Commissioner of Income Tax

 Vs.

Chowdhury Ramzan Ali and another

Supreme Court

Appellate Division

(Civil)

Present:

Kemaluddin Hossain CJ

Fazle Munim J

Badrul Haider Chowdhury J

Commissioner of Income Tax………………………Appellant

Vs.

Chowdhury Ramzan Ali and another………………Respondents

Judgment

Aug 14, 1978.

Cases Referred To-

Raleigh Investment Co. Vs G-G. in Coun­cil AIR 1947 (PC) 78; Ravi Paint Colour & Varnish Works Ltd. Vs Federation of Pakistan PID 1954 (Lab) 551; Sargodha Trading Co. AIR 1943 (Lah) 228.

Lawyers Involved:

A.K.M Mozammel Huq Bhuiyan. Advocate with Rabia Bhuiyan, Advocate, instructed by S. S. Huda, Advocate-on-Record.—For the Appellant.

C  R.  Ali, Advocate, instructed by Abu Backkar, Advocate-on-Record.—For the Res­pondent No. 1.

Civil Appeal No. 31 of 1978.

(From the judgment and order dated 16.2.77 passed by the High Court in Appeal No. 6 of 1968)

Judgment:

                 Badrul Haider Chowdhury J.-This appeal by special leave arises out of a judgment passed by a Division Bench of the High Court in Company Appeal No. 6 of 1968.

2. The Income Tax Officer, Companies Circle, made an assessment u/s. 23 of the In­come Tax Act for the year 1962-63 demanding Rs. 11,98,326/- as tax from the Official Liqui­dator, Dacca Electricity Development Compa­ny under liquidation. The Commissioner of Income Tax sent demand to the Official Liqui­dator, who rejected the demand on the ground that it was time barred. Thereafter the Appel­late Commissioner of Income made an applica­tion before Company Judge for direction on the Official Liquidator to make provision for payment of the demand in respect of the income tax and super tax assessed for the assessment year 1962-63 from the fund of the Company in liquidation. The Company Judge rejected the application on the ground that the price offered by the Government was not for sale but for the .compulsory acquisition of machi­nery, plants, etc. of the Company and the Com­pany had ceased to be an assessee on acquisi­tion by the Government. It is further held that the provision u/s. 10(1)(vii) of the Income Tax Act, as amended by the Fi­nance Act, 1962 was not attracted because the price offered by the Government was not for the sale but it was price for acquisition of machinery, plants, etc, of the Company.

An appeal was preferred against the order of the Company Judge and the said appeal was heard by a Division Bench of the High Court which dismissed the appeal.

3. Leave was granted to consider substan­tial questions of law involved in the case, namely, whether the High Court was wrong in holding that provisions of section 10(1)(vii) was not attracted, whether the High Court was wrong in failing to hold that the Company Judge has no jurisdiction to adjudicate the validity or otherwise or an assessment made under the Income Tax Act in view of the fact that the Income Tax Act itself provides special forum for challenging the assessment made under the said Act, and whether the High Court was correct in holding that the Company was not an assessee since 31-5-57.

4. Certain factual aspects of the case may be stated. Dacca Electricity Development Company was an assessee under the, Income Tax Act. Government decided to purchase the said undertaking with effect from 31-5-57 in term of clause (c) of section 5 of the Elec­tricity Act, 1910. The licence of the Company was also revoked with effect from the said date. A price was offered for the entire business including machinery, plant, etc. and the Company ceased to have any business from 31-5-57, and thereafter the Company went into liquidation on 23rd June, 1959 and Official Liquidators were appointed by the Court. Dis­pute arose over the compensation and the matter was referred to arbitration u/s 52 of the Electricity Act, 1910. The District Judge was appointed as Arbitrator by the Govern­ment. The Arbitrator gave an award of Tk. 89, 76,940/ on 24-9-61. Award was filed in the Court of the Subordinate Judge, 3rd Court, Dacca. The Subordinate Judge, however, set aside the award and against the order an appeal was filed before the High Court and the order of the Subordinate Judge was set aside. Prayer for leave to appeal to the Su­preme Court against the order of the High Court was refused on 13-11-65. In this back­ground the Income Tax Officer made the assessment for the assessment year 1962-63.

5. The Company Judge decided that the claim is not maintainable and rejected the claim of the Commissioner of Income Tax. It was argued before the Appellate Bench that the Company could not be assessed until the price was finalised and since the Company had ceased to function and went into liquidation it ceased to be an assessee and as such there could not be any scope for making assessment   of the Income Tax for the assessment year 1962-63. The High Court observed:

“Besides, the price of assets in spite of amendment of section 10 (2)(vii) of the income Tax Act providing that profits or gains even in respect of building, machinery or plants which have been compulsorily acquired and even after cessation of business, could not be legally computed in the assessment of income tax for the accounting year 1961-62 and as such the assessment order is bad in law. Reference to section 3 also does not improve the case.”

6. Next it was held that section 10(2)(vii) of the Income Tax Act was amended by the Finance Act with effect from 30.6.62 but there is “nothing in the amended section to see that it has been  given  retrospective application “And, lastly, it was held that the Company had ceased to be an assessee and the finality of price reached at a time when the Company ceased to be an assessee and as such the order of the  assessment was invalid.

The Commissioner of Income Tax had obtained this leave as substantial questions of law had been raised.

7. Mr. A. K. M. Mozammel Huq Bhuiyan, the learned Counsel appearing for the appell­ant canvassed that the orders of the Company Judge and the Appellate Court had been passed in excess of jurisdiction, inasmuch as section 67 of the Income Tax Act has barred the jurisdiction of the Civil Court for questioning any assessment made under the Act. Secondly, the Courts below have fallen into an error in treating the Company which is in liquidation as not an assessee. Thirdly, the price that has been fixed by the Arbitrator’s award in the price which will be available for determination of assessment. Lastly, the assessment of tax is for the previ­ous year of the assessee.

To turn to the first ground of Mr. Bhuiyan, let us see section 67 of the Income Tax Act which runs, thus:

“67. No suit shall’ be brought in any Civil Court to set aside or modify any assessment made under this Act, and no prosecution, suit or other proceeding shall lie against any officer of the government for anything in good faith done or intended to be done under this Act.”

8. In the case of Raleigh Investment Co. Ltd Vs. G. G. in Council, reported in A.I R. 1947 (P.C.) 78, their Lordships of the Privy Council considered the above action and came to a conclusion that the Income Tax Act is a self contained Code. Under the Act the Income Tax Officer is charged with a duty of assessing the total income of the assessee. The correct meaning of the phrase “assessment made under the Act” in an assess­ment finding its origin in an activity of the assessing officer acting as such. Their Lord­ships held that the phrase describes the provenance of the assessment; it does not relate to its accuracy in point of law. The use of the machinery provided by the Act, not the result of that use, is the test. The Privy Council noticed the fallacious argument that if the assessment is determined to be a right in law the jurisdiction of the Civil Court is excluded, whereas the assessment if deter­mined to be wrong the jurisdiction of the Civil Court to entertain the suit arises. It was observed:

“The result of inquiry into the merits of the assessment is, on the appellant’s construction, to determine whether juris­diction existed to embark on the inquiry at all. Jurisdiction is made to depend not on subject-matter but on the correct­ness of the suitor’s contention as res­pects subject-matter. The language of the section is inapt to justify any such capricious method of determining juris­diction.”

Their Lordships in conclusion observed:

“Jurisdiction to question the assessment otherwise than by use of the machinery expressly provided by the Act would ap­pear to be inconsistent with the statutory obligation to pay arising by virtue of the assessment.”

9. Thus the decision of the Privy Council that a suit will not lie on any ground what­soever, to set aside or modify an assessment even on the ground that the provision of the Act is ultra vires. Their Lordships further laid great emphasis on the fact with regard to the assessment under the Act—the scheme of the Act was to exclude the jurisdiction of the Civil Courts and to establish a special machi­nery for hearing appeal and references when all questions could be raised and decided and the expressed view that even in the absence of section 67, Civil Courts will have, no juris­diction to set aside or modify assessment under the Act. It was observed;

“The only doubt indeed in their Lord­ships’ mind is whether an expression was necessary in order to exclude jurisdiction in a Civil Court to set aside or modify an assessment.”

The authority is still holding the field.

10. In the case of Ravi Paint Colour and Varnish Works Ltd. Vs Federation of Paki­stan, reported in PLD, 1954 (Lah) 551, in a similar situation a Full Bench of the Lahore High Court considered the case of the Com­pany which went into liquidation and held that the production of the assessment order was enough and the Company Court has no jurisdiction to go behind the assessment order in view of section 67.

11. The Full Bench of Lahore High Court keeping in mind these principles laid down by the Privy Council that the jurisdiction of the Civil Court is barred, overruled the decision of Court in Sargoda Trading Company’s case (A.I.R. 1943 (Lah), 228) and held that the Income Tax Authorities cannot be called upon to prove their claim in a liquidation case otherwise than by the production of the assessment order. It was noticed that by the mere fact that the Company has gone into liquidation it is not absolved from the liability to pay income tax. And further a Company registered u/s. 23 of the Companies Act is a Company for all purposes   including that of taxation under the Income Tax Act.

The next question is whether a Company under liquidation continues to be liable to pay income tax.

12. Section 2(5) (A) of Income Tax Act defi­nes, ”Company” means a Company as defined in the Companies Act, 1913 or a body cor­porate formed by or under any law for the time being in force……………

Section 2(9) of the said Act defines, “per­son” includes an individual, a Hindu undi­vided family, a firm, an association of persons or a body of individuals whether incorporated or not, a Company, Government of a Pro­vince, a local authority and every other artificial judicial person.”

Section 3 of the said Act, the charging section, provides “that income tax shall be changed for any year at any rate or rates according to the provisions of the Finance Act in respect of total income of the previous year of every person”.

13. Thus it is clear that a Company regis­tered under the Companies Act comes within the definitive meaning of the word “person” and for the purposes of income tax section 3 provides that such person shall be charged at the specified rate income tax in respect of the total income of the previous year, if such Company becomes an assessee. The expression “assessee” is defined under section 2(2) of the said Act:—

“an assessee” means person by whom income tax or any other sum of money is payable under this Act and includes every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the loss sustained by him or of the amount of refund due to him and every person who is required to file a return of income under section 2(2)”.

14. This point was considered in the Com­missioner of Income Tax Vs. Official Liquidator, Agra Spinning Mills Co. (1934 I.E. R. 79) and it was held that a Company in liquidation is a Company within the meaning of section 3 of the Income Tax Act and the Income Tax Au­thorities can call upon the Liquidators to make a return in accordance with section 22(1) of the Act. Reliance may be placed on Upper India Chamber of Commerce VS. Commissioner of Income Tax reported in A.I R. 1945 (All) 64—1947 I.T.R. 253 and Baker VS. Cook, 1939 I. T. R. 285. In Baker VS. Cook, it was held that the liquidator of a  Company can carry on business so far as  is necessary for the winding up,  and if he does so, the profits derived from business so carried on  are asse­ssable to income tax in his hands.

15. In view of the above it is to be observed that the Income Tax Act is a complete code by itself and all questions of law, facts arising out of the proceedings under the Act should be decided by the authority set up in accordance with the procedure described by the Act. The Act has provided the method opens to an assessee to get redress of his grievance by way of setting in motion the machinery provided by the Act.

16. Assessment is made u/s. 23 of the Act. An assessee has a light of appeal under section 30. Then, if he is not satisfied he can move the Appellate Tribunal under section 33. Tri­bunal may refer any question of law involved in the case for determination by the High Court and if the Tribunal does not refer, the aggrie­ved party can move the Court to require the Tribunal to state the case. Further, in the scheme of the Act there are other remedial measures. Section 35 of the Act empowers the Income Tax Authorities to rectify their mistakes on their own motion or on application of the assessees and section 33A confers power on the Income Tax Commissioner to revise the orders of the authority’s sub-ordinate to him in certain cases. It is, therefore, that all matters relating to assessment should be dealt by the machinery set up under the Income Tax Act and this was pointed out by the Privy Council in the Raleigh Investment Co. Ltd.

17. The alternative argument that an asse­ssee should have a right to seek his remedy as an alternative in a Civil Court is a notion inconsistent with the elaborateness and com­pleteness of the machinery provided for in the Act. As the Full Bench observed, “if the Civil Court starts entertaining petitions against assessment made under the Act, the machinery set up by the Act would become useless.” In some cases there may be clash between the decisions of Civil Courts and the Income Tax Authorities which are affir­med by the High Court and thus the collec­tion of income tax would become not only an extremely difficult matter but a subordinate Civil Court will sit in judgment of a decision affirmed by the Supreme Court. This up­setting of the judicial standard cannot be allowed. It would lead to an anomalous result and no system of law would tolerate such state of affairs Again, if the cases rela­ting to income tax are not decided in accor­dance with the Income Tax Act it would become practically a dead letter.”

18. We are in agreement with the above observation. We, therefore, hold that the High Court on appeal had fallen into an error in not holding that the Company Judge cannot challenge the validity of a bonafide income tax assessment order and in not entertaining the claim of the Income Tax Authorities which can be proved under sections 191 and 228 of the Companies Act.

19. Further, the Appellate Bench had fallen into error that the Company which had gone into liquidation is no longer an assessee, inasmuch as it had ceased to function. This view is difficult to accept in view of deci­sions in 1934 I. T. R. 79 and A.I R. 1948 (All) 64 and 1939 I. T. R 285 referred to above.

20. Next point that the High Court held the finality of price was not reached at a time when the Company ceased to be an assessee, and therefore, it is not liable to be taxed u/s. 2(10)(vii). The High Court took the view that finality of the price was not reached until the disposal of the appeal by the Supreme Court and so the transaction could not be made a subject matter of an assessment of income tax. This point was considered in the case of Chittagong Engineering, etc.-Vs-1-T. Officer, 22 D.L.R. (SC) 443, where the Supreme Court of Pakistan considered the question:

”Whether there being no sale by the Company of its assets the provision of section 10(2) (vii) of the Income Tax Act were attracted to this case,”

held on consideration of the facts that the Electrical undertaking was taken   over by virtue of the provisions of Electricity Act by way of compulsory purchase. “Thus even under the Electricity Act the sale does not become effective or title vest. in purchaser until the ascertainment of price as under the general law.”

It further considered:

“The apprehension expressed by the Income Tax Officer of the amount esca­ping assessment altogether does not app­ear to us to be genuine for in the view that we have taken the amount will be deemed to be a part of the profits of the assessee of the year in which it is ascer­tained or fixed.”

In this view of the matter it is to be held that the High Court has fallen into an error that the price which is being paid for compul­sory purchase is not taxable within the mean­ing of section 10(2)(vii). The price under the Electricity Act is fixed when the Arbitrator makes his award. The question of retrospectivity does notarise because this income will be income of the previous year of the assessee when the price is fixed under the Electricity Act.

21. To sum up our conclusions:

(1) Section 67 of the Income Tax Act bars the jurisdiction of the   Civil Courts from questioning the assessment made under the Act.

(2) Income Tax Act is the special law on the subject and has set up Tribunals, etc., reaching up to Supreme Courts and any other Court becomes a Court of gene­ral jurisdiction qua Income Tax Act. As such, the Company Judge had no juris­diction to question the assessment order as was done in the case.

(3) Notwithstanding that a Company goes into liquidation the Liquidator is to work for winding up of the Company and carries on business to that extent for the purpose of liquidation and as such the Company, until it is wound up, continues to remain as a Company within the meaning of the Companies Act and, therefore, a “person” for the purpose of Income Tax Act and an assessee liable to be taxed for his total in­come of the previous year.

(4) In the case of compulsory acquisition, the provisions of section 10(2)(vii) are attracted and the amount of price will be part of the profits of the assessee of the year in which it was ascertained or fixed. In this case it was fixed by arbitration award.

In the result, thereof, this appeal is allow­ed without any order as to costs. The orders of the Court below are set aside, the proceed­ings of claims of the appellant before the Company Judge will proceed according to law.

Ed.

Source: , 1982, (AD)