Law: Income Tax Act, 1922

Section: 46(5A)

Section 226 of the Income-tax, Act 1961 [Corresponding to section 46(5A) of the Indian Income-tax Act, 1922], read with section 530(1)(a) of the Companies Act, 1956, and article 149 of Limitation Act - Collection and recovery of tax - Other modes of recovery - ITO issued notice to company under section 46(5A) requiring it to pay to him money due by it to a firm of builders, which had defaulted in making payment of income-tax - Company initially accepted its liability and agreed to keep amount in suspense till firm of builders signed and accepted relevant bills - Later, however based on legal opinion, it declined to accept claim being barred by limitation - Company were in liquidation and its liquidator also refused to accept ITO's claim for preferential payment to him as stipulated under section 46(5A) - Whether since money was claimed on behalf of Central Government, article 149 of Limitation Act would apply according to which a suit was not barred by limitation for a period of 60 years - Held, yes - Whether, therefore, instant claim could not be said to be barred by limitation on date of presentation of winding up petition - Held, yes - Whether, however, it was impossible to support further claim because ITO was statutorily entitled to make a claim against a company to pay over to him amount due by company to another assessee liability of company corresponding to that statutory claim of ITO could be described as tax liability owning by company itself - Held, yes - Whether therefore, ITO's claim as an ordinary creditor of company could be admitted but not as a claim for preferential payment - Held, yes FACTS The company had entered into a contract with a firm of builders for construction of certain buildings. The said firm of builders had defaulted in payment of income-tax due by them, for recovery of which the ITO concerned issued to the company a notice under the provisions of section 46(5A), requiring the company to pay to him the money due by it to the defaulting firm. In reply to the notice, the company stated that only a specified sum was due to them according to its books, and would become payable to the firm only on their signing, accepting and…

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