High Court Of Gujarat
Ajay S. Patel vs. Income Tax Officer
Section 179
Jayant Patel And S.H. Vora, JJ.
Special Civil Application No. 12861 Of 2014
February 12, 2015
JUDGMENT
Jayant Patel, J. – The facts of the case appears to be that on 25.1.2015, a company in the name and style of Hirak Biotech Limited (hereinafter referred to as “the company”) was incorporated. Initially, there were three Directors. Thereafter, the Directors were added. The petitioner also remained as Director of the company for some time. On 11.10.2013, a show cause notice was issued under section 179 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) calling upon the petitioner to show cause as to why the outstanding tax dues of the company should not be recovered from the petitioner in capacity as the Director of the company. The petitioner submitted reply on 17.10.2013 and as per the petitioner, another show cause notice was issued dated 4.9.2014 calling upon the petitioner to pay the dues, failing which, coercive steps were to be taken. The petitioner replied to the show cause notice and as per the petitioner, when the present proceeding was going on before the officer concerned, the present petition was filed. As per the petitioner, this Court on 16th September, 2014, had entertained the petition and had granted interim stay so far as coercive actions are concerned. It appears that pending the petition, the petitioner received copy of order dated 19.11.2013 already passed by the officer concerned. The petitioner contends that though the order is dated 19.11.2013, it was never served to him and pending the petition since the order is received by him, the petition was amended challenging the said order dated 19.11.2013. It is under these circumstances, the present matter comes up for final disposal before this Court.
2. We have heard learned counsel Mr. Soparkar appearing for the petitioner and Mr. Manish Bhatt, learned counsel for the respondent.
3. As such, it is undisputed position that the company is a limited company and therefore, can be termed as public limited since it is not a private limited company. The language of section 179 provides for taking action for recovery of the outstanding tax of the private limited company from the Directors if the revenue finds that in spite of sincere attempts, it is not possible to recover the outstanding tax amount from the private limited company.
4. However, Mr. Manish Bhatt, learned counsel appearing for the revenue by relying upon the decision of this Court in case of Pravinbhai M. Kheni v. Asstt. CIT [2013] 353 ITR 585/213 Taxman 81/[2012] 28 taxmann.com 111, contended that it is not that no action can be taken against the Directors of the public limited company by lifting the corporate veil. He submitted that if the conditions are satisfied for lifting of the corporate veil as observed in the aforesaid decision of this Court, such is permissible. Therefore, he submitted that the order may not be quashed on such ground, but Mr. Bhatt could not point out to this Court as to whether at any point of time, the petitioner was put to notice on the aspects of lifting of the corporate veil and thereby to treat the Director of the public limited company at par with the Directors of the private limited company as provided under section 179 of the Act.
5. Mr. Soparkar, learned counsel appearing for the petitioner contended that the basic ingredients for lifting of the corporate veil could not be said as satisfied and in the impugned order, there is not a whisper about the lifting of such corporate veil and in his submission, the facts stated in the Affidavit-in-reply cannot be considered for supplementing the order for which there is complete silence.
6. We may record that in the above referred decision of this Court in case of Pravinbhai M. Kheni (supra), while considering the case under section 179 of the Act itself, this Court at page 23 had concluded thus :
“(1) The respondent authorities did establish that it was not possible to recover the tax dues from the company.
(2) The petitioner neither pleaded nor succeeded in establishing that such non recovery was not attributable to any gross neglect, misfeasance or failure in discharging duty on his part in connection with the affairs of the company.
(3) Being a public company, ordinarily, provisions of section 179(1) of the Act cannot be applied. However, if the factors noted by the Assistant Commissioner in his impugned order dated 15.4.2002 and highlighted by us in this judgment are duly established, it would certainly be a fit case where invocation of principle of lifting of corporate veil would be justified.
(4) We however, hold that the Assistant Commissioner proceeded to record such findings without giving sufficient opportunity of hearing to the petitioner and without disclosing the necessary materials for coming to such a conclusion.
(5) The impugned orders dated 15.4.2002 and revisional order dated 9.4.2003 are quashed.
(6) The proceedings are however, placed back before the Assistant Commissioner for proceeding further in accordance with law after giving a notice to the petitioner indicating his tentative grounds why he desires to invoke the concept of lifting of corporate veil, giving sufficient opportunity to the petitioner to meet with such allegations. After giving opportunity of hearing to the petitioner and following the principles of natural justice it would be open for the Assistant Commissioner to pass fresh orders in accordance with law as may be found appropriate on the basis of material on record.”
7. There is considerable force in the contention of the learned counsel for the petitioner that the impugned order is silent on the aspect of lifting of the corporate veil, but at the same time, in view of the aforesaid decision of this Court, it cannot be said that lifting of the corporate veil is impermissible if the facts are so demonstrated and the competent officer is satisfied for such purpose. But, in any case, as per the above referred conclusion No. 6, the person concerned is required to be put to notice by formulation of the tentative ground as to why the concept of lifting of the corporate veil should not be invoked. The Director of the company may show justifiable ground to satisfy the authority that no case is made out for lifting of the corporate veil and thereafter, the competent officer may form an opinion whether to lift the corporate veil or not. But, in any case, as neither has happened in the present case, it can be said that the order passed based on the lifting of the corporate veil even if it is, would be in breach of the principles of natural justice and hence, cannot be sustained.
8. In view of the aforesaid observations and discussions, the impugned order dated 19.11.2013 at Exhibit 1 is quashed and set aside, but with the observations that it would be open to the respondent – competent officer to formulate the ground and thereafter, to give a notice for treating the company as private limited company by lifting of the corporate veil and thereafter, to take steps, if any, available in accordance with law under section 179 of the Act. At that stage, the petitioner may show cause by resisting the ground for contending that it is genuinely a public limited company and the corporate veil should not be lifted. Suffice it to observe that at that stage, rights and contentions of both the sides shall remain open. The petition is partly allowed to the aforesaid extent. Rule is made absolute. Considering the aforesaid facts and circumstances, no order as to costs.
[Citation : 375 ITR 72]
