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Petitioner: RAVI PAINT COLOUR & VARNISH WORKS LTD. VS Respondent: FEDERATION OF PAKISTAN
1960 P T D 1086
1960 P T D 1086
[Lahore (Pakistan)]
Present: Muhammad Munir, C. J., M. R. Kayani, Shabir Ahmad and M. A. Soofi, JJ
Civil Original Case No. 17 of 1952
(1) RAVI PAINT COLOUR & VARNISH WORKS LTD.--Petitioner
Versus
FEDERATION OF PAKISTAN through Commissioner of Income-tax Lahore-Respondent
Civil Original Cases Nos. 19 of 1952 and 11 of 1953
(2) THE OFFICIAL LIQUIDATOR, PINDI-KASHMIR TRANSPORT Co., LTD. (IN LIQUIDATION) LAHORE-Petitioner
Versus
COMMISSIONER OF INCOME-TAX, LAHORE Respondent
Civil Original Cases Nos. 17 and 19 of 1952 and 11 of 1953, Reference answered on 5th June, 1954.
Income-tax Act (XI of 1922)----
----Ss. 3, 29 and 67-Companies Act (VII of 1913), S. 218-Company in Liquidation-Proof of claim by Income-tax Authorities relating to tax assessed- Production of assessment order enough-Jurisdiction of Liquidation Court-Liquidation Court not to go behind assessment order [I L R 1943 Lah. 706 overruled].
The Income-tax authorities can prove their claim under section 228 of the Companies Act against a company in liquida tion by the production of the assessment order of Income-tax made by them.
The Income-tax authorities on proof of their claim would be entitled to share the dividends declared after such proof but not to the dividends already declared or paid.
The company under liquidation is still an assessee and subject to Income-tax law the Liquidator can be called upon to submit the usual Income-tax return under the provisions of the Income tax Act.
In matters relating to the assessment of Income-tax the machinery that can be brought into action is the one provided by the Income-tax Act, which is a complete Code by itself. Hence the jurisdiction of the Civil Courts is impliedly barred. Section 67 of the Income-tax Act expressly bars the institution of a suit in any Civil Court to set aside or modify act assessment made under the Income-tax Act. Although section 67 expressly bars the jurisdiction of the Civil Courts in respect of suit only, on principle miscellaneous proceedings, if their object be to determine any question relating to assessment in one connection or another, would also be barred.
I L R (1943) 24 Lah. 706 overruled.
1960 P T D 981 ; 1960 P T D 870; 1950 I T R 951; 1941 Oudh 260 and (1899) 2 Q B D 145 ref.
Where an Act of the Legislature sets up a Special Tribunal and prescribes a special procedure for the determination of rights and liabilities credited by the Act, the jurisdiction of other Courts in respect of those rights and liabilities is impliedly barred, even if there be no express provision to that effect.
Per MUHAMMAD MUNIR, C. J.-The mere fact that a winding up order has been made in respect of a company does not, in the absence of an express provision to that effect, take it out of the operation of Income-tax statutes, and neither the Liquidation Judge nor the liquidator acquires any right to question the correctness of the assessment otherwise than in the manner provided by the statute under which the Income-tax Officer has acted. The rights and liabilities of a Company in liquidation are neither more nor less than those of any other assessee and though the law for the purposes of winding up places its affairs under the special supervision of the Liquidation Judge, assessment of the company to income-tax is neither the function of the Judge nor of the liquidator but that of the Income-tax Officer whose powers for determining the liability of the company to Income-tax remain unaffected by the incident of the liquidation of the company. If therefore the liquidator of the company has any complaint in the matter of its assessment of income-tax, he must refer that complaint to the tribunal appointed for the purpose by the Income-tax Act. Being the representative of the assessee, the liquidator can neither convert himself into a revising authority of the Income-tax Officer nor ask the Li4uidation Judge to assume such role.
[Case-law referred].
A. D. Malik for Petitioner (in Case No. 19 of 1952).
Khawja Nazir Ahmad (before referring Judge in Case No. 17 of 1952).
Malik Muhammad Husain for Respondent.
ORDER OF REFERENCE
SHABIR AHMAD, J.-The same point of law arises in this petition as well as in Civil Original No. 19 of 1952 and Civil Original No. 11 of 1953, which have, been put in the following circumstances : Civil Original No. 17 of 1952 is a petition by the Official Liquidator of the Ravi Paint Colour and Varnish Works Limited (in Liquidation), which was ordered to be wound up by this Court on the 9th of January 1948. In due course debts and claims were adjudicated upon and the dividend at the rate of As. 9 in the rupee was declared as the first and the final dividend on the 9th of June 1951 with the sanction of this Court. On the 29th of February 1952, Income-tax Officer, Companies' Ward III, Lahore, served a notice for payment of Income-tax on the Official Liquidator for the year ending with the 30th of June 1945 and 30th of June 1946. At this the Official Liquidator put in the present petition praying that the Federation of Pakistan through the Income-tax Commissioner, Lahore, be called upon to prove the assessment before this Court and the Income-tax authorities be prohibited from taking any proceedings against the Official Liquidator with regard to these assessments pending the decision of the petition.
Civil Original No. 19 of 1952 and Civil Original No. 11 of 1953 relate to the Pindi-Kashmir Transport Limited, which was wound up by the order of this Court dated the 31st of January 1949 and the claims of the creditors were finally settled by this Court on the 15th of January 1951. On the 14th of March 1952, the Income-tax Officer, Lahore, issued a demand notice for Rs. 26,687-8-0 for the assessment year 1947-48. In Civil Original No, 19 of 1952, the position of the Official Liquidator, who is the petitioner, was that the assessment made by the Income-tax authorities was beyond the period of limitation prescribed by law and was based on a wholly incorrect data. The prayer, therefore, was that the Commissioner of Income-tax, Lahore, be ordered to prove the claim of Income-tax before this Court and the Income-tax authorities be restrained from realising the amount assessed by them. In Civil Original No. 11 of 1953 the period dealt with was the accounting year 1947-48. In that petition also the prayer was that the Federation of Pakistan be called upon to prove the correctness of the assessment made by the Income-tax authorities.
On behalf of the Income-tax authorities an objection was raised that this Court has no jurisdiction to question the assess ment made by the Income-tax authorities and on this an issue was framed with regard to the jurisdiction of this Court. On behalf of the respondent reliance has been placed mainly on a decision of Their Lordships of the Privy Council in Raleigh Investment Co. v. Governor-General-in-Council (A I R 1947 P C 78: 1960 P T D 981) wherein it was held that section 67 of the Income-tax Act barred the jurisdiction of Civil Courts to decide whether or not an assessment made by the Income-tax authorities was correct. In fact Their Lordships doubted, whether, in, view of the other provisions of the Income tax Act which provide adequate machinery enabling an assessee effectively to raise a question about the assessment before the authorities mentioned in the Income-tax Act, it was necessary to enact section 67. The same view appears to have been taken by Their Lordships of the Privy Council in Commissioner of Income tax v. Tribune Trust (A I R 1948 P C 102: 1960 P T D 870) and was clearly expressed in Janda Rubber Works v. Income-tax Officer (A I R 1950 E P 210).
On behalf of the petitioner's reliance has been placed on a decision of three learned Judges of this Court in Governor-General- in-Council through Commissioner of Income-tax, Punjab, Lahore v. Sargodha Trading Company Limited (in Liquidation) (I L R (1943) 24 Lah. 706), in which it was held that a Liquidation Court can in a proper case go behind assessment made by the Income-tax authorities though it is prima facie evidence that certain income was earned by the assessed.
It appears to me that the decision in I L R (1943) 24 Lah. 706, in so far as it holds that a Liquidation Court can question assessments made by the Income-tax authorities goes counter to the decision of Their Lordships of the Privy Council in A I R 1947 (P C) 78 : P L D 1947 P C 19. No doubt, section 67 of the Income tax Act bars only suits, but, in principle, there is no difference in a case in which the matter is taken before a Civil Court by a regular suit and the one in which it is brought before that Court by a miscellaneous petition. It is noticeable that section 67 and the other provisions of the Income-tax Act, which bar the jurisdiction of the Civil Courts, at least impliedly, to question any assessment made by the Income-tax authorities, were not even considered in I L R (1943) 24 Lah. 706 nor was section 226 of the Government of India Act, 1935, which takes away the jurisdiction of High Courts with regard to any matter concerning the collection of revenue, even mentioned in that decision.
In view of the apparent conflict between the decision of three learned Judges of this Court and that of Their Lordships of the Privy Council, I am of the view that the cases be heard by a larger Bench, and I, therefore, send them to my Lord the Chief Justice for orders.
JUDGMENT
SOOFI, J.-This judgment shall dispose of the questions of law common to Civil Original Case No. 19 of 1952 and Civil Original Case No. 11 of 1953 which have been instituted by the Official Liquidator in connection with the claim of Income-tax against the Pindi-Kashmir Transport Company Limited in liquidation and also to Civil Original Case No. 17 of 1952 similarly instituted in respect of the Ravi Paint Colour and Varnish Works Limited in Liquidation. These cases in the first instance were heard by the learned Liquidation Judge, who considered them fit for reference to a larger Bench in view of the apparent conflict of authority on the law points involved therein, and my Lord the Chief Justice constituted this Bench to dispose of them.
The facts giving rise to these cases may briefly be stated as follows :-
The Pindi-Kashmir Transport Company Ltd. was wound up on the 31st of January 1949, by the order of the Liquidation Court. The creditors' claims were adjusted by the order of the Court dated the 15th of January, 1951.
The return for the assessment y6ar 1947-48 not having been submitted, a notice was issued by the Income-tax Officer, G' Ward, Lahore, calling upon the Official Liquidator to produce the accounts for the assessment year 1947-48. As the accounts were not produced, the assessment was made under section 23 (4) of the Income-tax Act on 14th of March 1952. The demand notice in respect of the Income-tax amounting to Rs. 26,687-8-0 was served on the Official Liquidator on the same day.
The Official Liquidator instead of challenging the assessment before the proper authorities under the Income-tax Act, instituted a petition (Civil Original No. 19 of 1952) against the Income-tax Commissioner on the 22nd of April 1952, on the allegation that the assessment was based on wholly incorrect data, with the prayer that the Income-tax Commissioner be called upon to prove the claim (i.e., the assessment) before the Liquidation Court.
Civil Original No. 11 of 1953 also rel4tes to the same company but is in respect of the assessment year 1948-49 (the accounting year being 1947-48). Here too the income-tax Officer made the assessment under section 23 (4). On the 14th of March 1953, the tax was assessed at Rs. 10,938, and a notice of demand was served on the Official Liquidator calling upon him to deposit the amount in the State Bank of Pakistan. In respect of this demand also the Official Liquidator instead of pursuing his remedy before the proper Income-tax authority, made a petition to the Liquidation Judge on the 14th of April 1953 on the same lines as in Civil Original No. 19 of 1952.
The facts relating to Civil Original No. 17 of 1952 are that the Ravi Paint Colour and Varnish Works Limited was ordered to be wound up by the order, dated 9th of January 1948 of the learned Liquidation Judge. An Official Liquidator was appointed. Debts and claims were adjudicated upon in accordance with law, and the first and so far final dividend was declared at the rate of 0-9-0 per rupee on 9th of June 1951. On 29th of February 1952 the Income-tax Officer, Companies Ward III, Lahore, served the Official Liquidator with a notice of demand for payment of income-tax amounting to Rs. 15,765-7 0 for the years ending on the 30th of June 1945 and 30th of June 1946. This assessment was under section 23 (4) of the Income-tax Act as no returns relating to the accounts for the respective years had been applied to the Income-tax authorities.
The Official Liquidator prepared account statements with the sanction of the learned Liquidation Judge and came to the conclusion that the Company had suffered losses during the said two years and was not liable to pay income-tax.
The Official Liquidator in this case too instead of pursuing the usual remedies before the Income-tax authorities applied to the Liquidation Judge that the Income-tax Commissioner be called upon to prove the assessments.
These petitions were contested on behalf of the Income-tax Commissioner; the principal objection being that this Court had no jurisdiction to re-open the question of assessment.
The main point for determination in these cases is whether the income-tax authorities can be called upon to prove their claims in a liquidation Court otherwise than by the production of the assessment order.
A cursory perusal of the Income-tax Act (XI of 1922), as amended, shows that it provides an appropriate and complete machinery for the determination of all questions relating to the assessment of Income-tax. Assessment of Income-tax is made under section 23 of the Act. An assessee dissatisfied with the assessment made by the Income-tax Officer has a right of appeal to the Appellate Assistant Commissioner under section 30. Section 33 provides for a second appeal to the Appellate Tribunal set up under the Act. If the assessee does not feel satisfied with the decision in second appeal, he can move the Appellate Tribunal under section 66 (1) of the Act, to refer any question of law involved in the case for determination by the High Court. If the Appellate Tribunal does not refer the case in the manner provided, the aggrieved assessee under section 66 (2) can move the High Court, to require the Appellate Tribunal to state the case. Section 66-A is a further safeguard in the Act by which on a certificate of the High Court that the case is a fit one for appeal to the Federal Court, the case can be heard by the said Court.
But that is not all. In the scheme of the Act there are other provisions also which are enacted to redress -the grievances of the assessees. Section 35 of the Act empowers the income-tax authorities to rectify their mistakes on their own motion or on the application of the assessees and section 33-A confers power on the Income-tax Commissioner to revise the orders of the authorities subordinate to him in certain cases.
In short the (Indian) Income-tax Act is a complete Code by itself, and it is abundantly clear that it was the intention of the legislature that all questions of law and fact arising out of the proceedings under the Act should be decided by the authorities set up and in accordance with the procedure prescribed by the Act. It is evident that the only method open to an assessee to get a redress of his grievances is to set in motion the machinery provided by the Act. That the assessee should have a right to seek his remedy in the alternative in a Civil Court, is a notion inconsistent with the elaborateness and completeness of the machinery provided by the Act. If the Civil Courts start entertain ing petitions against assessments made under the Act, the machinery setup by the Act would become useless. In some cases there may be a clash between the decisions of the Civil Courts and the Income-tax authorities and thus the collected of income-tax would become an extremely difficult matter. It would lead to anomalous results and no system of law would tolerate such a state of affairs. Again if the cases relating to income-tax are not decided in accordance with the Income-tax Act, it would become practically a dead letter.
It is, therefore, essential that all matters relating to assess ments should be dealt with by the machinery set up under the Income-tax Act. This view has the support of a ruling of Their Lordships of the Privy Council reported as Raleigh Investment Co. Ltd. v. The Governor-General-in-Council (A I R 1947 P C 78 = 1960 P T D 981). It relates to a suit instituted by Raleigh Investment Company against the Governor -General-in-Council for the recovery of a large sum of money on the grounds that in the computation of the plaintiffs' assessable income effect had been given to a provision of the Income-tax Act which was ultra vires of the Indian Legislature, and the assessment was, therefore, wrong. It was contented on behalf of the defendant that the provision in question was not ultra vires and that in any case the High Court was precluded from entertaining the suit by section 226 of the Government of India Act, 1935, and section 67 of the Income-tax Act, 1922. The High Court holding that the provision was ultra vires of the Indian Legislature and that its jurisdiction was not barred either by section 67 of the (Indian) Income-tax Act 1922, or by section 226 of the Government of India Act, 1935, decreed the plaintiff's suit. On appeal the Federal Court of India agreed that the provision that was impugned was ultra vires but held that the suit was barred by section 226 of Government of India Act. The question that the suit was barred by section 67 of the Income-tax Act was not raised before the Federal Court. On appeal from the order of the Federal Court, Their Lordships of the Privy Council did not think it proper to express any opinion on the effect of section 226 of the Government of India Act, but held that the suit was not maintainable in view of the provisions of the Income-tax Act.
A perusal of the judgment of their Lordships and particularly of Paras. 19 and 24 which are quoted below would show that it is based mainly on the ground that an effective and appro priate machinery has been provided by the Income-tax Act itself for modifying or setting aside an assessment :-
Para. 19-"In Their Lordships' view it is clear that the Income-tax Act, 1922, as it stood at the relevant date, did give the assessee the right effectively to raise in relation to an assessment made upon him the question whether or not a provision in the Act was ultra vires. Under section 30, an assessee whose only ground of complaint was that effect had been given in the assessment to a provision which he contended was ultra vires might appeal against, the assessment. If he were dissatisfied with the decision on appeal-the details relating to the procedure are immaterial-the assessee could ask for a case to be stated on any question of law for the opinion of the High Court and, if his request were refused, he might apply to the High Court for an order requiring a case to be stated and' to be referred to the High Court (see section 30 and Secretary of State for India in Council through Collector Ramnad at Madura v. Meyyappa Chettiar (I L R 1937 Mad. 211). It cannot be doubted that included in the questions of Law which might be raised by a case stated is any question as to the validity of any taxing provisions in the Income-tax Act to which effect has been given in the assessment under review. Any decision of the High Court upon that question of law can be reviewed on appeal. Effective and appropriate machinery is, therefore, provided by the Act itself for the review on ground of law of any assessment. It is in that setting that section 67 has to be construed."
Para. 24-"In conclusion Their Lordships would observe that the scheme of the Act is to set up a particular machinery by the use of which alone total income assessable for Income tax is to be ascertained. The Income-tax exigible is deter mined by reference to the total income so ascertained and only by reference to such total income. Under the Act (Section 45) there arises a duty to pay the amount of tax demanded on the basis of that assessment of total income. Jurisdiction to question the assessment otherwise than by use of the machinery expressly provided by the Act would appear to be inconsistent with the statutory obligation to pay tax arising by virtue of the assessment. The only doubt, indeed, in Their Lordships' mind, is whether an express provision was necessary in order to exclude jurisdiction in a Civil Court to set aside or modify an assessment."
In another case reported as Commissioner of Income-tax, West Punjab v. Tribune Trust (A I R 1948 P C 102: 1960 P T D 870) Their Lordships of the Privy Council again considered the provisions of the Income-tax Act very minutely and approved the proposition laid down by Their Lordships in Raleigh Investment Co. v. Governor-General-in Council (A I R 1947 PC 78 : 1960 P T D 981) that the remedies open to the tax-payer are to be found only within the four corners of the Income-tax Act.
The facts in the Tribune Trust case were that the Tribune Trust in respect of the assessment for the year 1932-33 raised an objection that its income for that year was exempt from income tax by virtue of section 4 (3) (i) of the Income-tax Act. The High Court on reference under section 66 held that there was no such exemption. Their Lordships of the Privy Council, in 1939, on appeal held that the said income was exempt- from Income-tax and reversed the decision of the High Court. In the meanwhile the Income-tax Commissioner had made assessments in accordance with the decision of the High Court. The assessee asked for the assessments to be quashed. The Income-tax Commissioner would not agree on the ground that the assessee had not availed of the remedies provided by the Income-tax Act and hence the assessment had become final. On reference the High Court held that in view of the Privy Council decision in 1939 the assessments made by the Income-tax Commissioner were a nullity. On appeal, Their Lordships of the Privy Council held that the stand taken by the Income-tax Commissioner was correct. The words of Their Lordships may well be quoted:
"Upon this footing then the argument must be that the assessee has a right enforceable against the Commissioner to require refund of tax paid by him upon ground of equity and good conscience, though the assessment has been made and the tax received in good faith."
Their Lordships cannot accept this argument. They have reviewed the Code of Income-tax law for the purpose of show ing that it exhaustively defines the obligations and remedies of the tax-payer. It would be wholly incompatible with this that he should have a collateral right, necessarily vague and ill-defined, founded on the principles of equity and good conscience. Their Lordships are of the opinion that the only remedies open to the tax-payer, whether in regard to appeal against assessment or to claim for refund are to be found within the four corners of the Act. This view of his rights harmonises with the provisions of section 67, to which reference has already been made, that no suit shall be brought in any Civil Court to set aside or modify any assessment made under the Act. It is the Act which prescribes both the remedy and the manner in which it may be enforced".
In Janda Rubber Works v. Income-tax Officer, Salaries Section ((1950) I T R 951), a case relating to the affairs of a company in liquida tion, the High Court of the East Punjab relying upon Raleigh Investment Co. Ltd. v. Governor-General-in-Council (A I R 1947 P C 78 : 1960 P T D 981), held that in respect of an assessment made by the Income-tax authorities the jurisdiction of the Civil Court was barred that even if the High Court was not exercising original jurisdiction within the meaning of section 226 (1) of the Government of India Act, 1935, its Jurisdiction was completely barred because of the special machinery having been provided by the Income-tax Act for the determination of all matters coming within the scope of that Act. The legality or propriety of an assessment under the Act is to be determined by setting that machinery into motion and not through any other tribunal.
In Messrs Dinshaw & Company v. Income-tax Officer, Lucknow (A I R 1941 Oudh 269), it was held by a Division Bench that as a special procedure had been provided by the Income-tax Act for the assessment of Income-tax, the appellant's…
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