Law:

Section:

Section 220 of the Income-tax Act, 1961 - Collection and recovery of tax – When tax payable and when assessee deemed in default - Whether company in liquidation has no freedom to utilise its funds without approval of Court and, therefore, in case of such company demand to pay interest on tax under section 220(2) without prior sanction of court would be invalid – Held, yes FACTS The company in liquidation was assessed under the Act to pay tax and a notice of demand was served on the liquidator. The liquidator paid part of the demand. On the request of the liquidator, the High Court ratified payment of the balance amount, and also issued an interim order restraining the ITO from enforcing the demand to pay the balance till the company court considered the legality of the assessment. The High Court vide order dated 21-7-1976 held that the tax demand had to be treated as expenses of the winding up to be met before the distribution of dividend and directed the liquidator to deposit the tax within a month. The liquidator deposited the tax on 1-9-1976. The ITO charged interest under section 220(2)and a demand was made on the liquidator to pay the sum. By the instant application the official liquidator sought for a decision and direction regarding his liability to pay interest under section 220(2). HELD The purpose of section 220 is compensatory in character. It is provided by way of compensation for delay in the payment of tax and section 220(2) makes the assessee liable to pay interest and it assumes that an order is required to demand the interest charged. The order is not appealable under section 246. At the same time, it is a legal proceeding subsequent to the assessment of tax to recover the tax assessed. The tax assessed in respect of the income of the company after liquidation is payable as costs, charges and expenses incurred in the winding up. It is for the court to decide how much should be awarded as costs, charges or expenses. It may be that the entire tax demanded will be included as expenses of winding up. But, when it comes to the question of payment of interest on the tax demand, it is for the court to decide whether this should be paid or not. That…

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