Sachar ( 1 ) CAN the proviseous of S. 222 of the Income Tax Act, 1961 for recovery of tax be resented to by Income Tax Officer. without seeking leave of the Company Judge u/s 446 of the Companies Act, 1956 in the case of a Company after winding up order has been made is the questioh arising in this appeal against the Judgent of the Learned Single Judge, who has held that obtaining leave u/s 446 (1) of the Companies Act was a condition precedent for seeking to recover tax by the Income Tax Officer. ( 2 ) M/s. National Conduits Pvt. Ltd. is a company registered under the Companies Act. In respect of its employee, one S. S. Arora, the Company made deduction on account of income Tax from his salary, the total amount of which came to about Rs. 44,000. 00 for the Years 1961-62 to 1965-66. The company however, did not deposit the said amount with the Income Tax authorities. As a result on 6. 10. 1966 the Income Tax Officer. demanded from the company the payment of this amount, but to no effect. On 16. 1. 1969 an application was moved for winding up the company. An order of winding up was passed on 7. 5. 1969. On 24. 2. 1971 the I. T. O. requested the Official Liquidator for payment of Rs. 44,000. 00 due on account of deductions made from the salary of Arora. O. L. by his letter of 1 3. 1971 asked the I. T. O. to obtain leave of the High Court u/s 446 of the Companies Act, before any payment could be made by him It was apparently this which made the Income Tax Officer. on 25. 7. 72 to move an application u/s 446 of Income Tax Act, seeking leave to take proceedings under the provisions of Income Tax Act for the recovery of the aforesaid amount. It was at this stage that the issue was joined as to whether leave should be granted. on 25. 7. 72 to move an application u/s 446 of Income Tax Act, seeking leave to take proceedings under the provisions of Income Tax Act for the recovery of the aforesaid amount. It was at this stage that the issue was joined as to whether leave should be granted. The learned Judge has refused to grant leave and hence the appeal by the I. T. O. ( 3 ) SECTION 446 (1) of the Companies Act provide that when a winding up order has been made and an official Liquidator appointed no suit or other legal proceedings shall be commenced or shall be proceeded with except by leave of the Court and subject to such terms as the court may enforce. Section 530 (1) provides that in a winding up there shall be paid in priority to all other debts certain mentioned claims like wages taxes etc. Before the Learned Single Judge it was not disputed or atleast it was not established that any of the amounts claimed by the I. T. O. were covered under the preferential payments within any of the clauses of Section 530 (1) of the Act. As a matter of fact the learned Judge has specifically safeguarded the interest of the appellant by permitting it to move any time a separate application if it is able to show that any portion of a sum of Rs. 44,000. 00 is entitled to priority u/s 530 (1 ). As debt was not found to be Preferential payment, the order refusing leave is not open to objection because there is no reason why this debt should not take its place along with other debts due from the company, specially when the right of the appellant to move later on if the circumstances show that any part of debt covered by Section 530 (1 ) (a) has been protected by the learned Single Judge. ( 4 ) MR. Verma however invokes Section 537 which though by sub-section (1) provides that any attachment/execution against a company which is being wound up, - without leave of court, will be void, but by sub-section (2) excepts the applicability in proceedings for recovery of any tax payable to government. ( 4 ) MR. Verma however invokes Section 537 which though by sub-section (1) provides that any attachment/execution against a company which is being wound up, - without leave of court, will be void, but by sub-section (2) excepts the applicability in proceedings for recovery of any tax payable to government. The argument is that nwithstanding section 446 of Companies Act there is an independent indefeasible power with the I. T. O. to recover the arrears of tax, u/s 537 (2) of the Act ; we cannot agree. Now Section 446 (1) is specific that after winding up order has been made no legal proceedings can be commenced or proceeded with except by leave of the court. What was however, urged was that as Section 537 (2) excepts proceedings for the recovery of any tax or dues payable to the Government it means that the proceedings for recovery of such dues are immune from the restriction of Section 446 (1) of the Act. The argument is unacceptable that Section 171 of Companies Act 1913 corresponding to Section 446 of the Companies Act, 1956 require a leave to be obtained from the court by the I. T. O. for seeking to recover the tax as arrears of land revenue by virtue of power under the Income Tax Act was decided as far back as over 30 years and is reported in (AIR 1946 Federal Court 16) Governor General V. Shromani Sugar Mills, therein it was observed : "accordingly, we agree with the learned Judges of the Allahabad High Court in holding that the words "other legal proceedings" in S. 171, companies Act, 1913, comprise any proceedings by the revenue authorities under S. 46 (2) Income Tax Act, and that accordingly before forwarding the requisite Certificate udder S. 46 (2) to the Collector, which would put the machinery for the collection of the arrears of Income tax as arrears of land revenue into motion, the appellant should have applied in the liquidation u/s 171, Companies Act, for leave of the winding up Court. " ( 5 ) IT may be noted that S. 46 (2) of Income Tax Act 1913 corresponded to S. 222 of the present Income Tax Act. " ( 5 ) IT may be noted that S. 46 (2) of Income Tax Act 1913 corresponded to S. 222 of the present Income Tax Act. The attempt to avoid the applicability of S. 446 of Companies Act by the counsel for the Revenue by importing S. 537 (2) to his aid is no avail in view of Federal Court decision wherein though reference was made to S. 232 (1 ) (2) of Companies Act 1913 (Corresponding to S. 537 of Companies Act 1966) it was nevertheless held that leave from the court has to be obtained. Reference in this connection may be made to AIR (1972) S. C 872 S. 878 V. Kondaskar, O. L. V. V. M. Deshpande, I. T. O. which while recognising that the power u/s 148 of the Income Tax Act 1961 could be exercised without resort to S. 171 of the Companies Act 1913 (corresponding to S. 446 of the Companies Act 1956) because the words legal proceedings in S. 446 did not cover the proceedings u/s 148 went on to observe : "the fact that after the amount of tax payable by an assesses has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court u/s 446 of the Act. "( 6 ) THUS the Supreme Court has clearly held that notwithstanding the assessment the recovery of the tax can only be proceeded with after leave of the court has been obtained. We are, therefore, in agreement with the view taken by the learned single judge that leave u/s 446 of the Companies Act was necessary and also with his further finding that in absence of any claim for priority for this amount the I. T. O. was not entitled to the grant of leave. ( 7 ) THE learned Judge has observed that there seemed to be an inconsistency between the provision of Section 537 and Section Income Tax Officer Vs. Off. ( 7 ) THE learned Judge has observed that there seemed to be an inconsistency between the provision of Section 537 and Section Income Tax Officer Vs. Off. Liquidator 446 of the companies Act for if the proceedings are stayed u/s 446 (1) it will not be possible for proceedings for realising tax arrears to end in execution or sale to which Section 537 (1) or (2) could apply. But the controversy had been resolved by Federal Court by holding that government was not entitled to prefeteniial payment for tax arrears except as it is permitted by section 530 (1) (a) of Companies Act. In our opinion there is no inconsistency as they deal with different stages. Section 445 (1) contemplates a situation where a winding up order has been passed and then certain consequences will follow with regard to proceedings on the date of winding up order. The winding up of a company by the the court is deemed to commence at the time of presentation of petition for the winding up (Section 441 (2 ). There is this obvio- usly a time gap between the commencement of the winding up and the passing of winding up order. Section 537 is covering a period in between this interval, because it clearly says that where any company is being would up by Court any attachment, distress or execution put in force, without leave of the court after the commencement of the winding up. or any sale held, with leave of court after such commencement shall be void. Section 537 (1) therefore only makes all such transactions void between the date of presentation of petition for the winding up and the date of winding up order. The reason why nothing more need to be said u/s 537 (1) is that by virtue of section 446 of the Companies Act the moment the winding up order is passed no legal proceedings shall be commenced or if pending on the date of winding up order shall be proceeded with against the company except by leave of the court That however left-out the transactions earlier to the passing of winding up order. This is covered by Section 537 (1) of the Companies Act. This is covered by Section 537 (1) of the Companies Act. Thus right from the date of presentation of a petition for winding up, the Court s protective arm is thrown on all transactions so that private individual may not take undue advantage of the situation and thus leave only the husk of the company at the time when the order of winding up comes to be passed. But public interest is involved when taxes are being realised "during this period and that is why sub-section (2) of section 537 excepts the proceedings for the recovery of any tax by impost or any dues payable to the Government, from the provision of Section 537 (1 ). Thus even if any proceedings have been started for recovery of such tax even after the date of presentation of petition for winding up they would not be deemed to be void automatically. It appears to us that Section 537 (2) of the Companies Act has really no relevance to the question whether the I. T. O. can resort to section 222 without obtaining the leave of the court u/s 446 (1) of the Act. Section 537 (1) effects certain proceedings prior to the date of winding up order. Section 446 however is a special provision dealing with a company which is being wound up from the date of winding up order. The power of recovery proceeding under section 222 of Income Tax Act are general provisions applicable to all companies whether being wound up or not. Section 446 (1) however deals with a company which is being wound up and is thus special provision and will prevail over the general provision of recovery of tax under the Income Tax Act. That Income Tax Act is a general provision applicable to all assessees and cannot over-ride the provisions of a special law like the Companies Act was recognised, in ( AIR 1966 SC 35 ) The Union of India v. India a Fisheries Pvt. Ltd. wherein it was held that the department can not by exercising right u/s 49e of the Income Tax get priority over the other unsecured creditors as laid down u/s 228 and 229 of the Companies Act 1913. Similar consequences must follow in the present case. To accept the argument of Mr. Similar consequences must follow in the present case. To accept the argument of Mr. Verma would mean that though the Income Tax department is an unsecured creditor for the amount in dispute and would have to stand along with other unsecured creditors for the realisation of this amount it could still exercise its powers u/s 222 of the Income Tax Act. This would be contrary to the Companies Act. It must, therefore, he held that without obtaining leave u/s 446 (1) of the Companies Act, I. T. O. cannot resort to section 222 of the Income Tax Act for recovery of tax due from the company. It must obey the mandate of the Companies Act and proceed within its requirements. ( 8 ) WE may also note that Mr. Verma tried to invoke section 178 of the Income Tax Act. The first objection to permit this contention being raised is that this point was never raised before the learned Single Judge who therefore had no occasion to deal with it. Not only that even in the grounds of appeal no such ground has been raised on the basis of this provision. That apart even on merits in our view the argument is also of no assistance to Mr. Verma. Section 178 empowers the ITO on receipt of information from liquidator about his having been appointed as a liquidator of a company to inform the liquidator of the tax liability and also to direct him to keep sufficient funds to provide for any tax which is likely to be payable by thecompany and the liquidator shall not without leave of the Commissioner part with any of the assets, equal to the amount notified This provision in no way interferes with or abrogates the provision of priority of the debts laid down in Section 530 (1 ) (a) of the Companies Act (See Baroda Board and Paper Mills Ltd. v. 1. TO (1976) 46 Company Cases 25) where it was held that the non-obstante clause of Section 178 (b) of the Income-tax Act does not interfere in any manner with the order of priorities laid down in Section 530 (1) (A) of the Act. ( 9 ) A similar view has been taken by the Mysore High in I. T 0. v. Official Liquidator (1967) 63 ITR 810. ( 9 ) A similar view has been taken by the Mysore High in I. T 0. v. Official Liquidator (1967) 63 ITR 810. We, however, also must notice that a contrary view has been taken by the Andhra Prapesh High Court and by the Kerala High Court (ITO B-Ward, v. Official Liquidator, (1976) 46 Co. Cases 46, and in re. M/s Steel Sons Pvt. Ltd. v. The Registrar of Companies (C. P. 14/1969 ). It may, however, be noted that when the Companies Act, 1956 was enacted, it was urged before the Company Law Commitee that the power for review of the Income Tax Act should not be limited to a particular period. This plea was rejected by the Committee. The conflicting views taken by the courts have an area of plausibility. We may, however, note that the High-Powered Expert Committee, appointed by the Government of India took note of this conflict and has recommended (in para 15. 30) that Section 530 of the Companies Act should be amended by way of clarification that notwithstanding anything contained in Section 178 of the Income Tax Act. 1961, the priority for payment of taxes will be limited to taxes having become due and payable within 12 months next before the relevant date. Though, therefore, there may be a view that by enactment of Section 178 (6), the tax due, which is in the present case even prior to 12 months, can claim priority, it will still not help the appellants The reason is as mentioned above that this point not having been raised before the Single Judge cannot be allowed to be raised in the appeal. That apart, even if this view was to be accepted that priority for tax of any period is to be given u/s 530 of Companies Act, it does not take away the requirement of obtaining leave u/s 446 of the Act. No doubt, in granting or refusing leave, it may be one of the considerations, whether the debt has priority u/s 530 of the Companies Act but the main question which calls for decision in the presen case, whether the tax can be recovered without obtaining leave u/s 446 of the Companies Act, has not been answered by the Kerala and Andhra Pradesh High Courts. The requirement of obtaining leave u/s 446 of the Act still has to be decided in the light of the decision given in the Federal Court s decision in Shiromani Sugar Mills case (supra ). Section 178 of the Income-tax Act is only a mode of keeping in-tact certain assets of the Company to be able to adjust them for the purpose of the tax liability which the Income-tax Officer may determine in future. The question of how to recover that tax will necessarily have to be decided by the special provisions of the Companies Act and in case of a Company which is being wound up requirements of obtaining leave laid down in section 446 of the Act would have to be observed. The question of any conflict between section 446 and Section 530 of the Companies Act does not at all arise.