R. Jayasimha Babu, J.
1. The undertaking belonging to Cambodia Mills was taken over by the Central Government under the Sick Textile Undertakings (Nationalisation) Act, 1974 ('the Act'). Notwithstanding' the transfer of the mill to the Central Government under Section 5(1) of the Sick Textile Undertakings (Nationalisation) Act, the company-Cambodia Mills as a legal entity did not cease to exist. That Act in Section 2(h) defines 'owner'. The definition 'sick textile undertaking' is found in Section 2(j). Reading the two together, it is clear that the ''owner' is distinct from the 'sick textile undertaking'. What the Act provided for is only the acquisition of the sick textile undertaking. The owner of the undertaking was to be paid compensation, the amount of which is set out in the Schedule to the Act. Cambodia Mills is mentioned in the Schedule at serial No. 23. The amount payable to it as compensation is Rs. 64,40,000. Section 5 of the Act makes it clear that the owner of the undertaking continues to be liable for all liabilities other than those specified in Sub-section (2) of Section 5, and that such liabilities shall be enforceable against the owner, and not against the Central Government, or the National Textile Corporation to which the undertaking of the sick textile unit stood transferred under Section 5(2) of the Act. The amounts referred to in Section 5(2) are amounts received by the sick textile undertaking as loans or advances from the State or Central Government, the National Textile Corporation, or the State Textile Corporation after the management of the undertaking had been taken over by the Central Government, and the wages, salaries and other dues of the employees for the period after the management had been taken over by the Central Government.
2. Section 5(3) of the Act provides that,
'For the removal of doubts, it is hereby declared that--. . . (a) save as otherwise expressly provided in this section or any other section of this Act, no liability, other than the liability specified in Sub-section (2), in relation to a sick textile undertaking in respect of any period prior to the appointed day, shall be enforceable against the Central Government or the National Textile Corporation.'
3. The appointed day is April 1, 1974.
4. Section 8 of the Act provides for payment of amount to owners of sick textile undertaking's. The Central Government is under that provision required to give to the owner in cash and in the manner specified in Chapter VI, an amount equal to the amount specified against it in the corresponding' entry which, in so far as the Cambodia Mills is concerned is, as already noticed, Rs. 64,40,000. Chapter VI of the Act deals with Commissioners of Payments. Section 20 therein requires every person having a claim against the owner of a sick textile undertaking to prefer such claim before the Commissioner within thirty days from the specified date which can be extended by a further period of thirty days by the Commissioner. Section 21 of the Act deals with priority of claims. The order of priorities for the discharge of liabilities of a sick textile undertaking is set out in the Second Schedule. The liabilities are classified into six categories. Revenue, taxes, cesses, rates or any other dues to the Central Government or a State Government fall under Category II. The claims when properly made are required to be examined by the Commissioner who may admit or reject the claim after examining the same and after complying with the requirements of Section 23 of the Act. Section 23(7) of the Act provides that a claimant who is dissatisfied with the decision of the Commissioner may prefer an appeal against the decision to the principal civil court of original jurisdiction within the local limits of whose jurisdiction the sick textile undertaking is situated.
5. Notwithstanding all these provisions in the Act which is a Central Act, the Income-tax Officer, Company Circle V, Coimbatore, issued a notice to the National Textile Corporation (Tamil Nadu and Pondicherry) to whom the undertaking of the Cambodia Mills Ltd., had been transferred by the Central Government after the same had vested in it by virtue of Section 3(2) by virtue of the statutory transfer provided for therein, from the Central Government, in whom the undertaking vested with effect from April 1, 1974, by virtue of Section 5(1) of the Act. The notice was issued by the Income-tax Officer under Section 170(3) of the Income-tax Act, and it was asserted in that notice that the National Textile Corporation (Tamil Nadu and Pondicherry) was the successor to Cambodia Mills Limited, and that it was liable to pay the amount of income-tax that had been assessed on Cambodia Mills Limited for the assessment years 1974-75 and 1975-76 in the sums of Rs. 5,99,163 and Rs. 33,89,388, respectively. He, thereafter, rejected the objections raised by the assessee, the National Textile Corporation (Tamil Nadu and Pondicherry), and held that it was liable to pay the tax dues of Cambodia Mills Limited that had accrued up to April 1, 1974. That order was made by him on December 28, 1984.
6. The assessee filed an appeal against that order to the Commissioner (Appeals) who set aside the same. The Revenue then preferred an appeal to the Tribunal, which affirmed the order of the Commissioner. At the instance of the Revenue, the following two questions have been referred to us by the Tribunal :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the order of the Income-tax Officer under Section 170(3) of the Income-tax Act, 1961, making National Textile Corporation (Tamilnadu and Pondicherry) Limited, liable to pay the tax dues amounting to Rs. 40,80,991 of Cambodia Mills Limited, is unsustainable in view of the overriding effect of the provisions contained in the Nationalisation Act, 1974 ?
(2) Whether the Appellate Tribunal's view that what was acquired under the Nationalisation Act, 1974, was the undertaking of Cambodia Mills Limited, and not Cambodia Mills Limited, itself is reasonable, supported by valid materials and sustainable in law.'
7. We have already set out the relevant provisions of the Sick Textile Undertakings (Nationalisation) Act. What was acquired under that Act was the undertaking owned by the company-Cambodia Mills Limited. The company as such was not the subject-matter of the Acquisition Act. The company continues to exist. The company was to receive the compensation amount which is specified in the Second Schedule to the Act. The company was to remain liable for meeting all the liabilities except those mentioned in Section 5(2) of the Act. All those having claims against the company were required to apply to the Commissioner for Payments within the time specified in the Act, and abide by the result of such adjudication subject to an appeal provided for in Section 23(7) of the Act. The liabilities of the company in respect of which claims could be preferred were set out in the Second Schedule to the Act. The liabilities were classified into six categories. The amount payable by way of revenue, cess, tax or other dues to the Central Government were classified under Category II, which in terms of priority come only after the satisfaction of the liabilities mentioned in Category I.
8. We are surprised that the second question should have at all been framed or referred to us. The provisions of the Act can leave no room for doubt that the company Cambodia Mills Limited, was not taken over by the Central Government under the provisions of the Nationalisation Act. The finding of the Tribunal that it was not so taken over is undoubtedly correct.
9. After the acquisition of the undertaking of Cambodia Mills Limited, in terms of Central Act 57 of 1974, that undertaking vested initially in the Central Government by virtue of Section 3(1) of the Act. The Central Government did not carry on any business with that undertaking'. By virtue of Section 3(2) of the Act, the undertakings stood transferred to and vested in the National Textile Corporation. By reason of such statutory transfer and vesting, the National Textile Corporation did not become the successor of Cambodia Mills Ltd., for the purpose of Section 170(3) of the Income-tax Act. The liabilities which could be enforced against the National Textile Corporation or their transferees were only the liabilities specified in Section 5(2) of the Act and no other. Arrears of income-tax payable by Cambodia Mills Limited, is not one of the liabilities specified in Section 5(2) of the Act. On the other hand, the revenue payable to the Central Government by the company whose undertaking was acquired under the Act had been assigned a lower priority and classified under Category II in the Second Schedule, and could only have been claimed within the time specified in the Act, and only from out of the amounts available with the Commissioner after all the claimants, who had a right to payment by being creditors falling under Category I, had been satisfied in full.
10. By virtue of the statutory transfer of the sick textile undertaking from the company which owned it to the Central Government, by the special enactment providing for the compulsory acquisition of the undertaking, there was no succession to the business of the company whose undertaking was thus compulsorily acquired, for the purposes of Section 170 of the Income-tax Act. The transferee from the Government similarly is not a successor, much less a transferee from such transferee of the Central Government.
11. The order made by the Income-tax Officer treating the National Textile Corporation (Tamil Nadu and Pondicherry) Limited as the successor-in-interest of Cambodia Mills Limited, notwithstanding this provision made in the Act for the payment of compensation to that company is wholly untenable in law.
12. The Sick Textile Undertakings (Nationalisation) Act is also a special enactment in so far as sick textile undertakings are concerned. To the extent provision is made therein for the revenue arrears of the Central Government, the same will prevail over the enactments which provided for the levy. The arrears of revenue, which had become payable under the Income-tax Act, and the enactments providing for the relevant levy, are only recoverable to the extent, and in the manner provided for so far as the company owning' sick textile undertakings is concerned in the Sick Textile Undertakings (Nationalisation) Act.
13. In the order made by the Income-tax Officer, there is also a significant failure to state that any attempt had been made to recover the monies from Cambodia Mills Limited, as that by reason of the fact that the amounts were not recoverable from that company, it had become necessary to claim the amount from the successor. It is obvious that the Income-tax Officer had made no attempt at all to claim the amount of the tax arrears from the compensation payable to Cambodia Mills Limited, under the provisions of the Nationalisation Act. That failure cannot be covered up by asserting a right to treat the transferee from the National Textile Corporation as the successor-in-interest of the company, whose undertaking had been nationalised.
14. The assessable entity here is the company, the company being Cambodia Mills Limited. That assessee continued to exist and proceedings for recovery of tax arrears of that company should properly lie against that company. No such proceeding was taken by the Assessing Officer.
15. The amount of compensation fixed by Parliament for the sick textile undertaking which had belonged to Cambodia Mills Limited, cannot indirectly be enhanced by the Income-tax Officer by compelling the transferee whose title is traceable to the Central Government to pay amounts in addition to the amounts of the compensation provided for in the Act. It is not the province of the Income-tax Officer to amend or add to legislation enacted by Parliament directly or indirectly. The revenue arrears of Cambodia Mills Limited could only have come out of compensation payable to it under the provisions of the Nationalisation Act or out of any other asset that may have been owned by Cambodia Mills Limited apart from the sick textile undertaking acquired under the Act. After the vesting of the undertaking in the Central Government, there was no scope whatever for any proceeding being taken under the Income-tax Act for recovery of the arrears of tax of the company whose undertaking had been acquired, against the Central Government or any of the transferees from the Central Government.
16. The entire exercise initiated by the Income-tax Officer is based on a misconception of the scope of his power and a complete failure to understand the provisions of the Sick Textile Undertakings (Nationalisation) Act.
17. The questions referred to us are, therefore, answered in favour of the assessee and against the Revenue. The assessee shall be entitled to costs in the sum of Rs. 4,000.