B.muralidhar v. Deputy Commissioner Of Income Tax Corporate Circle - I, Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 08.08.2019 Coram THE HONOURABLE MR. JUSTICE M.SUNDAR W.P.No.23222 of 2019and WMP No.22911 of 2019 B.Muralidhar ... Petitionervs. 1.Deputy Commissioner of Income Tax Corporate Circle - I, Room No.611 Wanaparthy Block, 6th Floor, Aayakar Bhavan, Mahatma Gandhi Road Nungambakkam, Chennai - 600 034. 2.Tax Recovery Officer Income Tax Department No.537, 5th Floor, C Block IT Towers A.C.Gaurds, Hyderabad. ... Respondents PRAYER: Writ Petition filed under Article 226 of theConstitution of India praying for issuance of a Writ ofCertiorarified Mandamus, calling for the records relating to theorder of the first respondent herein, in AAACK3018P/Corp. Cir1(1)/DCIT/179/2018-19 dated 24.01.2019 for the Assessment Years1999-2007 in the case of the petitioner; quash the same anddirect the First respondent to undertake the assessment onmerits; and pass such further or other order as this Hon'bleCourt deems fit and proper and render justice. For Respondents : Ms.Hema Muralikarishnan, Senior Panel Counsel (Income Tax) Mr.Amrith Bhargav, learned counsel on record for writpetitioner is before this Court. Ms.Hema Murali Krishnan,learned Senior Panel Counsel (Income Tax), who accepts noticeon behalf of both the respondents is also before this Court. https://hcservices.ecourts.gov.in/hcservices/ 2. With consent of learned counsel on both sides, mainwrit petition is taken up, heard out and is being disposed of. 3. Subject matter of main writ petition arises under'Income Tax Act 1961', ('IT Act' for brevity). 4. Short facts shorn of micro details/particulars are thata company, which goes by the name 'A & G Projects andTechnologies Ltd.,', previously known as 'K & M Projects andTechnologies Ltd.,' (hereinafter 'said company' for the sake ofbrevity, clarity and convenience) is an assessee under the ITAct and writ petitioner was a share holding Director on theBoard of the said company. 5. With regard to eight successive assessment years viz.,1999-2000 to 2006-07, first respondent commenced proceedingsagainst the writ petitioner, who is a natural person qua whataccording to the first respondent is tax liability of saidcompany, which is a juristic person. This exercise wascommenced by the first respondent by taking recourse to Section179 of IT Act. For the sake of convenience and clarity, thisCourt deems it appropriate to extract Section 179 of IT Act andthe same reads as follows: '179.Liability of directors of private company in liquidation '[(1)] Notwithstanding anything contained inthe Companies Act, 1956 (1 of 1956), [where any taxdue from a private company in respect of any incomeof any previous year or from any other company inrespect of any income of any previous year duringwhich such other company was a private company]cannot be recovered, then, every person who was adirector of the private company at any time duringthe relevant previous year shall be jointly andseverally liable for the payment of such tax unlesshe proves that the non-recovery cannot beattributed to any gross neglect, misfeasance orbreach of duty on his part in relation to theaffairs of the company. [(2). Where a private company is convertedinto a public company and the tax assessed inrespect of any income of any previous year duringwhich such company was a private company cannot berecovered, then, nothing contained in sub-section(1) shall apply to any person who was a director ofsuch private company in relation to any tax due inrespect of any income of such private companyassessable for any assessment year commencingbefore the 1st day of April, 1962].' 6. As part of these proceedings, the first respondentinter alia issued a 'show cause notice dated 22.10.2018' ('SCN'for brevity) and the writ petitioner sent a detailed reply dated30.11.2018. [(2). Where a private company is convertedinto a public company and the tax assessed inrespect of any income of any previous year duringwhich such company was a private company cannot berecovered, then, nothing contained in sub-section(1) shall apply to any person who was a director ofsuch private company in relation to any tax due inrespect of any income of such private companyassessable for any assessment year commencingbefore the 1st day of April, 1962].' 6. As part of these proceedings, the first respondentinter alia issued a 'show cause notice dated 22.10.2018' ('SCN'for brevity) and the writ petitioner sent a detailed reply dated30.11.2018. 7. First respondent, after considering the detailed replyof the writ petitioner to the SCN, besides several otherrelevant documents and files, passed an order 'dated 24.01.2019,bearing Reference No.AAACK3018P/Corp. Cir 1(1)/DCIT/179/2018-19(hereinafter 'impugned order' for the sake of brevity, clarityand convenience). 8. Vide impugned order, first respondent held that thewrit petitioner, a natural person, is jointly and severallyliable (qua income tax liability) along with said company, thetax liability and penalty was quantified at little over Rs.29.61crores. Rs.29,61,27,320/- to be precise. 9. Assailing the impugned order, instant writ petition hasbeen filed. 10. Notwithstanding various averments made in theaffidavit filed in support of the instant writ petition andnotwithstanding various grounds raised/contentions urged in theaffidavit filed in support of the writ petition, Mr.AmrithBhargav, learned counsel for writ petitioner submitted that thewrit petitioner who is a natural person, who was no doubt ashare holding Director on the Board of the said companysubmitted his resignation from said company on 05.01.1995, saidcompany vide a resolution dated 15.01.1995 accepted the same andthe same was recorded in the files of jurisdictional Registrarof Companies on 01.03.1997. In other words, it is the specificsay of learned counsel that the assessee is a juristic personi.e., said company whereas the tax liability and penalty hasbeen mulcted on the writ petitioner a natural person, whoresigned from the said company prior to the commencement of thefirst of the eight successive assessment years to which impugnedorder pertains. In other words, it is prior to 01.04.1999, islearned writ petitioner counsel's specific say. 11. A perusal of the impugned order reveals that writpetitioner has raised this very point in the aforesaid reply tothe SCN and first respondent has dealt with the same in theimpugned order. First respondent has relied on certaintransactions and come to the conclusion that writ petitioner isliable under Section 179 of IT Act rejecting the aforesaid pleaof the writ petitioner. Be that as it may, considering thenature of the order, which this Court now proposes to pass, thisCourt refrains itself from expressing any opinion or view onthis plea. The reason is, this Court proposes to relegate the writ petitioner to alternate remedy. 12. Ms.Hema Muralikrishnan, learned Revenue counsel, whohas accepted notice on behalf of both the respondents pointedout that an alternate remedy qua impugned order is available tothe writ petitioner. According to learned Revenue Counsel, itis open to the writ petitioner to file a revision under Section264 of IT Act to jurisdictional Principal Commissioner i.e.,'Principal Commissioner of Income Tax 1, Chennai' (hereinafter'said Revisional Authority' for clarity and convenience) writ petitioner to alternate remedy. 12. Ms.Hema Muralikrishnan, learned Revenue counsel, whohas accepted notice on behalf of both the respondents pointedout that an alternate remedy qua impugned order is available tothe writ petitioner. According to learned Revenue Counsel, itis open to the writ petitioner to file a revision under Section264 of IT Act to jurisdictional Principal Commissioner i.e.,'Principal Commissioner of Income Tax 1, Chennai' (hereinafter'said Revisional Authority' for clarity and convenience) 13. A perusal of said provision i.e., Section 264 of ITAct reveals that said Revisional Authority has powers toenquire into the correctness or otherwise of the impugned orderand said Revisional Authority has powers which includes powersto make orders which are not prejudicial to the assessee.Therefore, it is clear that under Section 264 of IT Act, writpetitioner has an alternate remedy by way of a statutoryrevision under Section 264 of IT Act to said RevisionalAuthority. 14. This takes us to the question of alternate remedy. 15. The rule of alternate remedy no doubt is a selfimposed restraint by Courts exercising writ jurisdiction. Inother words, rule of alternate remedy is not a rule ofcompulsion, but it is a rule of discretion. Be that as it may,with regard to rule of alternate remedy, one important case lawof the Hon'ble Supreme Court is Dunlop India case [AssistantCollector of Central Excise, Chandan Nagar, West Bengal vs.Dunlop India Ltd. and ors.] reported in (1985) 1 SCC 260 andthe relevant paragraph is Paragraph 3 and the same reads asfollows: '3......Article 226 is not meant to short circuit orcircumvent statutory procedures. It is only wherestatutory remedies are entirely ill-suited to meet thedemands of extraordinary situations, as for instancewhere the very vires of the statute is in questionor where private or public wrongs are soinextricably mixed up and the prevention of publicinjury and the vindication of public justice requireit, that recourse may be had to Article 226 of theconstitution. But then the Court must have good andsufficient reason to bypass the alternative remedyprovided by statute. Surely matters involving therevenue where statutory remedies are available are notsuch matters. We can also take judicial notice of thefact that the vast majority of the petitions underArticle 226 of the constitution are filed solely for the purpose of obtaining interim orders and thereafterprolong the proceedings by one device or the other.This practice needs to be strongly discouraged.' (underlining made by this Court tosupply emphasis and highlight) 16. Post Dunlop India case, in Satyawati Tandon Case[United Bank of India Vs. Satyawati Tondon and others reportedin (2010) 8 SCC 110], Hon'ble Supreme Court held that when itcomes to cases pertaining to tax, cess etc., rule of alternateremedy should be applied with utmost rigour. purpose of obtaining interim orders and thereafterprolong the proceedings by one device or the other.This practice needs to be strongly discouraged.' (underlining made by this Court tosupply emphasis and highlight) 16. Post Dunlop India case, in Satyawati Tandon Case[United Bank of India Vs. Satyawati Tondon and others reportedin (2010) 8 SCC 110], Hon'ble Supreme Court held that when itcomes to cases pertaining to tax, cess etc., rule of alternateremedy should be applied with utmost rigour. 17. This Satyawati Tandon principle was subsequentlyreiterated by Hon'ble Supreme Court in K.C.Mathew case[Authorized Officer, State Bank of Travancore Vs. Mathew K.C.reported in (2018) 3 SCC 85], relevant paragraph in K.C.Mathewcase is Paragraph 10 and the same reads as follows:'10. In Satyawati Tondon the High Courthad restrained further proceedings under Section13(4) of the Act. Upon a detailed considerationof the statutory scheme under the SARFAESI Act,the availability of remedy to the aggrievedunder Section 17 before the Tribunal and theappellate remedy under Section 18 before theAppellate Tribunal, the object and purpose ofthe legislation, it was observed that a writpetition ought not to be entertained in view ofthe alternate statutory remedy availableholding: (SCC pp.123 & 128, Paras 43 & 55)“43. Unfortunately, the High Court overlookedthe settled law that the High Court willordinarily not entertain a petition underArticle 226 of the Constitution if an effectiveremedy is available to the aggrieved person andthat this Rule applies with greater rigour inmatters involving recovery of taxes, cess, fees,other types of public money and the dues ofbanks and other financial institutions. In ourview, while dealing with the petitions involvingchallenge to the action taken for recovery ofthe public dues, etc., the High Court must keepin mind that the legislations enacted byParliament and State Legislatures for recoveryof such dues are a code unto themselves inasmuchas they not only contain comprehensive procedurefor recovery of the dues but also envisageconstitution of quasi-judicial bodies forredressal of the grievance of any aggrievedperson. Therefore, in all such cases, the HighCourt must insist that before availing remedy under Article 226 of the Constitution, a personmust exhaust the remedies available under therelevant statute. 55.It is a matter of serious concern thatdespite repeated pronouncement of this Court,the High Courts continue to ignore theavailability of statutory remedies under the DRTAct and the SARFAESI Act and exercisejurisdiction under Article 226 for passingorders which have serious adverse impact on theright of banks and other financial institutionsto recover their dues. We hope and trust thatin future the High Courts will exercise theirdiscretion in such matters with greater caution,care and circumspection.' (Underlining made by Court to supply emphasis and highlight) under Article 226 of the Constitution, a personmust exhaust the remedies available under therelevant statute. 55.It is a matter of serious concern thatdespite repeated pronouncement of this Court,the High Courts continue to ignore theavailability of statutory remedies under the DRTAct and the SARFAESI Act and exercisejurisdiction under Article 226 for passingorders which have serious adverse impact on theright of banks and other financial institutionsto recover their dues. We hope and trust thatin future the High Courts will exercise theirdiscretion in such matters with greater caution,care and circumspection.' (Underlining made by Court to supply emphasis and highlight) 18. In the light of the aforesaid long line ofauthorities, this Court has no hesitation in holding thatalternate remedy though a rule of discretion and not a rule ofcompulsion, has to be applied with utmost rigour when it comesto fiscal law statutes and in the instant case it applies withall force for two reasons. First reason is, though it is a ruleof discretion, Court would interfere on the teeth of alternateremedy only when it falls within the exceptions set out in thelong line of authorities. Those exceptions are, (a) lack ofjurisdiction on the part of the Authority passing the order, (b)violation of principles of natural justice, (c) a well settledposition of law being disregarded and (d) alternative remedybeing ineffectual or not efficacious. To be noted, thisadumbration of exceptions is not exhaustive, but is only a broadoutline which is imperative for appreciating the instant order.The instant case does not fall under any of the exceptions. Theother reason is, a perusal of SCN, reply and impugned orderreveals that the matter turns heavily on factual disputations.As already alluded to supra, a perusal of Section 264 of IT Actmakes it clear that writ petitioner has an effective andefficacious alternate remedy as the said Revisional Authorityhas powers to pass orders which are not prejudicial to theassessee by revising the impugned order. This position isreiterated by learned Revenue counsel. 19. This takes us to the time frame prescribed underSection 264 of IT Act. Time frame prescribed is under sub-section (3) of Section 264 of IT Act and the writ petitioner hasto file revision within one year from the date on which theimpugned order was communicated to the writ petitioner . Fromthe narrative thus far, it comes to light that the impugnedorder is dated 24.01.2019 and learned counsel for writ petitioner submits, on instructions, that it has been servedon/communicated to the writ petitioner on 31.01.2019.Therefore,it is clear that the writ petitioner is well withinthe time to file a revision under Section 264 of IT Act beforesaid Revisional Authority. 20. It is open to the writ petitioner to file a statutoryrevision under Section 264 of IT Act to said RevisionalAuthority seeking revision of the impugned order and if the writpetitioner chooses to avail alternate remedy, said RevisionalAuthority shall entertain the revision and dispose of the sameon its own merits and in accordance with law. 21. This Court also notices that time frame has beenprescribed for disposal of such revision and the same isadumbrated in sub-Section (6) of Section 264 of IT Act, whichreads as follows: '(6) On every application by an assessee forrevision under this sub-section, made on or afterthe 1st day of October 1998, an order shall bepassed within one year from the end of thefinancial year in which such application is made bythe assessee for revision'. 21. This Court also notices that time frame has beenprescribed for disposal of such revision and the same isadumbrated in sub-Section (6) of Section 264 of IT Act, whichreads as follows: '(6) On every application by an assessee forrevision under this sub-section, made on or afterthe 1st day of October 1998, an order shall bepassed within one year from the end of thefinancial year in which such application is made bythe assessee for revision'. 22. It is also noticed that the said Revisional Authorityviz., the Principal Commissioner of Income Tax-1, Chennai hasnot been arrayed as one of the respondents and therefore,Revenue Counsel is directed to communicate this order to thesaid Revisional Authority under cover of a suitable letter.Registry is also directed to communicate a copy of this order tothe said Revisional Authority viz., Principal Commissioner ofIncome Tax-1, Chennai having office at Aayakar Bhavan, 121,Uthamar Gandhi Road, Nungambakkam, Chennai – 600 034. 23. This writ petition is disposed of preserving therights of the writ petitioner to avail alternate remedy by wayof a statutory revision under Section 264 of IT Act. Thoughobvious, it is made clear that all contentions raised by thewrit petitioner are left open and can be raised before thestatutory Appellate Authority. It is also made clear that sucha course is being adopted as perusal of the impugned order andreply to the SCN reveals that it turns heavily on facts asalready alluded to supra. There shall be no order as to costs.Consequently, connected miscellaneous petition is closed. 24. After the order is passed, learned counsel on recordfor writ petitioner requests that the original impugned orderbeing order dated 24.01.2019 made by the first respondent mayplease be returned to the writ petitioner's counsel to enablethe writ petitioner to avail the alternate remedy. Registry isdirected to return the original impugned order being order dated24.01.2019 bearing reference No. AAACK3018P/Corp. Cir1(1)/ DCIT/179/2018-19 made by the first respondent forthwith to thecounsel on record for writ petitioner under due acknowledgement. 25. With the above observations, these writ petitions aredisposed of. There shall be no order as to costs. Consequently,connected miscellaneous petition is closed. Sd/- Assistant Registrar (CS-VIII) //True Copy// Sub Assistant RegistrarvsmTo1.The Deputy Commissioner of Income Tax Corporate Circle - I, Room No.611 Wanaparthy Block, 6th Floor, Aayakar Bhavan, Mahatma Gandhi Road Nungambakkam, Chennai - 600 034.2.The Tax Recovery Officer Income Tax Department No.537, 5th Floor, C Block IT Towers A.C.Gaurds, Hyderabad.3.The Principal Commissioner of Income Tax-1, Aayakar Bhavan, 121 Uthamar Gandhi Road, Nungambakkam, Chennai – 600 034.+1cc to Ms.Hema Muralikarishnan, Advocate, S.R.No.68367 NRJK(CO)CB(20/09/2019) W.P.No.23222 of 2019