Law:

Section:

Section 178 of the Income-tax Act, 1961, read with sections 529A and 530 of the Companies Act, 1956 - Company-in-liquidation - Whether tax liabilities of company in liquidation, as notified by department to Official Liquidator under section 178(2), has preference over rights of secured creditors or workers as envisaged in section 529A of Companies Act insofar as sale proceeds of company in liquidation is concerned - Held, no FACTS The question that arose for consideration was whether the tax liabilities like income-tax has preference over the rights of the secured creditors and workers insofar as the sale proceeds of the company in liquidation is concerned. HELD Even considering the proviso to section 178(3), the Official Liquidator is not debarred from making any payment to secured creditors, whose debts are entitled under the law to priority of payment over debts due to the Government on the date of liquidation. Thus, the said provision itself provides that payment can be made to secured creditors having priority in law over the Government. Therefore, the contention of the revenue that on notifying the claim by the Assessing Officer under section 178(2), the Official Liquidator was required to set apart the amount towards tax demand out of sale proceeds of assets of company in liquidation and only thereafter the balance amount could be disbursed amongst other secured creditors, could not be accepted. If such interpretation is given, the same would be contrary to proviso to sub-section (3) of section 178. Under the circumstances, the contention of the revenue to that effect was required to be rejected. If section 529A of the Companies Act is considered, it is clear that it has an overriding effect. Section 529A of the Companies Act was brought in by an amendment and was inserted in the Companies Act by Act of 1985. The said section makes it clear that notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, dues of the workers and the debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in…

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