We have been deliberating on Section 2(30) of the Companies Act, 1956. In the earlier issue, we concluded that the “Liquidator” of the Company can be considered as the officer of the Company as per the said Section.
We shall now discuss if the Liquidator can be treated as the ‘Principal Officer’ under the Income Tax Act.
Query No 1:
Liquidator is the Agent of the Company and accordingly can he be treated as the Principal Officer for the purpose of the Income Tax Act, 1961 (hereinafter referred to as IT Act”)?
Decided Case Law:
ITO Vs Official Liquidator
The Official Liquidator has to statutorily scrutinize the books and accounts of the Company which are in his possession and custody at the relevant time for the purpose of submitting a report to the court for the winding up of the Company.
Clarification : A person can be said to be Principal Officer if the following two points are satisfied as per Section 2(35)(b) of the IT Act.
- He must be a person connected with the management or administration of the Company.
- The Income Tax Officer (hereinafter referred as ITO) must have served upon him a notice of his intention of treating him as the principal officer of the Company.
For the purpose of considering a person as a Principal Officer within the meaning of Section 2(35) of the Income Tax Act, 1961 he need not actually manage or administer the affairs of the Company but having some connection with the management or administration of the Company will suffice.
Important Point : The expression used in section 2(35)(b) is any person connected with the management or administration but not a person in management or administration of the Company.
Hence Liquidator is treated as principal officer of the Company within the meaning of Section 2(35) of the IT Act if he satisfies the aforementioned two conditions. Further, it is the statutory duty and obligation of the Liquidator is to furnish the return of the Company and assist the Income Tax Officer to complete the assessment in accordance with the law.
Query No 2 :
For defaults under the Income Tax Act, 1961 (hereinafter Referred to as “IT Act”) whether Directors can be treated as ‘Principal Officers’ of the Company ?
Decided Case Law:
Shyam Sunder Jalan Vs State
Clarification : Section 2(20) of the IT Act states that the expression Director has the same meaning as is ascribed in the Companies Act, 1956 (hereinafter referred to as “Companies Act”). Under Section 2(35) of the IT Act, the Principal Officer means a person connected with the management or administration of the Company. The expression Director is only a designation or prescription to identify the particular person. Whether the Directors are in charge of the management is matter of evidence.
Important Point: Whether one or two Directors or the entire Board of Directors had charge of the management of the Company can be decided based on only evidence.
Conclusion : Therefore for defaults under the IT Act whether the Directors are Principal Officers can only be determined on Evidence.