DARSHAN KUMAR vs COMMISSIONER OF INCOME TAX and Others

G. S. SINGHVI, J. :

This petition has been filed to quash Annexures P1, P2 and P7 issued respectively by TRO-I, Jalandhar, General Manager, Punjab Roadways, Amritsar-I and the Asstt. CIT, Circle 1(1), Jalandhar.

Brief facts :

The petitioner is working as a conductor with the Punjab Roadways at Depot No. 1, Amritsar. He was a Director in M/s Maini Finance (P) Ltd., a company floated by his brother Rakesh Kumar Maini. As per Annexure P4, the petitioner resigned from directorship of the company w.e.f. 31st March, 1993.

For the asst. yr. 1990-91, tax and interest amounting to Rs. 5,89,990 was found due against M/s Maini Finance (P) Ltd. and as the authorities of the IT Department could not effect recovery of the outstanding dues from the company, proceedings were initiated under s. 179(1) of the IT Act, 1961 (for short, the Act). Notice issued by the competent authority under s. 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 office letter No. 2749 dt. 21st April, 1995 written by respondent No. 4 to respondent No. 2. The petitioner did not pay the amount and, therefore, respondent No. 3 wrote Annexure P1 dt. 22nd Jan., 1996 to respondent No. 4 calling upon him to attach the salary of the petitioner for the purpose of recovery of arrears. In compliance of this direction, respondent No. 4 passed order Annexure P2 dt. 31st Jan., 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 P3. 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 sought the intervention of the High Court for quashing of the impugned orders. His case is that after having resigned from the directorship w.e.f. 31st March, 1993, he cannot be held liable to pay arrears of Income Tax found due against M/s Maini Finance (P) Ltd. Another plea of the petitioner is that proceedings initiated against him are contrary to s. 226(2) of the Act r/w s. 60 of the CPC. Yet another plea of the petitioner is that against the order of assessment dt. 17th March, 1994 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 No. 1 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 M/s Maini Finance (P) Ltd. These respondents have pleaded that order of attachment Annexure R1 has been passed on 18th Jan., 1996 and this order clearly shows that it is subject to r. 29 of Schedule II of 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 6/7th March, 1996 that attachment of the salary of the petitioner is subject to the proviso to s. 226(2) of the Act and respondent No. 4 was requested to leave the exempted portion of the salary as provided under s. 60 of the CPC. It has also been pleaded by the respondents that service of notice under s. 179(1) of the Act was effected on the petitioner and in order to ensure compliance of the principles of natural justice, another notice dt. 13th Feb., 1995 was served upon the petitioner on 30th March, 1995 before order Annexure P7 was passed.

First contention of Shri Mittal, learned counsel for the petitioner is that order Annexure P7 is void on account of non-compliance of the principles of natural justice inasmuch as no notice was served upon the petitioner under s. 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 4th April, 1995 and after considering the same, order Annexure P7 was passed by the competent authority. A perusal of Annexure P7 together with the averments made in para 4(c) of the reply of respondents 1 to 3, which have remained uncontroverted, shows that notice for taking action under s. 179(1) of the Act was not only served upon the petitioner but he filed reply to the same and pleaded that the demand be kept pending because the company had filed revision petition under s. 264 of the Act against the order of assessment. The failure of the petitioner to rebut the contents of Annexure P7 regarding service of notice as well as the averments made in para 4(c) of the reply, shows that the argument of Shri Mittal regarding violation of principles of natural justice is wholly untenable. If the petitioner had not been served with notice for proceedings under s. 179(1), he could not have filed reply to the same or made a request for keeping the demand pending till the CIT, Jalandhar decided the revision petition. We, therefore, do not find any substance in the argument of Shri Mittal that order Annexure P7 and subsequent orders passed by respondents 1 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 director of the company. A bare reading of s. 179 of the Act shows that every person who was a director of a private company at any time during the relevant previous year of the assessment shall be jointly and severally liable for payment of tax found due against the company for the relevant previous year. The tax found due in this case relates to the asst. yr. 1991-92 when the petitioner was very much a 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 M/s 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. 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 a direction to stop making of recovery of the tax which is admittedly due against the company and payment of which is the liability of the petitioner and other directors 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 s. 60 of the CPC. 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 R2 r/w Annexure P1. In our opinion, Annexure R2 completely negates the submission of Shri Mittal that the proceedings are contrary to s. 60 of the CPC.

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.