Vildirect: IncomeTax-caselaws-1975-VIL-452-AP-DT

1975-VIL-452-AP-DT

Equivalent Citation: [1977] 106 ITR 119

ANDHRA PRADESH HIGH COURT

Date: 05.12.1975

INCOME-TAX OFFICER, A-WARD, NELLORE CIRCLE, NELLORE

OFFICIAL LIQUIDATOR

BENCH

Judge(s) : MADHAVA RAO., KONDAIAH

JUDGMENT

The judgment of the court was delivered by

KONDAIAH J.--This original side appeal by the Income-tax Officer, Nellore, under clause 15 of Letters Patent, gives rise to a short but interesting question of law, viz., whether the official liquidator who, under section 497(6) of the Companies Act, 1956, is in charge of the scrutiny of the books and papers of a company in voluntary liquidation for the purpose of making his report to the court about the affairs of the company in the light of the report that has been submitted by the voluntary liquidator, is the " principal officer " within the meaning of section 2(35) of the Income-tax Act, 1961.

In order to appreciate the scope of the question, it is necessary to briefly state the material facts that gave rise to the same : The company by name Messrs. Civil Supplies Corporation Ltd., Pamur, was registered with the Registrar of Companies on July 19, 1949. The registered office of the company was in Pamur, Kanigiri taluk, Prakasam district. The company went into voluntary liquidation by a special resolution passed by the members of the company on September 9, 1963. One Sri V. Sankara Narayana Rao of Pamur was appointed as voluntary liquidator of the company. The final meeting of the members under section 497 of the Companies Act had taken place on December 6, 1967, and the return of final winding-up by the voluntary liquidator was filed with the official liquidator on December 14, 1967. The voluntary liquidator furnished all the records available with him to the official liquidator for investigation under section 497(6) of the Companies Act. The official liquidator is in charge of the scrutiny of the accounts and books of the company which is in voluntary liquidation. The voluntary liquidator died in January, 1974. Subsequent to the death of the voluntary liquidator, no other liquidator has been appointed by the company. The official liquidator, after completion of the scrutiny of the accounts and books of the company, has to submit his report under section 497(6) of the Companies Act to the court. At that stage, the appellant-Income-tax Officer who was in charge of the company's assessments, by his letter dated December 3, 1974, requested the official liquidator to file the income-tax return of the company for the assessment year 1966-67 informing him that he was issuing a notice under section 148 read with section 139(2) of the Income-tax Act. Subsequently, the said notice was issued and served on the then official liquidator, Sri K. Ramachandran, on March 29, 1975, treating him as the principal officer within the meaning of section 2(35) of the Income-tax Act. The official liquidator objected to the course adopted by the Income-tax Officer with an assertion that he was only discharging a statutory function under sub-section (6) of section 497 of the Companies Act for the limited purpose of filing a report to the court in respect of the company and he could not be treated as the principal officer of the company who could be called upon to file a return of income in respect of the company. Thereupon, the Income-tax Officer filed an application to this court under section 518 of the Companies Act and rule 9 of the Companies (Court) Rules, 1959, to direct the respondent-official liquidator to file the income-tax return of the company in voluntary liquidation for the assessment year 1966-67 on the ground that he is the principal officer of the company who is liable to submit a return. This application has been countered by the official liquidator on the ground that he is only discharging a statutory duty and function of scrutinising the accounts for the purpose of submitting his report to the court and he is not an officer of the company and, therefore, he cannot be considered to be the principal officer of the company in liquidation. The learned acting Chief Justice, Sambasiva Rao, held that the official liquidator is in no manner connected with either the management or administration of the company as the only work that is statutorily entrusted to him is to scrutinize the books and records of the company and submit a report. In the circumstances, the learned judge was of the view that it is not proper to call the official liquidator who is discharging the functions under section 497(6) of the Companies Act, the principal officer within the meaning of section 2(35) of the Income-tax Act, 1961, and dismissed the application. Hence, this appeal.

The income-tax department's standing counsel, Sri P. Rama Rao, contended that the respondent-official liquidator is certainly the principal officer of the company within the meaning of section 2(35) of the Income-tax Act as he is a person connected with the management or administration of the company at the time of the issuance of the notice under section 148 of the Income-tax Act. This claim of the appellant is resisted by Sri R. V. Medhi, the present official liquidator, who has been appointed on August 4, 1975, contending, inter alia, that while discharging the functions and duties under section 497(6) of the Companies Act, he is not managing or administering the affairs of the company and he cannot be called an officer, much less the principal officer of the company, and, in any event, there are neither funds to the credit of the company nor any realisable assets and he is, therefore, not liable to submit a return of income in respect of the company in voluntary liquidation.

The answer to the question turns upon the provisions of section 2(35) of the Income-tax Act, 1961, which defines " principal officer ", read with section 497(6) of the Companies Act, 1956. Section 2(35) of the Income-tax Act as applicable to the case of a company reads thus :

" 'Principal officer', used with reference to..................... a company .................. means :

(a) the secretary, treasurer, manager or agent of the ............... company............... or

(b) any person connected with the management or administration of the............... company............... upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer thereof.' "

A company is a separate taxable entity under the Income-tax Act. " Company " is defined under section 2(17). The definition of " company " takes in any Indian company which, in its turn, is defined under section 2(26) of the Income-tax Act. " Indian company " means a company formed and registered under the Companies Act, 1956. The company with which we are concerned was admittedly a company formed and registered under the Companies Act. A company which is under liquidation including voluntary liquidation is certainly a company which is a separate entity for purposes of income-tax. The definition of " person " under section 2(31), whose total income of the previous year is chargeable to income-tax under section 4 takes in a company. Hence, the company with which we are now concerned is a company in respect of whose income the appellant Income-tax Officer is competent to assess under the Income-tax Act. Sub-clause (a) of clause (35) of section 2 will not come in aid of the appellant as the official liquidator, in the circumstances, cannot be called to be the secretary, treasurer, manager or agent of the company. We have, therefore, to look to the provisions of sub-clause (b). In order that a person can be said to be a " principal officer " defined under section 2(35)(b), the following two ingredients must be satisfied : (i) he must be a person connected with the management or administration of the company ; (ii) the Income-tax Officer must have served upon him a notice of his intention of treating him as the principal officer of the company. The satisfaction of any one of the two conditions or ingredients will not attract this clause. There is no dispute about the satisfaction of the second condition, i.e., requiring the service of notice of the intention of the Income-tax Officer treating the respondent-official liquidator as the principal officer of the company in liquidation. The only point that survives for our determination is whether the respondent is or is not connected with the management or administration of the company.

Sub-clause (b) of clause (35) of section 2 is wide enough to take in any person connected with the management or administration of the company. The words " management " and " administration " are not defined anywhere in the Income-tax Act or the Companies Act. The ordinary dictionary meanings of those words may be noticed. " Manage " means is conduct (undertaking, etc.) ; control (household, institution, state) ; take charge of (cattle, etc.) ". " Administration " means " the action of administering or serving in any office ; attendance ; performance of duty ". The words " management " and " administration " are of broad import. It is pertinent to notice that the expression used is " any person connected with the management or administration of the company " but not " a person in management or administration of the company ". There is a lot of difference between the two expressions. What the law makers intended is some kind of connection or nexus of the person to be called the principal officer, with the management or administration of the company. They did not intend the person to be in actual management or administration of the company. The person who is in actual management or administration of the company may have a direct and proximate hand in the affairs of the company during the period of management. Such a person would fall within the provisions of sub-clause (a) itself which takes in a manager or agent of the company. For the purpose of bringing a person within the meaning of section 2(35), he need not actually manage or administer the affairs of the company but suffice it if he has some connection with the management or administration of the company. The official liquidator, as found by the learned judge, has to statutorily scrutinise the books and accounts of the company which are admittedly in his possession and custody at the relevant time for the purpose of submitting a report to the court about the winding-up of the company. That apart, the voluntary liquidator appointed by the company is no more. There is no other person who is in charge of the affairs of the company at the material time as no other voluntary liquidator has been appointed by the company. The respondent is undoubtedly in charge of the accounts, books and assets of the company. As pointed out earlier, he is discharging the statutory duties under section 497(6) of the Companies Act, which reads thus :

" The official liquidator, on receiving the account and either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall, as soon as may be, make, and the liquidator and all officers, past or present, of the company shall give the official liquidator all reasonable facilities to make, a scrutiny of the books and papers of the company and if on such scrutiny the official liquidator makes a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest, then, from the date of submission of the report to the court, the company shall be deemed to be dissolved. " The official liquidator, therefore, has a statutory duty to make a scrutiny of the books and papers of the company and submit a report to the court about the affairs of the company. He shall be entitled to the assistance of the liquidator, if any, and all officers, past and present, of the company in the discharge of his official duties under this provision. In case the official liquidator finds in his report that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest, the company shall be deemed to be dissolved from the date of the submission of such report. Until then, the company must be deemed to be in existence in the eye of law. In case the official liquidator reports that the affairs of the company have been conducted in a manner prejudicial to the interests of its members or to public interest, the court shall, by order, direct him to make a further investigation of the affairs investing him with all such powers as the court may deem fit. The liquidator appointed by the company in the case of a voluntary liquidation or by the court becomes functus officio on the dissolution of the company. In other words, he cannot exercise any power after the dissolution of the company but, however, holds himself liable for his acts and omissions in his capacity as liquidator before the dissolution of the company.

Section 497(1) and (2) of the Companies Act enjoins upon the liquidator to call for a general meeting of the company for the purpose of laying the accounts before it. Within one week after the meeting, the liquidator has to send a copy of the account accompanied by a return to the Registrar and the official liquidator. Section 506 provides for the filling up of a vacancy in the office of the liquidator in case of his death, resignation or otherwise. Section 505 makes it clear that on the appointment of a voluntary liquidator, all the powers of the board of directors shall cease. Section 491 provides that in a members' voluntary winding-up, all powers of the (i) board of directors, (ii) managing director, (iii) whole-time director and (iv) manager, shall cease unless sanctioned by the company in general meeting or the liquidator may sanction the continuance thereof. The court is empowered under section 515 to appoint and remove a liquidator in a voluntary winding-up of a company. In the present case, the official liquidator who is discharging his functions under section 497(6) and in whose custody and possession the books, accounts and the assets of the company remain, must be held to be a person connected with the management or administration of the company at the material time. The purpose and intendment of the choice being given to the Income-tax Officer to treat a person connected with the management or administration of the company as principal officer is only to protect the interests of the revenue by compelling the person who is in a position to prepare and submit a return on behalf of the company, to do so. Parliament must be held to have designedly used the words " connected with " in section 2(35)(b) of the Income-tax Act. As submitted by the official liquidator, the ex-directors of the company might be present and they might also be liable for the arrears of income-tax of the company under section 179 of the Income-tax Act but the Income-tax Officer has rightly served a notice of his intention of treating the official liquidator who is in charge of the entire accounts and assets of the company at the relevant time as the principal officer thereof instead of the ex-directors of the company who do not possess any of the books, accounts and papers of the company to enable them to file a return. The learned judge was of the view that the official liquidator was not in charge of the management or administration of the company but is only assisting the court by scrutinising the accounts and books of the company for the purpose of submitting a report to the court. The official liquidator, as pointed out earlier is doing his statutory duty and he must be held to have connection with the management or administration of the company at the relevent and material time. We are unable to see any difficulty for the official liquidator to submit a return of income of the company for the assessment year 1966-67 pursuant to the notice issued by the appellant under section 148 of the Income-tax Act.

The further submission of the official liquidator that there are no assets of the company in his hands and the ex-directors may be proceeded against for any liability towards income-tax of the company in liquidation would not in any way alter the legal position. The Income-tax Officer is not making the official liquidator personally liable. The filing of the return of income-tax under the Income-tax Act by the principal officer of the company is only to enable the Income-tax Officer to complete the assessment of the income of the company in liquidation in accordance with law. After the completion of the assessment, the Income-tax Officer would proceed to recover the tax due and payable by the company in accordance with law. He may proceed against the assets of the company wherever they are and the official liquidator has only a statutory duty to assist the Income-tax Officer in the discharge of his duties and there is no valid or justifiable ground for taking this obstructive attitude.

For these reasons, we hold that the official liquidator who is in charge of the scrutiny of the books and papers of the company for the purpose of submitting his report to the court about the affairs, management and administration of the company during the material period, is the " principal officer " within the meaning of clause (35) of section 2 of the Income-tax Act and he has a statutory duty and obligation to furnish the return of the company for the assessment year 1966-67 and assist the Income-tax Officer to complete the assessment in accordance with law.

In the result, the appeal is allowed but there shall be no order as to costs.

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