Thirupathi Kumar v. The Assistant Commissioner Of Income Tax, Corporate Circle –

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.03.2021 CORAM: THE HONOURABLE MR. JUSTICE C.SARAVANAN andW.M.P.Nos.26819 & 26820 & 26861 & 26862 of 2018 andW.M.P.Nos.13859 to 13863 of 2018 1.Sri.Manoj Kumar Tibrewala, (Director of M/s.Gangotri Textiles Ltd) 12, Amarjothi Apartment, R.S.Puram, Coimbatore 641002. ... Petitioner in W.P.No.22923 of 2018 2.Sri.Mohanlal Tibrewala, (Director of M/s.Gangotri Textiles Ltd) 12, Amarjothi Apartment, R.S.Puram, Coimbatore 641 002. ... Petitioner in W.P.No.22924 of 2018 3.Raj Kumar ... Petitioner in W.P.No.11880 of 2018 4.Thirupathi Kumar ... Petitioner in W.P.No.11881 of 2018 Vs. The Assistant Commissioner of Income Tax, Corporate Circle – 2, 63, Race Course Road, Coimbatore – 641 018. ... Respondent in W.P.Nos.22923 &22924 of 2018 2.The Deputy Commissioner of Income Tax, Corporate Circle – 1, No.63, Race Course Road, Coimbatore – 641 018. Corporate Circle – 1, No.63, Race Course Road, Coimbatore – 641 018. 3.The Assistant Commissioner of Income Tax, Corporate Circle -1, No.63, Race Course Road, Coimbatore – 641 018.... Respondent in W.P.Nos.11880 https://hcservices.ecourts.gov.in/hcservices/ &11881 of 2018 PRAYER in W.P.Nos.22923 & 22924 of 2018:- Writ Petition isfiled under Article 226 of the Constitution of India prayingfor the issuance of Writ of Certiorari, to call for therecords of the respondent in his impugned order passed againstthe petitioner under Section 179 of the Income Tax Act 1961 inAAACG8018M/Cor/Circle.2/2018-19 dated 25.06.2018 and quash thesame. PRAYER in W.P.Nos.11880 & 11881 of 2018:- Writ Petition isfiled under Article 226 of the Constitution of India prayingfor the issuance of Writ of Certiorari, to call for therecords on the file of the respondent and quash the impugnednotice in P.A.No.AAACN1569L/Corp.Cir1/2017-18 under Section179 of the Act dated 22.08.2017 issued by the first respondentalong with consequent impugned order under Section 179 of theAct dated 23.02.2018 issued by the Second respondent andconsequently quash the said proceedings. By this common order, all these writ petitions are beingdisposed. 2.The petitioner has challenged these order passed by theAssistant Commissioner of Income Tax, Corporate Circle 1 and2, Coimbatore under Section 179 of the Income Tax Act, 1961.Details of the impugned order are as under:- W.P.Nos.DateImpugnedOrderDefaultingpassed bycompany22923 of 2018 25.06.2018TheAsst.M/s.GangotriCommissionerofTextiles Ltd.IncomeTax,Corporate Circle –2, Coimbatore.11880-81 of23.02.2018TheAsst.NEPC Agro Food2018CommissionerofLtd.IncomeTax,Corporate Circle-1,Coimbatore. 3.These orders are challenged by the petitioner primarilyon the ground that invocation of Section 179 of the Income TaxAct, 1961 was without jurisdiction in as much as the assesseein default in the respective cases of which the petitioner bydirectors/shareholders were not private limited companies. 4.In this connection, the learned counsel for thepetitioner has placed reliance on the decision of the Hon'bleSupreme court in M.Rajamoni Amma Vs. DU.C.I.T 1993 supplement(1) SCC wherein it was held as under:- W.P.Nos.DateImpugnedOrderDefaultingpassed bycompany22923 of 2018 25.06.2018TheAsst.M/s.GangotriCommissionerofTextiles Ltd.IncomeTax,Corporate Circle –2, Coimbatore.11880-81 of23.02.2018TheAsst.NEPC Agro Food2018CommissionerofLtd.IncomeTax,Corporate Circle-1,Coimbatore. 3.These orders are challenged by the petitioner primarilyon the ground that invocation of Section 179 of the Income TaxAct, 1961 was without jurisdiction in as much as the assesseein default in the respective cases of which the petitioner bydirectors/shareholders were not private limited companies. 4.In this connection, the learned counsel for thepetitioner has placed reliance on the decision of the Hon'bleSupreme court in M.Rajamoni Amma Vs. DU.C.I.T 1993 supplement(1) SCC wherein it was held as under:- 4.Before us, learned counsel for theappellants relied upon the above communicationfrom the Registrar of Companies but since thegenuineness of this letter was doubted weissued notice to the Registrar of Companies,Kerala. It clearly shows that the company hadbecome a public limited company by virtue ofSection 43-A of the Companies Act w.e.f October1, 1975. As already mentioned, the arrearssought to be recovered from the appellantsrelate to the assessment years 1977-78 to 1982-83. Obviously, the Company being a publiclimited company, proceedings against thedirectors for recovery of the tax due from thecompany cannot be taken, and certainly notproceeded with, under Section 179 of the IncomeTax Act, 1961. We need hardly say Article 265of the Constitution clearly prohibits anyattempt to recover taxes except under theauthority of law. It is, therefore, clear thatfurther proceedings against the appellants forrecovery of the tax due from the company haveto be stayed. 5.For the reasons stated above, we allowthese appeals, quash the order passed underSection 179 of the Income Tax Act by the DeputyCommissioner and the further orders passed bythe Commissioner of Income Tax in revision andunder Section 154 of the Act. Furtherproceedings against the present appellants forrecovery of the tax due from the company shouldnot be taken. We, however, should not beunderstood as having in any way restricted thepowers of the department to recover the amountsdue from the company by other processes inaccordance with law. We also make it clearthat any amounts which might have been paideither by the appellants or by the company inthe course of the proceedings now underchallenge will not be liable to be refunded tothe appellants. 5.The learned counsel for the petitioner further submitsthat the decisions of the Hon'ble Gujarat High Court inPravinbhai M.Kheni Vs. The Assistant Commissioner of IncomeTax & Others [2013] ITR Guj 353 585 is not applicable to thefacts in as much as it dealt with a liability of a company andthere was a wrong declaration that it was a public limitedcompany. 6.He was further submitted that the opening paragraph ofthe order in Hon'ble Gujarat High Court in Pravinbhai M.KheniVs. The Assistant Commissioner of Income Tax & Others [2013]ITR Guj 353 585 itself makes it clear that the petitionertherein was a director of a private limited company andtherefore invocation of Section 179 was attracted. 7.Mr.A.P.Srinivas, learned counsel for the respondentsubmits that the writ petition was liable to be dismissed. Itis submitted that the petitioners have an alternate remedyunder Section 264 of the Income Tax Act 1962 by way ofrevision and therefore liberty may be given to the petitionerto work out the remedy under Section 264 of the Income TaxAct,1962. 6.He was further submitted that the opening paragraph ofthe order in Hon'ble Gujarat High Court in Pravinbhai M.KheniVs. The Assistant Commissioner of Income Tax & Others [2013]ITR Guj 353 585 itself makes it clear that the petitionertherein was a director of a private limited company andtherefore invocation of Section 179 was attracted. 7.Mr.A.P.Srinivas, learned counsel for the respondentsubmits that the writ petition was liable to be dismissed. Itis submitted that the petitioners have an alternate remedyunder Section 264 of the Income Tax Act 1962 by way ofrevision and therefore liberty may be given to the petitionerto work out the remedy under Section 264 of the Income TaxAct,1962. 8.He submits that there are several disputed question offact as to whether the said Gangothari Textiles Limited inrespect of which the tax due was a public limited company or aprivate limited company. It is to be determined by theauthority. He further submits that the drift has been to liftthe corporate and liability can be fastened on the Directorthough Section 179 of the Income Tax Act, 1961. He alsoplalced reliance on the decision of the Hon'ble Gujarat HighCourt in Ajay Surendea Patel Vs. DC IT [2017] 78 Taxmann.com399 (Gujarat) referred to supra. 2.Learned Standing Counsel appearing for theRespondent, placing strong reliance on theDoctrine of Piercing the Corporate Veil recognizedby the Hon'ble Supreme Court of India inCommissioner of Income Tax, Madras -vs- SriMeenakshmi Mills Ltd., (AIR 1967 SC 819) for taxevasion or to circumvent tax obligation which hasbeen quoted with approval by the ConstitutionBench of the Hon'ble Supreme Court of India inLife Insurance Corporation of India -vs- EscortsLtd., [(1986) 1 SCC 264] and followed by theDivision Benches of the High Court of GujaratPravinbhai M.Kheni -vs- Assistant Commissioner ofIncome-Tax, Central Circle – 2 (Judgment dated06.11.2012 in Special Civil Application No.12254of 2002) and Ajay Surendra Patel -vs- DeputyCommissioner of Income-Tax (Judgment dated23.02.2017 in Special Civil Application No.6580 of2016), contends that it would not be alien tohttps://hcservices.ecourts.gov.in/hcservices/apply the principles of Section 179 of the IT Act for recovery of income tax liability owed by aPublic Limited Company from its erstwhileDirectors also, if the conditions prescribed inthat statutory provision is fulfilled. 9.I have considered the arguments advanced by the learnedcounsel for the petitioner and the respondent. 10.The impugned orders have been passed under Section 179of the Income Tax Act, 1961 which specifically applies toliability of directors of private companies. The definitionsof private limited company and public limited company Section3(i)(iii) and (iv) of the Companies Act, 1956 is clear. 11.The definition of company has defined in CompaniesAct, 1956 has been incorporated in the Income Tax Act, 1961.The Companies Act, 1956 recognizes private limited company andpublic limited company. There are no evidence on records toconclude that the said assessee in default companies namelyM/s.Gangotri Textiles Ltd and NEPC Agro Foods Ltd was aprivate limited company. 9.I have considered the arguments advanced by the learnedcounsel for the petitioner and the respondent. 10.The impugned orders have been passed under Section 179of the Income Tax Act, 1961 which specifically applies toliability of directors of private companies. The definitionsof private limited company and public limited company Section3(i)(iii) and (iv) of the Companies Act, 1956 is clear. 11.The definition of company has defined in CompaniesAct, 1956 has been incorporated in the Income Tax Act, 1961.The Companies Act, 1956 recognizes private limited company andpublic limited company. There are no evidence on records toconclude that the said assessee in default companies namelyM/s.Gangotri Textiles Ltd and NEPC Agro Foods Ltd was aprivate limited company. 12.There are no records to substantiate the saidcompanies was a private limited company. Therefore, challengeto invocation of Section 179 of the Income Tax Act alsoappears to correct. Considering the fact that the records arenot in produced either by the petitioner nor the respondent, Iam of the view that the impugned orders is liable to bequashed. These cases are remitted back to the respondent topass appropriate orders, after considering the definition ofthe 'Company' in Section 262(68) and (71) of the CompaniesAct, 2013 and ..deals of the Companies Act, 1956. Therespondent may how issue a proper notice after examining thecertificate of incorporation of the respective assessee indefault and after examined the articles and Memorandum andArticle of association of M/s.Gangotri Textiles Ltd and NEPCAgro Foods Ltd. If there are materials to suggest thatthe ...company were a private limited company the respondentmay pass appropriate order under Section 179 of the Income TaxAct. This exercise shall be carried out by the respondentwithin a period of three months from the date of receipt of acopy of this order. In case the records from the Registrar ofCompanies indicates that the assessee in default was a publiclimited company no further proceedings is to be taken. In theevent, there is a prima facie material to conclude that theassessee in default were a private limited company,appropriate notice may be issued to the petitioners. https://hcservices.ecourts.gov.in/hcservices/ 13.Writ Petitions stand disposed of with the aboveobservations. No costs. Consequently, connectedMiscellaneous Petitions are closed. Sd/- Assistant Registrar(CS VIII) //True Copy// Sub Assistant Registrar jas To1.The Assistant Commissioner of Income Tax, Corporate Circle – 2, 63, Race Course Road, Coimbatore – 641 018. 2.The Deputy Commissioner of Income Tax, Corporate Circle – 1, No.63, Race Course Road, Coimbatore – 641 018. 3.The Assistant Commissioner of Income Tax, Corporate Circle -1, No.63, Race Course Road, Coimbatore – 641 018. +1cc to Mr.Wall cliffs Law Firm, Advocate SR.No. 14084+1cc to Mr.A.P.Srinivas, Advocate SR.No. 4288W.P.Nos.22923 & 22924 of 2018 andW.P.Nos.11880 and 11881 of 2018andW.M.P.Nos.26819 & 26820 & 26861 & 26862 of 2018 andW.M.P.Nos.13859 to 13863 of 2018 ssd(CO) A.SK(08.07.2021)