Law:

Section:

Section 220(2) of the income-tax act, 1961-recovery of tax interest payable when asses-see deemed in default-on liquidation of assessee-company, court allotted its assets to contributories-certain properties kept earmarked for meeting company's liabilities, could not be sold initially due to objections from contributories but were ultimately sold-sale proceeds utilised to meet outstanding tax liabilities but interest under section 220(2) for delayed tax payment remained unpaid-department negotiated for purchase of one property but later expressed its unwillingness to acquire that property-whether order of single judge under section 446(2) of the companies act, disallowing revenue's claim for interest required no interference -held, on facts, yes Facts A solvent company became insolvent due to laches of succeeding official liquidators in payment of income-tax dues by the company (in liquidation) when the demands were raised for the same. By a scheme of partition approved by the Court, an allotment of the assets of the company was made to its contributories. Certain properties which were kept earmarked for meeting the liabilities of the company could not be sold due to the objections made by various contributories from time to time and also due to the inadequate prices offered for the same, with the result that the income-tax demands raised from time to time could not be paid. Subsequently, some of the properties were sold and a huge income-tax liability of the company (in liquidation) was paid off but the interest for delayed payment under section 220(2) could not be paid. The department had also originally negotiated for the purchase of one of the properties with a view to adjust the tax dues, but later on, expressed its unwillingness to acquire the property. In view of these peculiar facts and circumstances, a Single Judge exercised his powers under section 446(2) of the Companies Act, 1956 and disallowed the revenue's claim for payment of interest due by the company. On appeal before a Division Bench: Held For the delayed payment of income-tax, the income-tax authorities were also responsible to a certain extent inasmuch as negotiations were going on for…

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