Law:

Section:

Section 222 of the Income-tax Act, 1961, read with section 46 of the Presidency Towns Insolvency Act, 1909 - Collection and recovery of tax - Certificate proceedings - Four respondents were adjudicated as insolvents in insolvency proceedings under Presidency Towns Insolvency Act, on 3-11-1987 and official assignee took over their assets - TRO in respect of penalty amount imposed upon insolvents in year 1995 made a claim before official assignee against estate of insolvents - Whether since liability for penalty was incurred after date of adjudication, i.e., 3-11-1987, official assignee was right in rejecting claim - Held, yes FACTS Respondent Nos. 1 to 4 were adjudicated as insolvents in the insolvency proceedings under the Presidency Towns Insolvency Act on 3-11-1987. Thereafter, the official assignee took over the assets of the insolvents and auctioned them. The sale proceeds thereof came in the hands of official assignee. Subsequently, the TRO in respect of penalty amount imposed upon the insolvents in the year 1995 made a claim before the official assignee. However, the official assignee rejected the part of the claim against the estate of insolvents on the ground that such claim was not provable under section 46(3) of the Presidency Towns Insolvency Act, as it was necessary that claim should pertain to liability to which the debtor was subject when he was adjudged as insolvent or such claim should pertain to the obligation incurred by him before the date of adjudication. The Single Judge upheld the impugned order. On appeal to Division Bench : HELD The penalty proceedings under the Income-tax Act, 1961 are not the proceedings in continuation of proceedings relating to assessment. The liability to pay a penalty imposed under the provisions of the Act cannot be said to arise until the penalty is imposed. [Para 6] In the instant case, the adjudication order was made on 3-11-1987 declaring respondent Nos. 1 to 4 as insolvents. The penalty had been imposed in the year 1995, i.e., much after the order of adjudication was made and respondent Nos. 1 to 4 were adjudged as insolvents. The liability for penalty, thus, was incurred after the date of adjudication and…

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