act, 1922. 11. That the issue and the receipt of the assessment order and the bill for 1956-57 were duly proved by the Tax clerk of the appellant, and the Head Clerk of the mills and no appeal had been filed against the assessment but in view of the provisions of section 228 of the Indian Companies Act, 1913, section 131 of the U. P. District Boards Act did not operate as a bar to the denial of liability by the Official Liquidator. 12. That there was nothing on the record to show that the Company had an income of Rs. 200 or more in 1955-56 and as such under section 114 (b) of the U. P. District Boards Act the Company was not liable for tax even for that year. 13. In the result the learned Company Judge disallowed the claim of the appellant in to. The appellant has come up in appeal. 14. 200 or more in 1955-56 and as such under section 114 (b) of the U. P. District Boards Act the Company was not liable for tax even for that year. 13. In the result the learned Company Judge disallowed the claim of the appellant in to. The appellant has come up in appeal. 14. Two points were taken before us by the learned counsel for the appellant one was that the learned Company Judge was in error in thinking that in the circumstances of the case the burden of proof was on the appellant to establish its claim, and the other was that the learned Company Judge had no jurisdiction to go behind the assessment orders and to hold that the tax was not payable by the respondent either on grounds of fact or on grounds of law. 15. The Official Liquidation who appeared to defend the appeal in person sought to support the decision of the learned Company Judge on the grounds mentioned in the judgment also on numerous other grounds not mentioned there and not mentioned even in the objection filed by the Official Liquidator, e.g., that at the time when the assessment orders in question were passed by the taxing authorities, the Company was being managed by an authorised controller who took no interest in the matter and it was due to his negligence that the orders came to be passed. The Official Liquidator further sought to support the Judgment of the learned Company Judge on grounds decided against the respondent, namely that the notices of the assessment proceedings were not served on the respondent and this even though the Official Liquidator did not put any questions to the respondent's head clerk in his examination-in-chief and did not cross-examine the tax clerk of the appellant in respect thereof. 16. In support of his submission that the assessment orders were proof positive of the liability of the respondent and of the quantum thereof and it was not open either to the Official Liquidator or to the winding-up Court to go behind the same and in any case where assessment orders existed and had not been appealed against and had become final, the burden of proof rested upon the Official Liquidator to show that the same were not correct and no liability should have been imposed on the company in liquidation. He went on to argue that even in the case of a decree, where the decree had been obtained after contest and was not ex parse and there was no reason to suspect any collusion or other questionable conduct and there was no allegation of fraud, it was not open to the Liquidator or to the company Court to go behind the decree. The position was more firm in the case of an assessment where there was no lis between the two parties and generally speaking where there could be no question of any collusion or fraud. Under the various taxing statutes authorities and Tribunals were specially constituted to assess the liability of persons to tax and to fix the quantum of the liability. No one except those authorities could annul, reduce or enhance the liability. The taxing statutes were self-contained codes and provided their own machinery for assessment and quantification of tax. They also provided special remedies and if a party did not have recourse to those remedies or it had exhausted those remedies and yet its liability had remained, there was no way of getting rid of the liability. In support of these propositions reliance was placed on two authorities, one English and the other Indian. The English case is reported in In re Calvert (Ex parte the Debtor) v. Walker, 4 T.C. 79 : L.R. (1899) 2 Q.B. 145, in which Wright, J., observed as follows : "It seems to me that the assessment here is not like a judgment, nor within the principle applied to cases of judgments............In the case of an assessment there is no question of consideration, as there is in the case of a judgment. There is a mere administrative assessment with a special mode of appeal provided, which must be followed. I cannot think it possible that it is competent to the bankruptcy Court on the invitation of the trustee to reopen questions of that kind." (that is to say questions finally settled by the assessment order). 17. The Indian case which relied on this English decision was decided by the late Chief Court of Oudh in Dinshaw & Co. v. Income-tax Officer, Lucknow, A.I.R. 1941 Oudh 260 : 9 I.T.R. 215, where it was laid down that a judgment debt and an assessment for taxes do not stand on the same footing. 17. The Indian case which relied on this English decision was decided by the late Chief Court of Oudh in Dinshaw & Co. v. Income-tax Officer, Lucknow, A.I.R. 1941 Oudh 260 : 9 I.T.R. 215, where it was laid down that a judgment debt and an assessment for taxes do not stand on the same footing. The reason for allowing the Court to go behind the judgment in insolvency proceedings to see if there is a real debt is to prevent fradulent judgments. That is not the case with assessment for taxes. 18. These decisions would appear to conclude the matter in favour of the appellant. The Official Liquidator has, however, argued that the authority of the English case was held not to be applicable to India in a Full Bench decision of the Lahore High Court in Governor-General-in-Council v. Sargodha Trading Company Ltd., I.L.R. 1943 Lah. 706 : 11 I.T.R. 368, in which the judgment of the Full Bench was delivered by Harries, C.J., laying down that the liquidation Court should treat the assessment as prima facie evidence of the amount of tax due from the company but should permit the Liquidator to rebut it, if he could, by producing documents or such other evidence as might be in his possession. Whether the rule in In re Calvert', should or should not be applied to India and whether the rule laid down in the Full Bench case is the correct rule in cases of assessment will be examined hereafter. It might, however, be pointed out at this place that the Full Bench dealt with the question of the burden of proof also and on that question it laid down as follows: "The assessment order is prima facie proof of the taxable income and the onus of proving that the assessment does not represent the real taxable income rests with the liquidator." 19. Thus the authority of the Full Bench decision cited by the Official Liquidator himself on the question of the burden of proof in a matter of this kind is against him and against the view taken by the learned Company Judge. If the two assessment orders should be treated as prima facie evidence of the taxable income then there was no evidence led by the Official Liquidator to show that the income of the company in 1955-56 was less than Rs. If the two assessment orders should be treated as prima facie evidence of the taxable income then there was no evidence led by the Official Liquidator to show that the income of the company in 1955-56 was less than Rs. 200 per month or that the claim of the appellant to tax related not to the calendar years 1954 and 1955 but to the financial years 1955-56 and 1956-57. It has already been pointed out above that neither of those points were specifically taken by the Official Liquidator in the objection filed by him to the appellant's claim nor was any evidence led by him nor any questions put by him either to his own witness, the head clerk of the mills, or in cross-examination, to the witness of the appellant, namely the Tax-Inspector. In the total absence of evidence, the duty to produce which was on the Official Liquidator, and having regard to the rule relating to the burden of proof laid down in the Full Bench case, the claim of the appellant should have been held to be proved and the judgment of the learned Company-Judge should be set aside and this appeal should succeed. 20. The matter, however, does not rest there. I have discovered that the Full Bench decision cited by and relied on by the Official Liquidator has been overruled by a latger Bench of the Lahore High Court in Ravi Paint, Colour and Varnish Works Limited v. Federation of Pakistan, (1955) 27 ITR 475, and it has also been held in this latter case that the rule laid down by the English Case in In re Calvert', is not confined to England, but is of general application. It is pointed out in this later Full Bench case that in the earlier Full Bench case Harries, C.J., did not meet the arguments of Wright, J., regarding the sharp distinction between a 'judgment' and an 'assessment'. It was further pointed out that the cases relied on by the learned Chief Justice in the Full Bench case were all cases of judgment debts and not cases of assessment. It was further pointed out that the cases relied on by the learned Chief Justice in the Full Bench case were all cases of judgment debts and not cases of assessment. It was also pointed out that the learned Chief Justice did not consider the existence of an appropriate and complete machinery provided by taxing statutes nor the question whether in view of the existence of the elaborate machinery, the civil Court should have jurisdiction to adjudicate on the same matter which had been dealt with and decided by the assessment order, nor is there any reference to the bar of suits. and other proceedings in section 67 of the Income-tax Act corresponding to section 131 of the U. P. District Boards Act, 1922. 21. It was further pointed out in the later Full Bench case that it was settled law that where an Act of the Legislature sets up a special Tribunal and prescribes a special procedure for the determination of particular rights and liabilities created by the Act, the jurisdiction of other Courts in respect of those rights and liabilities is impliedly barred even if there was no express provision to that effect. It was also pointed out that the judgment in the earlier Full Bench case was in conflict with the decision of the Privy Council in Raleigh Investment Company v. Governor-General-in-Council, L.R. 74 IA 50 : (1947) 2 MLJ 61 : 15 ITR 332 (P.C.). The question which arose in that case was whether a particular provision of the Income-tax Act was ultra vires or not. A suit was filed to obtain relief in that respect. The matter ultimately reached the Privy Council which observed as follows: "That although in form the relief claimed did not profess to modify or set aside the assessment, in substance the suit was directed exclusively to a modification of the assessment and was barred by section 67 of the Indian Income Tax Act ..........Effective and appropriate machinery is provided by the Act itself for the review of any assessment on grounds of law which include any question as to the validity of any taxing provision in the Act to which effect has been given in the assessment, and it is in that setting that section 67 has to be construed." 22. This decision was reaffirmed by the Privy Council in a subsequent decision in Commissioner of Income Tax, West Punjab v. Tribune Trust, L.R. 74 IA 306 : (1948) 2 MLJ 14 : 16 ITR 214 (P.C.). Their Lordships once again considered the provisions of the Income-tax Act minutely and laid down that the only remedies which were open to a tax-payer against an assessment were to be found within the four-corners of the Income-tax Act itself. 23. To advert to the earlier Lahore Full Bench case once again, it may be pointed out that the decision there was rendered in view of the peculiar conditions prevailing in Punjab at that time. It was observed by Harries, C.J., as follows : "In this Province in particular a very large number of companies have been formed in recent years and experience has shown that Directors and responsible officers of these companies have not fully realised their duties and obligations. It appears that there is a real danger when a company is in financial difficulties that demands for returns of income may be completely ignored with the result that assessments under section 23 (4) of the Act might well be made when no income had been earned. Balance sheets are often negligently and sometime fraudulently prepared and cases have occurred in this Court when for fraudulent purposes purely imaginary profits have been shown as having been earned and income-tax paid upon such profits. Such cases are referred to in the judgment in the case of In re Diamond General Insurance Company, C.O. No. 724 of 1937." 24. This, however, is only to say that in the earlier Lahore Full Bench case there was suspicion that fraud might have been committed on the income-tax authorities and an assessment obtained for fraudulent purposes. Fraud may vitiate the most solemn transactions of Courts and authorities. This might provide some justification for the view taken in the Full Bench case. This cannot, however, be any justification that the broad view expressed there is the correct view or that the rule in In re Calvert, is not applicable in India. 25. Fraud may vitiate the most solemn transactions of Courts and authorities. This might provide some justification for the view taken in the Full Bench case. This cannot, however, be any justification that the broad view expressed there is the correct view or that the rule in In re Calvert, is not applicable in India. 25. I have found that the rule in In re Calvert, and in the later Lahore Full Bench case and in the Oudh case of Dinshaw & Co., A.I.R. 1941 Oudh 260, was followed very recently by a single Judge of the East Punjab High Court in Union of India v. Seth Spinning Mills Ltd. (In liquidation), (1962) 46 ITR 193 . A Division Bench of that Court in Jhanda Rubber Works Limited v. Income Tax Officer, 18 ITR 951, approved of those two cases and expressed its dissent from the earlier Lahore Full Bench case. It was observed by the Division Bench that it was unable to agree with the view of the very learned Chief Justice (Harries, C.J.) that a 'judgment' and an' assessment' fall in the same category. The decision in In re Calvert, has also been recently followed in England in In re Moshi (B. Ex. parte R. Moshi) v. Commissioner of Inland Revenue, (1953) 35 TC 92. In the third edition of the Halsbury's Laws of England the following statement of the law there is to be found in Volume 20, page 714, para. 1431 : "A proof in bankruptcy cannot be rejected on the ground that the debtor has not made the profit assessed and an income-tax assessment once it is final and conclusive cannot be enquired into." 26. The authorities mentioned in support of the statement are In re Calvert and, In re B. Moshi, (1953) 35 TC 92. 27. 1431 : "A proof in bankruptcy cannot be rejected on the ground that the debtor has not made the profit assessed and an income-tax assessment once it is final and conclusive cannot be enquired into." 26. The authorities mentioned in support of the statement are In re Calvert and, In re B. Moshi, (1953) 35 TC 92. 27. I am, therefore, of the view that the assessment orders were by themselves prima facie proof of the liability of the company for the amount of tax assessed thereby ; that the burden to prove the contrary was not on the taxing authorities but on the Official Liquidator ; that there was no evidence on behalf of the Official Liquidator ; that the remedy, if any, of the company or its liquidator was only by appeals provided under the U. P. District Boards Act and once the assessment had become final because no appeal had been filed, recourse to any other method of getting rid of the assessment was barred by section 131 of the Act. It was also not open to the Company Judge to allow the liquidator to challenge the assessment in claim proceedings before him under section 228 of the Indian Companies Act, 1913, because that would only amount to allowing the liquidator to do something indirectly which he was not entitled to do directly. It follows that the claim of the appellant must be held to be proved and in the result this appeal must be allowed. The appellant should get his costs of the appeal. Desai, J.-I agree that the appeal be allowed with costs.