Case: Colaba Land and Mills Company Limited, V.M. Deshpande Vs. S V.S. Kondaskar

to accept the argument made by Mr. Chagla that the provisions in section 148 and 142 of the Income-tax Act are general provisions, and the scheme of those provisions was liable to be overridden by the provisions in sub-sections (1) and (2) of section 446 as being special provisions. The scheme in sections 148 and 142 of the Income-tax Act and the scheme thereof for assessment of quantum of tax must be considered in pari materia with the provisions in section 41 of the Life Insurance Corporation Act. These sections and the above scheme are in a special Act investing jurisdiction in special tribunals and accordingly such as would "override the provisions of the general Act, viz. , the Companies Act. "( 36 ) NOW it is true that in the case of Union of India v. India Fisheries Pvt. Ltd. , in connection with the recovery proceedings envisaged by section 49e of the Income-tax Act, in the context of the provisions in section 228 and 229 of the Companies Act, 1913 in consonance with the previous decision of the Federal Court in the case of Governor-General in Council v. Shiromani sugar Mills Ltd. , the Supreme Court observed : "section 49e is a general provision applicable to all assessees and in all circumstances; sections 228 and 229 deal with the proof of debts and their payment in liquidation. "( 37 ) THE Supreme Court decision was on the footing that the provisions of section 49e were overridden by the provisions in section 228 and 229 of the Indian Companies Act, 1913. Similar provisions in the Income- tax Act, 1961, and the Companies Act, 1956, will bear the same effect. It, however, requires to be noticed that the scheme of the Companies Act in the chapter relating to winding up of insolvent companies as regards unsecured debts is like that in the Provincial and Presidency Towns Insolvency Acts for satisfaction of those debts pari passu, i. e. , for distribution of the available assets between the creditors in the proportion of their claims. Sections 228 and 229 enact the above scheme. Provisions like these in respect of companies in winding-up as contained in the chapter relating to companies in liquidation in the Companies Act would always override, as being special provisions, proceedings for recovery of tax dues and the special provisions like section 49e enacted in the Income-tax Act. Even so, the effect of the decision of the Supreme Court in Damjis case is that where claims arise for decision by special tribunals and/or special officers like Income-tax Officers in the present case under special jurisdiction, the provisions in sub-sections (1) and (2) of section 446 must be considered as general provisions only. The matter is not res integra. We are, therefore, unable to accept Mr. Chaglas contention that the impugned notices were liable to be stayed by issuing an order of injunction because the Supreme Court had not changed or restricted the meaning of the phrase "legal proceedings" as construed by the Federal Court and the Supreme Court in governor-General in Council v. Shiromani Sugar Mills Ltd. and Union of India v. India fisheries Pvt. Ltd. ( 38 ) THE alternative contention in this connection was that in so far as the observations of the supreme Court in Damjis case alter and/or restrict the meaning of the phrase "legal proceedings" the same are casual and/or made in passing. The submission was that the observations were not relevant to arrive at the findings which the Supreme Court made. The further submission in the alternative was that the findings of the Supreme Court in connection with sub-sections (1) and (2) of section 446 were patently in ignorance of the relevant provisions in sub-sections (3) and (4) of section 446, as also in sections 442, 530 and 537 and certain other sections of the companies Act. These findings were made in ignorance of the above decision of the Federal court, as also of the Supreme Court, in the two cases just mentioned. These findings were therefore per incuriam and we are not bound to follow them. In that connection reference was made to Salmond on Jurisprudence, 12th edition, page 151, where it is, inter alia, stated that the precedent is not binding if it was rendered in ignorance of a statute or a rule having the force of statute. "the rule apparently applies even though the earlier court knew of the statute in question, if it did not refer to, and had not present to its mind, the precise terms of the statute. " The lower court may refuse to follow the later decision on the ground that it was arrived at per incuriam. ( 39 ) NOW in connection with these submissions, as already stated to Mr. Chagla by us, we are of the view that the Supreme Court was called upon to ascertain the true effect of the provisions of sub-sections (1) and (2) of section 446 as the main important point in the case of Damji. It is impossible to imagine that the contents of sub-sections (1) and (2) of section 446, on which reliance is sought to be placed by Mr. Chagla, was not present to the mind of the Supreme Court in deciding the case of Damji. Paragraph 18 which we have already quoted above, contains direct reasoning of the court for the findings made in paragraphs 18 and 19 for arriving at the true construction and effect of the above two sub-sections. We are also unable to imagine that the Supreme Court was, whilst dealing with the provisions of these two sub-sections, unaware of the provisions of sub-sections (3) and (4) of section 446 and the relevant sections or the scheme of the Companies Act. We, therefore, reject these alternative submissions made by Mr. Chagla. ( 40 ) THE result of the above discussion is that the arguments advanced by Mr. Chagla in reply to the above second contention made on behalf of the appellants fail.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]( 23 ) MR. Joshi is right in his submission that the distinction sought to be made by Mr. Chagla in the scheme of theAct and the Life Insurance Corporation Act which was before the supreme Court in the case of Damji Valji Shah v. Life Insurance Corporation of India, that theAct does not contain any provision like that contained in section 41 of the Life insurance Corporation Act ousting the jurisdiction of civil courts is a distinction of no consequence atall. It is quite clear that in connection with the assessment to ascertain the quantum ofa separate independent machinery and/or a complete code is provided in theAct. It is not possible to make A study of each and every relevant provision of that Act in this judgment. That the Act provides for assessment of the quantum ofdues by theOfficer and further provides for an appeal to the Appellate Assistant commissioner and provides for a reference only on questions of law to High Courts isThere are detailed provisions in the Act in respect of commencing proceedings for reassessment of escaped income with the sanction of theCommissioner. The right of appeal is also circumscribed and there is a provision for deposit of tax before any appeal could be filed. Now it is true that in(2) of section 446 it is provided that, "notwithstanding anything contained in any other law for the time being in force", thecourt would have jurisdiction to entertain any proceeding by or against the company. It is also true that, having regard to the language in thisan argument that thecourt has acquired jurisdiction to assessliability of the company in winding up could be advanced and has been advanced on behalf of the original applicant. Reliance has been placed in that connection on the phrase "notwithstanding anything contained in any law for the time being in force". Now it appears to us that the constitution of the civil court acting as acourt is such that it would be impossible for such court to act asOfficer and commence assessment proceedings. In this connection we are not called upon to find out the limitations on the powers of thecourt in respect of proceedings referred to in(2 ). It is quite clear that, having regard to the scheme for assessment for quantum ofcontained in theAct, a civil court and/or acourt could not "entertain or dispose of" assessment proceedings. The procedure prescribed is altogether so foreign to the procedure prescribed for it that in civil court would not be able to put into effect the machinery prescribed by theAct. This discussion has the effect of holding that the absence of a provision like section 41 of the Life Insurance Corporation Act on theAct does not alter or affect the established position that theAct, in so far as the proceedings for assessment are concerned provides for a scheme of a complete code. This part of the scheme of the Act is such as can never be enforced through the machinery of a civil court. It is for this reason that we have not been able to appreciate Mr. Chaglas contention that the absence of a provision like section 41 of the Life Insurance Corporation Act in theAct is an important distinction and that for that reason the observations in paragraph 18 of the judgment of the Supreme Court in the case of Damji Valji Shah v. Life Insurance Corporation of India are not applicable to the facts of the present case.(26 ) MR. CHAGLA contended that in this connection we should first notice the scheme of the companies Act, 1913, and particularly the provisions of section 171 thereof. He rightly submitted that the phrase "legal proceedings" in section 171 related to the same matter as is contained in(1) of section 446. He rightly submitted that section 171 and this phrase in the section was thef decision of the Federal Court in the case ofin Council v. Shiromani Sugar Mills and the construction of that phrase as made by the Federal Court has been cited with approval by the Supreme Court in the case of ranganathan v. Government of3 ) NOW Mr. Chagla insisted that having regard to the history of the legislation in section 171 and section 446 (1) and the above observations in connection with the phrase "legal proceedings" the finding of Mr. Justice Vimadalal that the assessment proceedings commenced by the impugned notices were "legal proceedings" must be accepted as correct. According to him, this being the correct position in law, we should proceed to hold in his favour that there is nothing in the decision in the case of Damji Valji Shah v. Life Insurance Corporation of India, which has affected the above position. In support of that submission he has placed strong reliance on the contents of(3) and (1) of section 446. Now it is quite clear that under(4) of the section 446, in spite of ar having been made in connection with proceedings pending in appeal before the Supreme Court or High Court, leave under section 446 (1) is unnecessary. It is also clear that under subsections (3) thecourt, in its discretion, may notwithstanding anything contained in any other law for the time being in force, transfer to itself any suit or proceeding and dispose of the same. Relying on this part of the section, Mr. Chagla sought to argue that under(2) exclusive jurisdiction is created in acourt in connection with th matters mentioned in that subsection. He, therefore, argued that the true effect of the observations of the Supreme Court in the case of Damji Valji shah v. Life Insurance Corporation of India was that in each and all proceedings in which a claim is made fro or against a company in liquidation the same was within the jurisdiction of the company court and for that reason the assessment proceedings commenced by the impugned notices was within the jurisdiction of the companycourt. We should, therefore, hold that the order of injunction granted by the learned judge was justified and35 ) WE are unable to accept the argument made by Mr. Chagla that the provisions in section 148 and 142 of theAct are general provisions, and the scheme of those provisions was liable to be overridden by the provisions in(1) and (2) of section 446 as being special provisions. The scheme in sections 148 and 142 of theAct and the scheme thereof for assessment of quantum of tax must be considered in pari materia with the provisions in section 41 of the Life Insurance Corporation Act. These sections and the above scheme are in a special Act investing jurisdiction in special tribunals and accordingly such as would "override the provisions of the general Act, viz. , the Companies Act. "(37 ) THE Supreme Court decision was on the footing that the provisions of section 49e were overridden by the provisions in section 228 and 229 of the Indian Companies Act, 1913. Similar provisions in the Incometax Act, 1961, and the Companies Act, 1956, will bear the same effect. It, however, requires to be noticed that the scheme of the Companies Act in the chapter relating to winding up of insolvent companies as regards unsecured debts is like that in the Provincial and Presidency Towns Insolvency Acts for satisfaction of those debts pari passu, i. e. , for distribution of the available assets between the creditors in the proportion of their claims. Sections 228 and 229 enact the above scheme. Provisions like these in respect of companies inas contained inthe chapter relating tocompanies in liquidation in the Companies Act would always override, as being special provisions, proceedings for recovery of tax dues and the special provisions like section 49e enacted in theAct. Even so, the effect of the decision of the Supreme Court in Damjis case is that where claims arise for decision by special tribunals and/or special officers likeOfficers in the present case under special jurisdiction, the provisions in(1) and (2) of section 446 must be considered as general provisions only. The matter is not res integra. We are, therefore, unable to accept Mr. Chaglas contention that the impugned notices were liable to be stayed by issuing an order of injunction because the Supreme Court had not changed or restricted the meaning of the phrase "legal proceedings" as construed by the Federal Court and the Supreme Court inin Council v. Shiromani Sugar Mills Ltd. and Union of India v. India fisheries Pvt.8 ) THE alternative contention in this connection was that in so far as the observations of the supreme Court in Damjis case alter and/or restrict the meaning of the phrase "legal proceedings" the same are casual and/or made in passing. The submission was that the observations were not relevant to arrive at the findings which the Supreme Court made. The further submission in the alternative was that the findings of the Supreme Court in connection with(1) and (2) of section 446 were patently in ignorance of the relevant provisions in(3) and (4) of section 446, as also in sections 442, 530 and 537 and certain other sections of the companiesAct. These findings were made in ignorance of the above decision of the Federal court, as also of the Supreme Court, in the two cases just mentioned. These findings were therefore per incuriam and we are not bound to follow them. In that connection reference was made to Salmond on Jurisprudence, 12th edition, page 151, where it is, inter alia, stated that the precedent is not binding if it was rendered in ignorance of a statute or a rule having the force of statute. "the rule apparently applies even though the earlier court knew of the statute in question, if it did not refer to, and had not present to its mind, the precise terms of the statute. " The lower court may refuse to follow the later decision on the ground that it was arrived at per39 ) NOW in connection with these submissions, as already stated to Mr. Chagla by us, we are of the view that the Supreme Court was called upon to ascertain the true effect of the provisions of(1) and (2) of section 446 as the main important point in the case of Damji. It is impossible to imagine that the contents of(1) and (2) of section 446, on which reliance is sought to be placed by Mr. Chagla, was not present to the mind of the Supreme Court in deciding the case of Damji. Paragraph 18 which we have already quoted above, contains direct reasoning of the court for the findings made in paragraphs 18 and 19 for arriving at the true construction and effect of the above twoWe are also unable to imagine that the Supreme Court was, whilst dealing with the provisions of these twounaware of the provisions of(3) and (4) of section 446 and the relevant sections or the scheme of the Companies Act. We, therefore, reject these alternative submissions made by Mr.40 ) THE result of the above discussion is that the arguments advanced by Mr. Chagla in reply to the above second contention made on behalf of the appellants42 ) HAVING arrived at the above conclusion on the above second contention made on behalf of the appellants, we do not find it necessary to deal with the first contention made on behalf of the appellants. It is only necessary to refer in a very summary way to the arguments advanced in support of that contention.(43 ) MR. Joshi contended that the proceedings initiated by the above impugned notices being assessment proceedings, were not covered by the phrase "legal proceedings"as contained in(1) of section 446. The contention was that up to the stage that the liability to tax was quantified, assessment proceedings would not be such legal proceedings because up to that stage the department does not become creditor of the company. Up to that stage the debt itself is not ascertained and/or quantified. Legal proceedings would be those which directly affect the assets and properties of a company ins was so because the object of the provision in(1) of section 446 was to facilitate protection and realisation of assets and to prevent wasteful litigation in regard thereto. The scheme inwas to have the secured assets distributed pari passu among general creditors to prevent a scramble by creditors of a company in winding up by taking custody and possession of assets of such company. The argument was that in respect of proceedings which could not be withdrawn by acourt for trial by itself leave under subsection (1) of section 446 was unnecessary.The assessment proceedings were proceedings which anOfficer undertakes in discharge of a statutory duty imposed on him as such offer by theAct and therefore these are not legal proceedings. Thecontentions in reply were that the object of winding up was to collect assets of a company in winding up and to satisfy the claims of all the ordinary creditors pari passu.(1) of section 446 provided for stay of proceedings of every kind which were in the nature of claims against a company ine object of) was to enable the company court to get complete control over all claims which might arise against the company inr these reasons the phrase "legal proceedings" should be given the widest possible meaning. This phrase means action to recover any claim which may result into an order that can be recovered by legal process. The submission was that the charging section in thet created a debt and the proceedings for quantification thereof must be held to be a claim for decision of a claim against a company inThe submission was that the notices under section 148 of the Incometax Act activates the machinery of taxation law from quantification till recovery of the tax dues. There was accordingly no warrant to distinguish the stage of recovery of tax dues from the anterior stage for quantification of the tax44 ) AS already stated in the above discussion in connection with these contentions, there are extremely relevant observations in the decision of the Federal Court in the case ofin Council v. Shiromani Sugar Mills Ltd. There are also relevant observations in the case of Abdul Aziz v. State of Bombay. We, however, find it unnecessary to discuss these decisions and to arrive at any finding as regards these rival contentions in view of the fact we have accepted the above second contention made on behalf of the appellants.