Wa/1180/2018 Of Mailakkattu Varghese Uthup v. The Principal Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 25TH DAY OF JUNE 2018 / 4TH ASHADHA, 1940 W.A.No.1180 of 2018 ------------------------------ AGAINST THE JUDGMENT IN W.P(C).No.10675/2018-H DATED 11-06-2018OF HIGH COURT OF KERALA.----------------- APPELLANT(S)/ PETITIONER:- --------------------------------------------- MAILAKKATTU VARGHESE UTHUP, S/O.THOMAS VARGHESE, MALIAKKATTU HOUSE, PUTHUPALLY P.O., KOTTAYAM DISTRICT-686011. BY ADVS.SRI.JOSEPH MARKOS (SENIOR ADVOCATE) SMT.PREETHA S.NAIR RESPONDENT(S)/ RESPONDENTS:- ---------------------------------------------------- 1. THE PRINCIPAL COMMISSIONER OF INCOME TAX, C.R.BUILDING, I.S.PRESS ROAD, KOCHI-682018. C.R.BUILDING, I.S.PRESS ROAD, KOCHI-682018. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM, ALFA LIZA BUILDING, NEAR AMBADY CHAMBERS, CHITTOOR ROAD, OPP. SRV LP SCHOOL, KOCHI-682011. 3. DIRECTOR GENERAL OF INCOME TAX (INV), S.A.ROAD, KOCHI-682020. 4. BUREAU OF IMMIGRATION (MINISTRY OF HOME AFFAIRS), COCHIN INTERNATIONAL AIRPORT LTD., KOCHI-682311. COCHIN INTERNATIONAL AIRPORT LTD., KOCHI-682311. 5. THE REGISTRAR OF COMPANIES, KOCHI-682037. KOCHI-682037. R1 TO R3 BY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES)SRI.JOSE JOSEPH. R4 & R5 BY ASSISTANT SOLICITOR GENERAL OF INDIA SRI.N.NAGARESH. THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 25-06-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. Vinod Chandran & Ashok Menon, JJ. ------------------------------------------------------- W.A.No.1180 of 2018 ------------------------------------------------------- Dated, this the 25[th] day of June, 2018JUDGMENT Vinod Chandran, J: The appellant is a person against whom a red cornernotice was issued through Interpol, upon which he returned to Indiaand was arrested from the Cochin International Airport by theinvestigating agency. The appellant is on bail in the criminal casebooked by the Central Investigation Bureau. The bail conditionsprovided for surrender of the Passport and restriction in leavingIndia. Later, the appellant was before the Sessions Court for waivingthe conditions, which was allowed. Consequently the Passport wasreleased by the Sessions Court and the appellant had gone abroadand returned within the time stipulated. Again the appellant onalleged renal complaint, which has to be treated in Abu Dhabi (atwhich place he has a valid insurance), approached the High Courtwith an application for relaxation of the conditions. This Court byExhibit P5 granted a relaxation of six months insofar as therestriction was concerned and relegated the appellant to theSessions Court. The learned Sessions Judge, by Exhibit P7 - 2 - permitted the appellant to leave the country for 45 days. Exhibit P7was dated 15.03.2018. 2. The appellant then was confronted with Exhibit P8 order dated 05.03.2018 under Section 230 of the Income Tax Act,1961 [for brevity “IT Act”]. The appellant had already been issuedwith an order at Exhibit P13 dated 14.08.2017 under Section 179 ofthe IT Act. The order at Exhibit P8 was issued in view of theoutstanding liability of the appellant in his individual capacity for theassessment years 2009-10 to 2015-16. The total liability came toRs.22,66,713/-. The appellant submits that the said demand hasbeen stayed, as seen from the endorsements in Exhibit P11 andP19; on payment of 20% of the demand. The tax and penalty asdemanded for the assessment years 2009-10 to 2015-16 havingbeen stayed, there is no demand subsisting on the appellant whichalone could enable the officer to act under Section 230 of the IT Act,is the submission of the learned Senior Counsel. 3. With respect to Exhibit P13 order, though it wasissued on 14.08.2017, it was not served on the appellant. Theappellant on coming to India on 29.03.2017, was apprehended fromthe Airport and was in judicial custody when proceedings under - 3 - Section 179 was initiated. The appellant had absolutely no notice ofthe same. The learned Senior Counsel would point out that thedemand under Section 179, as seen from Exhibit P13, is withrespect to a Company in which the appellant was a Director. Theappellant had resigned from the Directorship in the year 2009 itselfand the same is evidenced by the documents before the Registrarof Companies. 4. The learned Standing Counsel for the Departmentpoints out that the criminal case also originated from a raidconducted by the Income Tax Department in the premises of theCompany. About Rs.4.86 crores was recovered in liquid cash fromthe premises at the time of raid. Notices were issued to theDirectors of the Company and the proceedings were finalized forassessment, on which tax and penalty is due to the Revenue. Therehas been no challenge made to the assessment or penalty orderspassed against the Company. In the case of the Company, as isseen from Exhibit P13 order, after adjustment of the amountsrecovered as cash from the premises of the Company, there are stillhuge amounts due as tax and penalty for the years 2009-10 to2015-16, coming to almost Rs.400 crores. It is also submitted that - 4 - the resignation of the appellant made in the year 2009, is anargument set up to get over the liability as has been imposed on theCompany. It is pointed out that the resignation in the year 2009 wasintimated to the Registrar of Companies only in the year 2011 by anofficer authorized in the year 2011 to file such returns. The samewas an afterthought and cannot be relied on to relieve the appellantof the liability as against the Private Limited Company. Yet again, itis pointed out that even assuming for argument sake that theappellant had resigned in the year 2009, even then there is hugeliability for the years 2009-10 and 2010-11 when the appellant wasadmittedly a Director of the Company. There is more than Rs.24crores due as tax and penalty for the said years after adjustment ofthe liquid cash recovered from the premises of the Company. Withrespect to the order under Section 230, the same is sought to besustained on the basis of the words employed in the Section, whichdoes not necessarily speak of a valid demand existing. An ordercould be issued even when a tax liability may be imposed on theassessee. 5. The learned Senior Counsel for the appellant relies onthe decision in I.T.O. v. Mrs.A.Sattler [(1973) 92 ITR 576] to - 5 - contend that there could be no restrictive orders passed, underSection 230 when there is no subsisting demand for tax from theassessee. It is also contended that the instructions issued by theCentral Board of Director Taxes (CBDT), for Tax ClearanceCertificate under Section 230, speaks of such certificates beinginsisted upon only in the context of there being direct tax arrearsexceeding Rs.10 lakhs outstanding against an assessee which hasnot been stayed by any other authority. It is also pointed out that'tax due' for the purpose of Section 179 includes penalty, since theExplanation under Section 179 was brought in only in the year2013. For the assessment year prior to that, the provision underSection 179 would have to be taken as it existed then. The learnedSenior Counsel also places before us a decision of the High Courtof Allahabad in Pratibha Garg v. Commissioner of Income Tax[(2014) 264 CTR 520 (All.)] to further buttress this point. 6. At the outset, whether the Explanation brought underSection 179 would apply to any recovery, for assessment yearsprior to its introduction, need not now be looked at, since evenotherwise there is due as tax, more than 16 crores for theassessment year 2010-11 as against the Company as seen from W.A.No.1180 of 2018 - 6 - 6. At the outset, whether the Explanation brought underSection 179 would apply to any recovery, for assessment yearsprior to its introduction, need not now be looked at, since evenotherwise there is due as tax, more than 16 crores for theassessment year 2010-11 as against the Company as seen from W.A.No.1180 of 2018 - 6 - Exhibit P13 order. It is the submission of the learned SeniorCounsel that the appellant is a person who was once allowed to goabroad, who has returned promptly within the time stipulated andeven now his intention is to get medical assistance from the countryin which he has a valid insurance policy. However, we do not seeanything produced to substantiate the claim that the insurance astaken out by the appellant from Abu Dhabi restricts indemnificationonly insofar as the medical treatment carried out within that country.The appellant requires travel abroad for the purpose of availing thebenefit as per the insurance policy; the terms of which have notbeen revealed in the writ petition. 7. Mrs.A.Sattler, according to us has no applicationlooking at the facts of the above case; which are quite distinct.Therein the assessee was the deceased husband of the respondentbefore the Supreme Court. After the death of the assessee, his wifewanted to go abroad to join her daughter, for which she applied forincome-tax clearance certificate. The certificate was refused forreason of the arrears due from her late husband. The respondentmoved the High Court which found that there was no validassessment on the assessee. It was hence the Supreme Court - 7 - affirmed the order of the High Court interfering with the orderrefusing tax clearance certificate. 8. As for the contention regarding the circular of the CBDT, it is to be noticed that one of the circumstances under whichsection 230 (1A) was found to be possible of invocation, in thecircular itself, was: “where the person is involved in serious financial irregularities and his presence is necessary in investigationof cases under the Income-tax Act or the Wealth-tax Act andit is likely that a tax demand will be raised against him.”The appellant squarely comes under the said contingency. 9. We would not go into the other issues raised before us, since we find that the learned Single Judge had remanded thematter to the officer who passed the orders under Sections 230 and179. The learned Single Judge found that the appellant was notheard in both the said proceedings. The Department's argumentthat notice was issued but none turned up, was also noticed. Thefact that the appellant was detained when Section 179 proceedingswere initiated and proceeded with, was also taken note of.Considering all these circumstances, the order under Section 179was quashed and the appellant was directed to be re-heard within aperiod six weeks. In the meanwhile, the proceedings under Section - 8 - 9. We would not go into the other issues raised before us, since we find that the learned Single Judge had remanded thematter to the officer who passed the orders under Sections 230 and179. The learned Single Judge found that the appellant was notheard in both the said proceedings. The Department's argumentthat notice was issued but none turned up, was also noticed. Thefact that the appellant was detained when Section 179 proceedingswere initiated and proceeded with, was also taken note of.Considering all these circumstances, the order under Section 179was quashed and the appellant was directed to be re-heard within aperiod six weeks. In the meanwhile, the proceedings under Section - 8 - 230 were also directed to be done afresh. However, Exhibit P8 wasnot interfered with only to ensure that in the meanwhile theappellant does not go abroad and in the process take flight. Thelearned Single Judge also directed the officer to consider whetherExhibit P8 has to be sustained or varied on a review.10. We are of the opinion that there could be nointerference caused to the directions passed by the learned SingleJudge. However, we notice that a time frame of six weeks has beengranted for conclusion of the proceedings under Section 179 andfurther time of four weeks with respect to an order under Section230. In such circumstances, we would issue specific orders fixingthe time within which a notice has to be served, appearance has tobe made and orders passed. We are also of the opinion thatExhibits P13 and P8 orders have to be quashed; but, however, witha restriction that the order not to travel outside India as is seen fromExhibit P8 shall continue till fresh orders are passed. It is soordered. The appellant is directed to appear before the 2[nd]respondent on 29.06.2018, on which date he shall be issued with afresh notice under Section 179 and under Section 230. Theappellant shall file written objections, if required, and shall appear W.A.No.1180 of 2018 - 9 - on 06.07.2018 for a hearing. The 2[nd] respondent would be entitledto fix another date of hearing, within one week itself, if he has anypersonal inconvenience. The matter shall be heard on the hearingdate fixed by this Court or on the date fixed by the officer hearingthe matter, and a written order passed within two weeks; both underSections 179 and 230. We make it clear that by directing an order tobe passed, we are not for a moment directing invocation of theprovisions ie: of Sections 230 and 179. If the officer feels that thetravel of the appellant need not be restricted, the officer would beentitled to say so, but on reasoning given. In passing an order, theofficer should take note of the fact that properties of the appellantare attached. The officer would also, in adjudicating the issue ofpermitting the appellant's travel abroad, verify whether theproperties already attached would be sufficient to satisfy thedemands made against the appellant. The Registrar of Companieswho has been impleaded as the additional respondent in the writpetition and appearing in the party array of the appeal shall provideall necessary assistance to the 2[nd] respondent and furnishdocuments if any of the private limited Company in which theappellant is said to be a Director. With the above observations, the Writ Appeal wouldstand disposed of. It is made clear that the observations made inthe aforesaid judgment need not regulate the adjudication by the 2[nd]respondent since they are only prima facie observations, and theappellant would be entitled to raise all his contentions before the 2[nd]respondent. Writ Appeal disposed off as above. Sd/-K.Vinod ChandranJudge vku/- [ true copy ] Sd/- Ashok MenonJudge