ATMA TUBE PRODUCTS LTD. VS UNION OF INDIA, 1998 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 3099 (1996)

Income-tax---

----Recovery of tax---Company---Director---Attachment of salary earned by director from, another employer---Resignation of director----Effect---Director liable for arrears of tax payable by company at the time when he was a director---Revision petition by company would not operate to stay recovery proceedings against director---Recovery proceedings were valid---Indian Income Tax Act, 1961, Ss. 179 & 222---Constitution of India, Art.226.

A bare reading of section 179 of the Income Tax Act, 1961, shows that every person who was a director of a private company at any time during the relevant previous year of assessment shall be jointly and severally liable for the payment of tax found due against the company for that previous year.

Filing of a revision petition by the company or its ex-managing director does not ipso facto operate as a stay against recovery proceedings and, therefore, the mere pendency of the revision petition cannot be made a ground for issue of a direction to stop recovery of the tax which is admittedly due against the company and payment of which is the liability of the directors.

The petitioner was working as a conductor with the Punjab Road-ways. He was also a director in the M company floated by his brother. He resigned from the directorship with effect from March 31, 1993. For the assessment year 1990-91, tax and interest amounting to Rs.5,89,990 was found due from M company. Proceedings were initiated against the petitioner and his salary from the Punjab Roadways was attached. On a writ petition against the order:

Held, dismissing the writ petition; that notice was personally served on the petitioner and he had filed a reply. Hence, there was no violation of the rules of natural justice. The Tax Recovery Officer had issued a clarification to the Punjab Roadways to take into consideration the exempted portion of the salary. The recovery proceedings were valid.

A.K. Mittal for Petitioner.

R.P. Sawhney, Senior Advocate with Sanjay Goyal for Respondents Nos. 1 to 3.

Nemo for Respondents Nos.4 and 5.

JUDGMENT

G. S. SINGHVI, J.---This petition has been filed to quash Annexures "P-1", "P-2" and "P-7" issued respectively by the Tax Recovery Officer-I, Jalandhar, General Manager, Punjab Roadways, Amritsar-I, and the Assistant Commissioner of Income-tax Circle 1(1), Jalandhar.

The brief facts:

The petitioner is working as conductor with the Punjab Roadways at Depot No.l, Amritsar. He was a director in Maini Finance (P.) Ltd., a company floated by his brother, Rakesh Kumar Maini. As per Annexure "P-4", the petitioner resigned from directorship of the company with effect from March 31, 1993.

For the assessment year 1990-91, tax and interest amounting to Rs.5,89,990 was found due against Maini Finance (P.) Ltd. and as the authorities of the Income-tax Department could not effect recovery of the outstanding dues from the company, proceedings were initiated under section 179(1) of the Income Tax Act, 1961 (for short, "the Act"). Notice issued by the competent authority under section 179 of the Act was served upon the petitioner directly as well as through his employer, namely General Manager, Punjab Roadways, Depot-1, Amritsar. This fact is revealed from the officer Letter No.2749, dated April 21, 1995, written by respondent No.4 to respondent No.2. The petitioner did not pay the amount and, therefore, respondent No.3 wrote Annexure "P-1" dated January 22, 1996, for respondent No.4 calling upon him to attach the salary of the petitioner for the purpose of recovery of arrears. In compliance with this direction, respondent passed order Annexure "P-2", dated January 31, 1996, and attached the salary payable to the petitioner and further directed that the same shall be deposited in the Central Government account for the purpose of recovery of income-tax. The petitioner represented before respondent No.3 for withdrawal of the order of recovery by making representation Annexure "P-3". In his letter, the petitioner pleaded that he had no other source of income and, therefore, the order for attachment may be got vacated. This request of the petitioner has not been accepted by respondent No.3 and, therefore, the petitioner has not sought the intervention of the High Court for quashing of the impugned orders. His case is that after having resigned from the directorship with effect from March 31, 1993, he cannot be held liable to pay arrears of income-tax found due against Maim Finance (P.) Ltd. Another plea of the petitioner is that proceedings initiated against him are contrary to section 226(2) of the Act read with section 60 of the Code of Civil Procedure. Yet another plea of the petitioner is that against the order of assessment, dated March 17, 1994, a revision petition filed by Rakesh Kumar Maini, ex-managing director of the defaulting company is still pending and, therefore, there is no justification to proceed against him, i.e., the petitioner.

In reply, respondents Nos. l to 3 have pleaded that being director of the company during the year, 1991, the petitioner is jointly and severally liable to pay arrears of income-tax found due against Maini Finance (P.) Ltd. These respondents have pleaded that the order of attachment Annexure "R-1" has been passed on January 18, 1996, and this order clearly shows that it is subject to rule 29 of Schedule 11 to the Act. The respondents have further stated that after receipt of the representation made by the petitioner, respondent No.3 wrote to the general manager on March 6/7, 1996, that attachment of the salary of the petitioner is subject to the proviso to section 226(2) of the Act and respondent No.4 was requested to leave the exempted portion of the salary as provided under section 60 of the Code of Civil Procedure. It has also been pleaded by the respondents that service of notice under section 179(1) of the Act was effected on the petitioner and in order to ensure compliance with the principles of natural justice, another notice, dated February 13, 1995, was served upon the petitioner on March 30, 1995, before order Annexure "P-7" was passed.

The first contention of Shri Mittal, learned counsel for the petitioner, is that order Annexure "P-7" is void on account of non?compliance with the principles of nature justice inasmuch as no notice was served upon the petitioner under section 179(1) of the Act. Shri Sawhney countered this submission by pointing out that notice was personally served upon the petitioner and he had filed a reply on April 4, 1995, and after considering the same, order Annexure "P-7" was passed by the competent Authority. A perusal of Annexure "P-7" together with the averments made in paragraph 4(c) of the reply of respondents Nos. l to 3, which have remained uncontroverted, shows that notice for taking action under section 179(1) of the Act was not only served upon the petitioner but he filed a reply to the same and pleaded that the demand be kept pending because the company had filed a revision petition under section 264 of the Act against the order of assessment. The failure of the petitioner to rebut the contents of Annexure "P-7" regarding service of notice as well as the averments made in paragraph 4(c) of the reply, shows that the argument of Shri Mittal regarding violation of the principles of natural justice is wholly untenable. If the petitioner had not been served with notice for proceedings under section 179(1), he could not have filed a reply to the same or made a request for keeping the demand pending till the Commissioner of Income-tax, Jalandhar, decided the revision petition. We therefore, do not find any substance in the argument of Shri Mittal that order Annexure "P-7" and subsequent orders passed by respondents Nos. l to 3 are liable to be voided due to the violation of the rule of audi alteram partem.

The second argument of Shri Mittal is that the petitioner cannot be held liable to pay arrears after his resignation from the directorship of the company. This argument proceeds on an assumption that the resignation from the directorship of the company ipso facto absolves the petitioner of all the liabilities, which he incurred during the period he was a director of the company. A bare reading of section 179 of the Act shows that every person who was a director of the private company at any time during the relevant previous year of the assessment shall be jointly and severally liable for the payment of tax found due against the company for the relevant previous year. The tax found due in this case relates to the assessment year 1991-92 when the petitioner was very much director of the company. Therefore, he cannot escape his liability to pay the arrears after the competent Authority found that it was impossible to recover the amount from Maini Finance (P.) Ltd.

The third contention of Shri Mittal is that during the pendency of the revision petition filed by the company by its ex-managing director, the petitioner cannot be made, to pay the amount of arrears. This argument is misconceived. The filing of a revision petition by the company or its ex-?managing director does not ipso facto operate as a stay against the recovery proceedings and, therefore, the mere pendency of the revision petition cannot be made a ground for issue of direction to stop making recovery of tax which is admittedly due against the company and payment of which is the liability of the petitioner and other director of the company.

Lastly, Shri Mittal argued that the entire salary of the petitioner has been attached and this action of the respondents is contrary to section 60 of the Code of Civil Procedure. Shri Sawhney pointed out that respondent No.3 has issued clarification to respondent No.4 to take into consideration the exempted portion of the salary while making recovery pursuant to Annexure "R-2" read with Annexure "P-1". In our opinion, Annexure "R-2" completely negates the submission of Shri Mittal that the proceedings are contrary to section 60 of the Code of Civil Procedure.

In view of the above discussion, we hold that the challenge to the recovery by the respondents from the salary of the petitioner is untenable and the writ petition is liable to be dismissed. Ordered accordingly.

M.B.A./1574/FC???????? ??????????????????????????????????????????????????? Petition dismissed.