Company in liquidation.
322(1)
Every person,—
- (a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or
- (b) who has been appointed the receiver of any assets of a company, (herein referred to as the liquidator), shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company.
322(2)
The Assessing Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company.
322(3)
The liquidator—
- (a) shall not, without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Assessing Officer under sub-section (2); and
- (b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands.
322(4)
The provisions of sub-section (3) shall not debar the liquidator from parting with such assets or properties for the purpose of––
- (a) the payment of the tax payable by the company; or
- (b) making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation; or
- (c) meeting such costs and expenses of the winding up of the company, as are in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, reasonable.
322(5)
If the liquidator fails to give the notice as per sub-section (1), or fails to set aside the amount as required by sub-section (3), or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay.
322(6)
In relation to sub-section (5), if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under that sub-section shall be to the extent of such amount.
322(7)
Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally.
322(8)
The provisions of this section shall have effect irrespective of anything to the contrary contained in any other law in force, except the provisions of the Insolvency and Bankruptcy Code, 2016.
Section Summary:
Section 322 of the Income Tax Act deals with the responsibilities of a liquidator or receiver appointed for a company undergoing liquidation. The section ensures that the tax liabilities of the company are addressed before the assets are distributed. It mandates the liquidator to notify the Assessing Officer of their appointment and follow specific procedures to safeguard the company's tax obligations.
Key Changes:
- Notification Requirement: The liquidator must inform the Assessing Officer of their appointment within 30 days, a procedural requirement to ensure tax authorities are aware of the liquidation process.
- Asset Restriction: The liquidator cannot distribute or part with the company’s assets until the Assessing Officer notifies the amount required to cover the company’s tax liabilities.
- Personal Liability: The liquidator can be held personally liable for the company’s tax dues if they fail to comply with the provisions of this section.
- Priority of Payments: The section clarifies that payments to secured creditors and reasonable winding-up costs can still be made, even before setting aside the tax amount.
Practical Implications:
- For Liquidators: Liquidators must act cautiously to avoid personal liability. They must notify the Assessing Officer promptly and ensure that the required tax amount is set aside before distributing assets.
- For Tax Authorities: The Assessing Officer has the authority to determine the tax liability of the company and notify the liquidator within three months of receiving the notice.
- For Creditors: Secured creditors can still receive payments, but unsecured creditors may face delays until the tax liability is addressed.
- For Companies in Liquidation: The process of winding up becomes more structured, with tax obligations taking precedence over other distributions.
Critical Concepts:
- Liquidator: A person appointed to manage the winding-up process of a company, ensuring that its assets are distributed to creditors and shareholders.
- Assessing Officer: The tax authority responsible for assessing and determining the tax liability of the company.
- Personal Liability: If the liquidator fails to comply with the section, they become personally responsible for the company’s tax dues.
- Secured Creditors: Creditors whose debts are backed by collateral or have legal priority over other debts, including tax dues.
Compliance Steps:
- Notification: The liquidator must notify the Assessing Officer of their appointment within 30 days.
- Wait for Notification: The liquidator must wait for the Assessing Officer to determine the tax liability (within three months) and notify the amount to be set aside.
- Set Aside Funds: The liquidator must set aside the notified amount before distributing any assets.
- Avoid Asset Distribution: Until the tax amount is set aside, the liquidator cannot distribute assets, except for specific permitted payments (e.g., to secured creditors or for reasonable winding-up costs).
- Joint Liability: If there are multiple liquidators, all are jointly and severally liable for compliance.
Examples:
Scenario 1: A company is being liquidated, and Mr. X is appointed as the liquidator. Mr. X notifies the Assessing Officer within 30 days. The Assessing Officer determines that the company owes ₹10 lakh in taxes and notifies Mr. X. Mr. X must set aside ₹10 lakh from the company’s assets before distributing the remaining funds to creditors.
Scenario 2: Ms. Y, a liquidator, fails to notify the Assessing Officer within 30 days. She distributes the company’s assets without setting aside the tax amount. Later, the Assessing Officer determines a tax liability of ₹5 lakh. Ms. Y becomes personally liable for this amount.
Scenario 3: A company has two liquidators, A and B. Both must ensure compliance with Section 322. If either fails to set aside the tax amount, both can be held personally liable for the tax dues.
This section ensures that tax obligations are prioritized during liquidation, protecting the interests of the government while balancing the rights of creditors and liquidators.