High Court Of Rajasthan : Jaipur Bench
CIT vs. Golcha Properties (P.) Ltd.
Sections 212(3A), 217(1A)
Asst. Year 1971-72
S.N. Bhargava & P.C. Jain, JJ.
DB IT Ref. No. 21 of 1978
10th November, 1986
R.N. Surolia, for the Revenue : N.M. Ranka & H.K. Jain, for the Assessee
S.N. BHARGAVA, J.:
This is a reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), by which the ITAT, Jaipur Bench, Jaipur (hereinafter referred to as “the Tribunal”), has made a reference on the following question of law for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not under an obligation to file an estimate in terms of s. 212(3A) of the IT Act, 1961, and was not liable to pay any interest under s. 217(1A) of the said Act ?”
2. The assessee, M/s Golcha Properties (P.) Ltd., is a private limited company in liquidation. While filing its return of income for the asst. yr. 1971-72, it claimed that it had no income and, accordingly, in Part I of the return nil income was shown. But, in Part IV of the return, the assessee declared an income of Rs. 12,94,515 which was claimed to be exempt. The ITO, however, brought the entire income of the company in liquidation to assessment and he made a note to the following effect : “No action under s. 273(c) as the Official Liquidator could not have filed estimates under s. 212 (3A) showing any income in view of his claim in each year that the income is not taxable. For 1972-73, he filed nil estimate in reply to notice under s. 210. Some action under s. 217(1A).”
3. The ITO had with the prior permission of the Company Judge under s. 446 of the Companies Act, 1956, served on the assessee a notice under s. 210 of the Act on 25th Feb., 1971, asking the Official Liquidator for payment of advance tax amounting to Rs. 5,20,722. The amount was paid by the Official Liquidator during the time granted by the High Court. The assessee did not file an estimate under s. 212(3A) either on or before 15th March, 1971, or even thereafter.
4. The CIT, on 18th June, 1981, issued a notice to the assessee under s. 263 of the Act, in the following words :
“A perusal of the record reveals that the ITO, while completing the assessment for the asst. yr. 1971-72, failed to charge interest under s. 217(1A) which was clearly leviable within the meaning of s. 212(3A) of the IT Act, 1961, and the case was not covered by any of the exceptions provided in r. 40 of the IT Rules, 1962. Thus, the ITO’s order in not charging interest under s. 217 is erroneous and prejudicial to the interests of the Revenue.”
5. The assessee filed a reply to the said notice ; but, since nobody appeared on behalf of the assessee, the CIT passed the impugned order to the following effect : “I have considered the various contentions raised in the written reply. The assessee has not indicated that any circumstances exist for the waiver of interest in terms of r. 40 of the IT Rules, 1962. There is also nothing on record to indicate that at the time of making the original assessment, the ITO had taken any conscious decision to waive interest under s. 217(1A). The assessment is, therefore, clearly prejudicial to the interests of the Revenue. The same is accordingly cancelled and the ITO is directed to make a fresh assessment after applying his mind to the question whether interest is chargeable under s. 217(1A).”
The assessee appealed to the Tribunal against the Commissioner’s order under s. 263 of the Act and the same was accepted and the order of the Commissioner was quashed. The CIT thereafter submitted an application under s. 256(1) of the Act for making a reference of the above question to the High Court. It is in these circumstances that the present reference has come up before this Court. We have heard learned counsel for the Department and learned counsel for the assessee.
In view of the authoritative pronouncement of the Supreme Court in J.K. (Bombay) P. Ltd. vs. New Kaiser-I-Hind Spinning and Weaving Co. Ltd. & Ors. AIR 1970 SC 1041 the effect of a winding up order is that except for certain preferential payments provided in the Act, the property of the company is to be applied in satisfaction of its liabilities pari passu. Pari passu distribution is to be made in satisfaction of the liabilities as they exist at the commencement of the winding up. The Official Liquidator is to realise and pay to its creditors and, as such, the income of the company in liquidation cannot be said to be its income for the purpose of income-tax and, as such, is not liable to tax. Therefore, it cannot be said that the assessee was not under a bona fide belief that the income of the assessee was not liable to tax and he was right in showing his income as nil. Learned counsel for the assessee has placed reliance on CIT vs. N. Khan & Bros. (1973) 92 ITR 338 (All), CIT vs. Allied Silk Mills (1982) 26 CTR (Bom) 132 : (1983) 140 ITR 428 (Bom), CIT vs. Bharat Machinery and Hardware Mart (1982) 136 ITR 875 (Guj) : TC4R.894 and CIT vs. Ajit Singh Bhagat Singh (1984) 39 CTR (Raj) 330 : (1985) 151 ITR 696 (Raj), a Division Bench judgment of this Court and CIT vs. Hazari Mal Milap Chand Surana (1986) 53 CTR (Raj) 432 : (1987) 163 ITR 531 (Raj) for the proposition that the assessee cannot be held guilty and was right in not disclosing the income of the assessee-company, being under liquidation, as an income assessable under the Act under a bona fide belief and, therefore, he was not liable to any interest. We are in agreement with the view expressed by this Court in the earlier two cases cited above. Therefore, the question referred to above is answered in the affirmative and it is held that the assessee was not under an obligation to file an estimate in terms of s. 212(3A) of the Act and was not liable to pay any interest under s. 217(1A).
[Citation : 169 ITR 493]