Law: Income Tax Act, 1961

Section: 45,220

(a) Income-tax----Recovery of tax---Company in liquidation---Priority of debts---Sale of assets in liquidation proceedings---Revenue does not have precedence over workmen's dues in respect of capital gains tax---Capital gains tax is not part of the cost of winding up---Amount not payable under Ss. 476 & 520 of the Companies Act---Indian Companies Act, 1956, Ss. 276, 520 & 529-A---Indian Income Tax Act, 1961, Ss. 45 & 220. (b) Income-tax--- ----Recovery of tax---Company in liquidation---Liability of liquidator under S.178---Section 178 not applicable to income accruing to company after winding up order---Sale of assets in liquidation proceedings--­Liability for capital gains tax is not covered by S.178---Indian Income Tax Act, 1961, S.178. Parliament has brought about important and significant changes in the provisions of the Companies Act, 1956. By virtue of sections 529, 529A and 530, substantial rights and benefits are conferred on the workmen of the closed undertaking, the workmen getting rights pari passu with those of the secured creditors over the assets of the company in liquidation. A perusal, of section 530 makes it clear that (i) this provision is subject to the provisions of section 529A of the Companies Act and (ii) the Revenues, taxes, cess and rates must have become due and payable within the 12 months next before the relevant date which is the date of appointment of the provisional liquidator or the date of winding up, as the case may be, in order that they may be paid in priority to other debts. Where capital gains tax arises out of the sale of the assets of the company in liquidation the Income-tax Department will have no priority over the workers' claim under sections 529 and 529A of the Companies Act. The, tax cannot be regarded as part of the costs of the winding up. The provisions of section 529A would override the provisions contained in sections 520 and 476 of the Companies Act. It is a well established principle of law that if there is an apparent conflict between two provisions of law, the special provisions must prevail. The tax payment referred to in section 178 of the Income Tax Act, 1961, is in respect of income of a…

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