Alex Cherian vs Commissioner of Income Tax

P.R. Ramachandra Menon, J.—The petitioner is one and the same in all these three cases pertaining to 3 different assessment years, 1993-94, 1994-95and 1995-96. The challenge is mainly against Exts. P2, P3 and P4 proceedings/orders taken/issued by the departmental authorities, under the Income Tax Act, whereby the petitioner who was the Director of a Private Limited Company, has been proceeded against, in respect of the amount due from the Company, invoking the provision u/s 179 of the ''Act''.

With regard to the sequence of events; it is to be noted that the assessment orders were passed in respect of the assessment years 1993-94, 1994-95 and 1995-96, which were subjected to challenge by the assessee-company, by filing appeals before the Income Tax Appellate Tribunal. Having lost the battle before the Tribunal, three different appeals were preferred before this Court, as ITA 2 of 2005, ITA 9 of 2005 and ITA 12 of 2005. When the appeals were being heard in June 2008, the appellant-company made a submission that, they might be permitted to proceed with the steps for settlement by approaching the Settlement Commissioner. Considering the prayer made in this regard, the appeals were closed by this Court, permitting the appellant to approach the Settlement Commissioner and accordingly, necessary proceedings were filed before the Settlement Commissioner, calling for his intervention in the matter. However, the applications were rejected by the Settlement Commissioner, holding that his jurisdiction was not attracted, as no proceeding was ''pending'' before the authorities under the Income Tax Department.

Met with the said circumstances, the petitioner filed an LA. before this Court seeking to reopen the appeals, where interference was declined; observing that the remedy was to file appropriate review petitions, if aggrieved in any manner. This led to filing of three separate Review Petitions (R.P. 474 of 2009 in respect of ITA 2 of 2005, R.P. 489 of 2009 in respect of ITA 9 of 2005 and R.P. 492 of 2009 in respect of ITA 12 of 2005). It is pointed out that, the Review Petitions are still pending before this Court.

The learned Counsel for the petitioner submits that, in response to the notice dated 23-8-2006 issued to the petitioner in his capacity as the Director of the Company, a detailed statement of objection was submitted. However, without considering the same in the proper perspective, Ext. P2 order was passed by the second respondent, turning down the case projected by the petitioner. Aggrieved by Ext. P2, the petitioner preferred a Revision Petition before the first respondent and after considering the entire facts and figures, the first respondent passed Ext. P3 order, upholding Ext. P2 and observing that, the case projected by the petitioner was wrong and misconceived in all respects. The petitioner is challenging Exts. P2 and P3 orders along with the consequential proceedings, to the extent they have adversely affected the petitioner.

The primary contention of the petitioner is that, the invocation of power u/s 179 of the Income Tax Act is not correct or sustainable for the reason that, absolutely no finding has been arrived at by the depart mental authorities holding that, the due amount is not recoverable from the Company and its assets. The second contention is that, the lapses are not attributable to the deeds or misdeeds of the petitioner involving gross neglect, misfeasance or breach of duty in relation to the affairs of the Company. The learned Counsel for the petitioner also places reliance on Ext. P7, where particulars of the assets of the Company have been given in detail contending that, the departmental authorities are very much at liberty to proceed against such assets of the Company, particularly in view of the fact that, the debts due to the department is liable to be treated as ''Crown Debt''. Reliance is also placed on the decision rendered by the Constitution Bench of the Supreme Court in Builders Supply Corporation Vs. The Union of India (UOI) Represented by the Commissioner of Income Tax, West Bengal and Others, . The learned Counsel also made reference to the power vested with the departmental authorities and the mode of recovery, as contemplated u/s 226 of the Income Tax Act as well.

The learned standing counsel for the department submits that, the proceedings u/s 179 of the Act, have been taken in conformity with the statutory requirements. It is also pointed out that, a specific finding has been arrived at that, the due amount could not be recovered from the Company as observed in very opening paragraph of Ext. P2 itself. A similar reference is made in a different context in the very same order. Reference is also made to the acts and deeds pursued by the petitioner as a Director of the Company and in siphoning out and diversion of the funds to some other Company, though the same has been sough t to be denied by the petitioner in the reply affidavit. The question is whether the concerned authority was satisfied of the basic ingredients of the Statute, as prescribed u/s 179 i.e., whether the amount could be recovered from the Company or not and whether the non-recovery was because of the gross neglect/misfeasance breach of duty attributable to the Directors concerned. It was after referring to the available facts and figures that, the concerned authority arrived at a finding in this regard as borne by Ext. P2 and as such, the statutory requirement has been very much complied with. This being the position, the challenge raised by the petitioner, contending that Ext. P2 order passed by the concerned respondent is in contravention of the specific stipulation u/s 179 of the Income Tax Act does not hold any water at all.

With regard to the contention raised by the petitioner that, the department is having better claim, it is to be noted that there is no specific provision in the Income Tax Act (similar to the provision as it exists in the KGST Act or other similar enactment). The reliance placed by the petitioner on the decision rendered in Builders Supply Corporation''s case (supra) stands on a different footing. In the above case, the issue was never in respect of the comparative rights and liberties between the ''Secured Creditors'' and the Income Tax Department. On the other hand, as very much discernible from paragraph 31 and elsewhere, it was clearly a dispute between the ''ordinary creditors'' and the Income Tax Department and after weighing the ''plus'' and ''minus'' points, it was categorically declared that, the rights and liberties of the Income Tax Department would prevail over the rights of the other creditors.

The learned standing counsel for the department submits that the position in a case involving the rights and liberties of ''Secured Creditors'' stands entirely on a different footing, in view of the conspicuous absence of enabling provision. The Income Tax Department can have only a lesser extent of rights over the properties in question i.e., only after satisfying the rights and interests of the ''Secured Creditors'', submits the learned standing counsel. Reliance is placed on the decision rendered by the Apex Court in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , wherein the right of the ''Secured Creditors'' which stands on a higher pedestal is explained in crystal-clear terms. The learned standing counsel further submits that, the property belonging to the Company is not at all enough to satisfy the liability, which is of about Rs. 1.99 crores. This is more so, when there are other better and preferential claims put forward by the Secured Creditors and, hence, that the action pursued by the department authorities, invoking the Section 179 of the Act, is justified.

Considering the facts and figures as referred to above, the prime point to be considered and dealt with, i.e., as to the alleged violation of the statutory requirement of Section 179 stands answered against the petitioner. The various aspects considered and dealt with by second respondent in Ext. P2 order, have been subjected to further analysis by the first respondent, before arriving at the conclusion as per Ext. P3 order. The finding and reasoning appear to be very much in conformity with the materials on record and there is proper application of mind.

In the above circumstances, the Writ Petitions fail; interference is declined and they are dismissed accordingly. This will be without prejudice to the right of the petitioner to pursue the Review Petitions stated as filed and pending or any other remedy available in accordance with law.