S. Subba Rao [Pavuluri. ] v. Raghu Ram

HIGH COURT FOR (SPecial Original [Jurisdiction)] TUESDAY, THE TWO THOUSAND PRESENT THE HON'BLE ANDTHE HON'BLE SRI WRIT PETITION [N][O: ][8369 OF 2023] Between: sri Subba Rao Pavuluri, [s/o. ][Late ][sri ][P.Siva ][Rama ][Krishnaiah, Plot No.1355C, ][Road]No.45, Jubilee Hills, [Hyderabad - ][500033.] ...PETITIONER AND Assistant commissioner [of ][lncome ][Tax, ][Circle ][- ][B(1), signature Towers, opp]Botanical Gardens, [Kondapur, ][Hyderabad ][- ][500084'] ...RESPONDENT Petition under Article [226 ][of ][the constitution ][of ][lndia ][praying ][that ][in ][the]circumstances [stated ][in ][the ][affidavit ][filed ][therewith, ][the ][High Court ][may ][be]pleasedtoissueawritorordermoreparticularlyoneinthenatureofWR|ToFMANDAMUS holding [that ][the order dated 07'03-2023 passed by ][the ][Respondent]with DIN & order [No: ITBA/COMlFt17t2o22-2311050476565(1) ][forthe ][assessment]years2015-16and2017-l8undersectionlTgofthelncomeTaxAct,asbeingillegal, arbitrary [and ][violative ][of ][principles ][of ][natural ][justice and ][therefore ][is]unsustainable [in law, ][and ][consequently ][set ][aside ][the ][same'] lA NO: 1 OF [2023] Petition under [Section ][151 CPC ][praying that ][in ][the circumstances stated ][in]the affidavit [filed in ][support ][of ][the ][petition, ][the ][High Court may ][be ][pleased ][to]susPEND the [operation ][of ][the order dated 07.03.2023 passed by ][the ][Respondent]with DIN & order [No: ] [tFl1712022-2311050476565(1) ][for ][the ][assessment]years 2015-16 and 2017-18, [under ][section ][179 ][of ][the ][lncome Tax Act'] lA NO: 1 OF 2024 Between: Assistant Commissioner of g(.1), "Botanicat Gardens, t(ondapur, lncome .Tax, Circle _ HydeiaOaO'- SibiE+. Signature Towers, Opp. ...VACATE PETITIONERYRESPONDENT AND s. subba Rao [pavuluri. ]S/o Late gri p,.Siva Rama Krishnaiah, prot No.1355c, RoadNo.45, Jubitee Hills, Hyderabad - 500035 [-] ...RESPONDENT/PETITIONER Petition under section 15'r cpc praying that in the circumstances stated inthe affidavit fired in support of the petition, the High cou( may be preased toVacate rnterim ordr:r granted on 28.03-2023 in I.A.No.1 0f 2023 in w.p. No. 8369t2023. Counsel for the petitioner: SRI A. V. RAGHU RAM Counsel for the Respondent: SRI p. MURALI KRISHNA,SENIOR STANDING COUNSEL FOR INCOME TAX The Court made the following: ORDER i THE HONOURABLE ANDTHE HONOURABLE [NAGF^SH ] WRIT PETITI [No.83][69][ of 2023] ORDER: [(per ][Hontrle ][Sri ][Justice ][Sujoy ][Paul)] Sri A.V.Raghu [Ram, learned counsel ][for ][the ][petitioner ][and] Sri P. Murali [Krishna, learned Senior ][Standing Counsel ][for]respondent' 2. With the consent, [hnallY heard'] This petition [[filed ][under ]][[under ]][[Article ][226 ][of the ][Constitution ][of]][[226 ][of the ][Constitution ][of]][[of the ][Constitution ][of]][[Constitution ][of]][[of]] 3. This petition [[filed ][under ]][[under ]][[Article ][226 ][of the ][Constitution ][of]][[226 ][of the ][Constitution ][of]][[of the ][Constitution ][of]][[Constitution ][of]][[of]]India takes [exception ][to ][the ][order dated 07'03'2023 ][passed ][in]179 of the [Income ][Tax ][Act, ][1961]exercise [of ]Power [under ][Section](for short "the [Act")'] ORDER: [(per ][Hontrle ][Sri ][Justice ][Sujoy ][Paul)] Sri A.V.Raghu [Ram, learned counsel ][for ][the ][petitioner ][and] Sri P. Murali [Krishna, learned Senior ][Standing Counsel ][for]respondent' 2. With the consent, [hnallY heard'] This petition [[filed ][under ]][[under ]][[Article ][226 ][of the ][Constitution ][of]][[226 ][of the ][Constitution ][of]][[of the ][Constitution ][of]][[Constitution ][of]][[of]] 3. This petition [[filed ][under ]][[under ]][[Article ][226 ][of the ][Constitution ][of]][[226 ][of the ][Constitution ][of]][[of the ][Constitution ][of]][[Constitution ][of]][[of]]India takes [exception ][to ][the ][order dated 07'03'2023 ][passed ][in]179 of the [Income ][Tax ][Act, ][1961]exercise [of ]Power [under ][Section](for short "the [Act")'] 4. Learned [counsel ][for the ][petitioner ][advanced ][singular]contention [by ][taking ][this ][Court ][to ][Section ][179 ][of the ][Act ][that]of [Directors ][of ][private company can ][be ][determined ][in ][the]liability manner [prescribed ][in ][the ][statute' ] [careful ][reading ][of ][the ][Section]shows that [such ][liability ][can be ][fastened ][on ][the Director' ][unless']he proves [that ][the ][non-recovery ][cannot ][be ][attributable ][to ][arty]lnmisfeasance [or ][breach ][of ][duty on ][his ][part']gross neglect,affairs of [the Company' ][This ][burden ][can ][be]relation [to ][the]discharged [bY ][the][ Director/ ][petitioner ][only, ][when ][is ][he ][put ][to]notrceThe petitioner, [a Director ][of ][Company was ][not ][put ][to ][any] kind of notice and directly a final order, dated 07 .O3.2O23 is, passed in purprtrted exercise of power flowing from Section 179 ofthe Act. By placing reliance on the Division Bench judgment ofHigh Court of Gujarat in Susan Chacko perumal v. AssistantCommissioner of Income Taxr, it is submitted that similar finalorder was set aside by Gujarat High Court, by reserving liberty torevenue to follorv the principles of natura,l justice and pass a freshorder and thus, similar course may be adopted. 5. Learned Senior Standing Counsel opposed the prayer andsubmits that ad interim order in this matter was passed in favourof the petitioner few months back. The petitioner couid not provebefore this cou.t the necessa-ry ingredients mentioned in section179 of the Act. Section 179 does not provide opportunity of anynature. Thus, n,: interference mav be made. 6. The parties; confrned their arguments to the extent indicatedabove. 7 . We han e bestowed our anxious consideration on rivalcontentions and perused the record. 8. Before dealing with rival contentions, it is apposite toreproduce Sub-section 1 of Section lT9 of the Act, which readsthus: l Source {2017) 249 Taxman 501 {cu.i) (sectioa 179: Liability of directors of orivate comav lnliquidatioa:- NotwithstandinB anything contained in ttre [Cornpanies ][Act,]1956 (1 of 1956), [where any tax due from [a private company ][in]respect of any income of any [previous ][year ]or [from ][any ][other]company in respect of any income of any [previous year ][during]which such other company was a [private companyl cannot ][be]recovered, then, every [person who ][was a director of the ][private]company at arry time during the [relevant previous year ][shall ][be]jointly and severally liable for the payment of such tax ut [ess]he proves that the Don-recoyery canlot [be ][attributed to ][ary]gross neglect, misfeasance or breach of duty otr his [part ][la]relatior to the affalrs of the company." (Emphasis SuPPliedl (sectioa 179: Liability of directors of orivate comav lnliquidatioa:- NotwithstandinB anything contained in ttre [Cornpanies ][Act,]1956 (1 of 1956), [where any tax due from [a private company ][in]respect of any income of any [previous ][year ]or [from ][any ][other]company in respect of any income of any [previous year ][during]which such other company was a [private companyl cannot ][be]recovered, then, every [person who ][was a director of the ][private]company at arry time during the [relevant previous year ][shall ][be]jointly and severally liable for the payment of such tax ut [ess]he proves that the Don-recoyery canlot [be ][attributed to ][ary]gross neglect, misfeasance or breach of duty otr his [part ][la]relatior to the affalrs of the company." (Emphasis SuPPliedl g. On a specifrc query from the [Bench, ][Iearned Senior ][Standing]Counsel fairly admitted that [before ][passing ][the ][impugned ][order]dated O7.O3.2O23, the [petitioner ][was ][not ][put ][to ][notice' It ][is ][seen]that the counter is drafted in an [artistic ][manner ][still ][it ][is ][clear ][that]all the notices issued were [issued ][to ][the ][Company ][and not ][to ][the]Director. Thus, pivotal [question ][before ][us is, ][whether ][in ][a ][case ][of]this nature, where impugned [order ][is ][passed ][against ][the ][Director,]whether Director was required to be [put ][to irotice.] 10. As noticed above, [leamed Senior Standing Counsel submits]that there was no need [of ][providing ][opportunity. ][We ][are ][unable ][to]persuade ourselves w'ith this line of €rrgument [of ][learned ][Senior]Standing Counsel, in [view ][of ][the ][language employed ][in ][Section ][179]of the Act. A [ptain ]reading of [which ][shows ][that ][such ][tax ][can ][be]fastened or directed to be [shouldered ][by the ][Director, ][unless, ][he]proues that non-recovery cannot [be ][attributable ][to ][any ][gross] neglect, misfear;alce or beach of duty on his part in relation to theaffairs of the company.affairs of the company. 11. We {ind srrbstantial force in the argument of learned counselfor the petitioner that the petitioner could have proved theaforesaid ingredients and discharge reverse burden on him onlywhen he was pr-rt to notice and given an opportunity to prove it.Thus, in the m:rnner sub-section 1 of Section 179 of the Act isframed, the pri.ciples of natural justice are to be read into theprovision. The principles of natural justice were reacr into invarious taxation statutes by the Supreme Court. Reference maybe made to judgments in the cases of C.B. Gautam v. Union ofIndia and others2, FAG precision Bearings v. Sales Tax Officer(Il and Another3, Sahara India (Firmf , Lucknow v.Commissioner of Income Tax, Central_I and Anothera andKesar Enterprises Limited v. State of Uttar pradesh andotherss. L2. In the instant case, the petitioner was admittedly, not put tonotice and the impugned order which entails civil consequences ispassed against him. It runs contraq/ to the principles of natural '1tss:y r scc z8 '1rssz1 r scc aae' (2008) 14 scc 1s1'1zot11 [t3 ][scc ]z:3' (2008) 14 scc 1s1'1zot11 [t3 ][scc ]z:3 justice. The similar view is taken by Gujarat High Court in Susan Chacko Perumalts case (supra)- Relevant portion reads as under L2. In the instant case, the petitioner was admittedly, not put tonotice and the impugned order which entails civil consequences ispassed against him. It runs contraq/ to the principles of natural '1tss:y r scc z8 '1rssz1 r scc aae' (2008) 14 scc 1s1'1zot11 [t3 ][scc ]z:3' (2008) 14 scc 1s1'1zot11 [t3 ][scc ]z:3 justice. The similar view is taken by Gujarat High Court in Susan Chacko Perumalts case (supra)- Relevant portion reads as under "8. It is therefore, not correct to suggest that the moment thetax dues of a private company remain unpaid, the consequenceunder section 179(1) must follow against each of the [directors]Before such an order can be oassed, the statute envisases animDortant stage wherebv the concerned director [would ]have [an]oDDortunitv to Drove that the non-recoverv cannot be attributedto any [gross ]neslisent. misfeasance or breach of dutv on [his]art in relation to the affairs of the comThis otuniwould have to be made available to the director before aneffective order under section 1791 of the Act can be oassed-This would necessarily requirefollowine the DrinciDles ofnatural iustice. By no stretch of imaPination can the [Tauthoritiesdtoin terms of sub section1of section 179 by merely holdinq that despite repeated efforts,the tax dues of the comDany remained unp[aid- ]This [is ]onlv [one]element of the requirement of sub section (l) ofsection [179.]The other requirement can be fulfilled only after hearing thedirector concerned. Any other view would amount to eliminatingthe requirement of hearing and following the [principles ]ofnatural justice before an adverse civil order that may bepassed." (Emphasis Supplied) 13. So far argument of the learned Senior Standing Counsel forthe respondent that the [petitioner ]after [getting ]the [interim ][order ][in]this matter could not establish that non-recovery cannot [be]attributed to him is concerned, sufflce it to say that the scope [of]judicial review in this petition under Article 226 of theConstitution is regarding decision making process adopted by therespondents. This Court at this stage is under no obligation [to]examine whether on merits the non-recovery can be attributed tothe conduct of the petitioner. Since decision making [process ]isfound to be faulty and runs contrary to the [principles ]of naturaljustice, the proper course is to set aside the order arrd permit the , \ Revenue to follow the principles of natural justice and proceed inaccordance il'it h law.accordance il'it h law. 14. In case of Mehul Jadavj Shah v. Deputy CIT6, a Division Bench of Bombay High Court set aside a fina_i order against aDirector passerl under Section lT9(Il of the Act despite the factthat the petitioner therein was put to show cause notice beforeDirector passerl under Section lT9(Il of the Act despite the factthat the petitioner therein was put to show cause notice beforepassing the final order. Since show cause notice was notcontaining adecluate details, interference was made. In the instantcontaining adecluate details, interference was made. In the instantcase, admitteclllr directly a final order is passed u,ithout putting thepetrtloner to nor_ice.petrtloner to nor_ice. 15. in viern, of the foregoing discussion, the impugned orderdated 17.O3.201]3, is liable to be jettisoned. 16. According.ly, the Writ petition is allowed The rmpugned order dated lT .O3.2O23 is set aside. Liberty is reserved to therespondents to follow the principles of natural justice and pass afresh order, in accordance with law. No costs. interlocutoryapplications, 1f qlv pending, shall also stand closed. SD/.V.KAVITHA6 r-otg gc. O', Lln e Born al26\ASSISTANT REGISTRAR//TRUE COPY// [ttSECTION OFFICER To, One fair copy to the HON,BLE SRt JUSTICE SUJOY pAUL (For His Lordship'qKind perusal) AND One fair copy b the HON'BLE SRt JUSTTCE NAGESH BHEEMAPAKA (For His Lordship,s Kind perusal) 1 1 L.R. Copies. 1 2The Under Ser;retary, Union of rndia, tvrinistry of Law, Justice and companyAffairs, New Delhi.Affairs, New Delhi. t I] t, r \ 16. According.ly, the Writ petition is allowed The rmpugned order dated lT .O3.2O23 is set aside. Liberty is reserved to therespondents to follow the principles of natural justice and pass afresh order, in accordance with law. No costs. interlocutoryapplications, 1f qlv pending, shall also stand closed. SD/.V.KAVITHA6 r-otg gc. O', Lln e Born al26\ASSISTANT REGISTRAR//TRUE COPY// [ttSECTION OFFICER To, One fair copy to the HON,BLE SRt JUSTICE SUJOY pAUL (For His Lordship'qKind perusal) AND One fair copy b the HON'BLE SRt JUSTTCE NAGESH BHEEMAPAKA (For His Lordship,s Kind perusal) 1 1 L.R. Copies. 1 2The Under Ser;retary, Union of rndia, tvrinistry of Law, Justice and companyAffairs, New Delhi.Affairs, New Delhi. t I] t, r \ 3- The Secretary, [Telangana Advocates ][Association ][Library' High ][Court]Buildings, HYderabadBuildings, HYderabad 4. ' The Assistant [commissioner ][of ][lncome ][Tax, ][Circle ]---8(1), [signature ][Towers']Opp e;iiniCat Gardens, Kondapur, Hyderabad - 500084Opp e;iiniCat Gardens, Kondapur, Hyderabad - 500084 5. One CC [to ] [A. V. RAGHU ][RAtt'4, ][Advocate ][ ] 6. one cc [to ][sRl ][P. ][[/URALI ][KRISHNA, ][Senior standing ][counsel ][for ][lncome]Tax Tax T.OneCCtoSRlMs.SUNDARI,StandingCounselforlncomeTax 8. Two CD CoPies MPGJP[\qr] I I It w[.of ][d] k*rq HIGH COURT DATED:01 11012024 :__::\,-\1 '- [Sl]c,'(i i,c),(.:26 0E[r-l,At+Op:l nT tt\[(-'j]ORDER WP.No.8369 of 2023 ,, I ALLOWING THE WRIT PETITIONWITHOUT COSTS