Official liquidator to make payment into public account of India

October 18, 2022

Official liquidator to make payment into public account of India

Chapter xx (sec270 – 365) of the Companies Act, 2013 (CA 2013) deals with the provisions related to winding up. Section 349 of CA 2013 provides for official Liquidator to make payments into public account of India. As per the section of 349 of company law in which it was given that

“EVERY OFFICIAL LIQUIDATOR SHALL, IN SUCH MANNER AND AT SUCH TIMES AS MAY BE PRESCRIBED, PAY THE MONIES RECEIVED BY HIM AS OFFICIAL LIQUIDATOR OF ANY COMPANY, INTO THE PUBLIC ACCOUNT OF INDIA IN THE RESERVE BANK OF INDIA.”

This provision came into the effective from 15^th December 2016. Before commencement of this act the Official Liquidators are officers appointed by the Central Government was given under Section 448 of the Companies Act, 1956 and are attached to various High Courts and the Official Liquidators are under the administrative charge of the respective Regional Directors, who supervise their functioning on behalf of the Central Government. In the conduct of winding- up of affairs of the Companies, however, Official Liquidators act under the responsibility under Section 463 of the Companies Act, 1956 of exercising overall control over the Official Liquidators to ensure that they faithfully perform their duties and duly observe all the requirement imposed on them under the Act or the Rules there under. And in this act, the Official Liquidator to make payments into the public account of India was given in—

“SECTION- 552. EVERY OFFICIAL LIQUIDATOR SHALL, IN SUCH MANNER AND AT SUCH TIMES AS MAY BE PRESCRIBED, PAY THE MONEYS RECEIVED BY HIM AS LIQUIDATOR OF ANY COMPANY, INTO THE PUBLIC ACCOUNT OF INDIA IN THE RESERVE BANK OF INDIA”.

IN CASE OF COMMISSIONER OF INCOME TAX VS INDIA CEMENTS LTD.

In this case the substantive question requiring our answer is, as to whether the infraction by the assesses-company of the provisions of section 349 of the Companies Act, 1956, in not deducting the interest on the borrowings while computing the net profits a percentage of which was paid to the managing agents as remuneration, was required to be ignored, and the amount of remuneration paid by the assesses allowed in full as an item of expenditure under section 37 of the Income-tax Act, 1961, even after that amount of interest admittedly paid by the assesses-company, and which had been ignored while calculating the net profit for determining the remuneration of the managing agent, had been claimed as a deduction and allowed as such in the assessment of the company’s income in these assessment years. The facts are not in dispute. The assesses is a public limited company, which, during the relevant assessment years, was managed by a managing agent. Remuneration payable to the managing agent was a percentage of the net profits of the company, such net profits being computed in accordance with the provisions of the company law. The manner of computing the net profits is laid down in section 349 of the Companies Act. Interest on debentures issued by the company, interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets, interest on unsecured loans and advances are required to be deducted under Clauses (f), (g) and (h) of section349(4) of the Companies Act, while determining the net profits of the company. The remuneration payable to the managing agent is subject to a ceiling of 10 per cent. of the net profits of the company for that financial year, as provided by section 348 of the Companies Act. That section provides that the company shall not pay to its managing agent, in respect of any financial year beginning at or after the commencement of this Act, by way of remuneration, whether in respect of his services as managing agent or in any other capacity, any sum in excess of 10 per cent. of the net profits of the company for that financial year. The language of section 349 of the Act is emphatic. It provides that the company “shall not pay” the amount in excess of that specified in the section. The percentage referred to in section 348 of the Act is a percentage of the net profits, which is required to be calculated in accordance with section 349 of the Act.

For all the assessment years excepting 1967-68, we hold that the assessee was not entitled to the deduction of the entire amount paid by it as remuneration to the managing agent, and that the amount so paid which are in excess of the amounts as computed under s. 348 r/w s. 349 of the Companies Act are required to be disallowed Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 349 (4) of the Companies Act, 1956, the Tribunal’s view that the computation of profits for determining the managing agent’s remuneration is in accordance with the company law 1956, is sustainable in law especially when the interest on loans and advances was not deducted in terms of SECTION 349 (4) of the Companies Act while computing such profit. The Tribunal, therefore, was clearly in error in holding that the assessee is entitled to deduction of the entire amount paid as remuneration to the managing agent. To the extent the remuneration so paid was in excess of what was permissible under s. 348 r/w s. 349 of the Companies Act. Such excess amount having been paid in contravention of provisions of s. 348 of the Act, the ITO was fully justified in disallowing such excess payment.

REFERENCE—-

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October 18, 2022