ALEX CHERIAN V. THE COMMISSIONER OF INCOME TAX

WA/531/2011

AI Insights

The case involves Alex Cherian, the appellant, who is the director of M/s. Samurai Techno Trading (P) Ltd, contesting recovery proceedings initiated by the Income Tax Department under Section 179 of the Income Tax Act for tax arrears from 1993-94 to 1995-96. The appellant argued that the company, engaged in fish farming, suffered losses and could not settle the tax due to business closure following Supreme Court orders. The Department countered that the company's assets were mortgaged, preventing recovery. The court found no merit in the appellant's challenge against the recovery proceedings, noting the directors had allegedly siphoned off assets. The court allowed the appellant to settle the liability with a waiver of default interest upon payment of dues and permitted challenges against penalties or tax demands.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 699766 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 24-08-2011
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: V MATHEWS
• Keywords: Director's Liability; Income tax recovery; Interest Waiver; Tax arrears; Property Mortgage
• Section: 179; 220(2A)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 24TH AUGUST 2011 / 2ND BHADRA 1933 WA.No. 531 of 2011() -------------------- AGAINST THE JUDGEMENT/ORDER DATED 22/01/2010 IN RP.73/2010 .................... APPELLANT(S): / PETITIONER -------------- ALEX CHERIAN,AGED 49 YEARS, S/O.LATE CHERIAN ALEX, M/S.SAMURAI TECHNO TRADING (P) LTD, NO.6, NEPTUNE COLONY,ERNAKULAM. BY ADV. SRI.V.PHILIP MATHEWS RESPONDENT(S): / RESPONDENT --------------- 1. THE COMMISSIONER OF INCOME TAX, ERNAKULAM, PIN - 682 018. 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1 (3), RANGE -1 (ASSESSING OFFICER), ERNAKULAM, PIN - 682 018. 3. DEPUTY COMMISSIONER OF INCOME TAX (H), ERNAKULAM, PIN - 682 018. MR.JOSE JOSEPH, SC THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 24/08/2011, ALONG WITH WA NOs. 532 & 533 OF 2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.A.NO.531/2011 APPENDIX APPELLANT'S EXHIBITS ANNEXURE 1 : COPY OF ORDER DATED 22/01/2010 PASSED BY THE LEARNED SINGLE JUDGE IN REVIEW PETITION NO.1216/09, R.P.NO.1217/09 & 73/10. ANNEXUARE 2 : COPY OF MEMORANDUM OF REVIEW PETITION. ANNEXURE 3 : COPY OF STATEMENT FILED ON BEHALF OF RESPONDENTS IN WP (C) NO.3217/2008. ANNEXURE 4 : COPY OF REPLY AFFIDAVIT FILED BY THE PETITIONER AGAINST THE STATEMENT (ANNEXURE 3) ANNEXURE 5 : COPY OF COUNTER AFFIDAVIT AGAINST THE REPLY AFFIDAVIT (ANNEXURE 4). ANNEXURE 6 : COPY OF PETITION FOR EXTENSION OF TIME. ANNEXURE 7 : COPY OF PROCEEDINGS OF THE COMMISSIONER OF INCOME TAX DATED 06/05/2009. ANNEXURE 8 : COPY OF PROCEEDINGS OF CHIEF COMMISSIONER OF INCOME TAX DATED 29/07/2009. ANNEXURE 9 : COPY OF CERTIFICATE NO.030296610/1455/11 DATED 06/08/2011 ISSUED BY THE CHIEF MANAGER, KERALA FINANCIAL CORPORATION. ANNEXURE 10 : COPY OF DECREE IN O.S. 131/1998 ON THE FILE OF PRINCIPAL SUB JUDGE, KOCHI DATED 16/10/1999. //TRUE COPY// PA TO JUDGE. jg C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... W.A. Nos.531, 532 & 533 of 2011 .................................................................... Dated this the 24th day of August, 2011. J U D G M E N T Ramachandran Nair, J. The above Writ Appeals are filed against the common judgment of the learned Single Judge declining to interfere with recovery proceedings initiated by the Income Tax Department for recovery of income tax from the appellant as Director of a Private Limited Company, in terms of Section 179 of the Income Tax Act (hereinafter referred to as the Act for short). 2. We have heard learned counsel appearing for the appellant and learned Standing Counsel appearing for the Department and have also gone through the original judgment and the review judgment issued by the learned Single Judge. 3. After hearing both sides what we notice is that arrears of tax due is for the years from 1993-94 to 1995-96. Appellant's case is that the Company was engaged in the business of running fish farms which were closed pursuant to W.A.Nos.531, 532 & 533/2011 2 orders issued by the Honourable Supreme Court, in 1997. On account of business loss, the Company could not settle the tax is the case put forward by the appellant. Further contention raised by the appellant to resist the recovery proceedings initiated under Section 179 of the Act is that the Company has assets in Tamilnadu which could be sold for recovery of arrears of tax due from the Company. 4. Learned Standing Counsel submitted that on enquiry, the properties of the Company were mortgaged to Banks and so much so, the Department is not able to sell the property for recovery of tax on account of first charge in favour of the Bank. Learned counsel for the appellant, however refuted the contention raised by the Department by contending that properties are free from mortgage. We are surprised to note this contention raised by the appellant because if landed properties are available with the Company, we do not know why the Company did not sell the properties and settle tax liability in the course of last 15 years. The appellant's contention that the Income Tax Department's W.A.Nos.531, 532 & 533/2011 3 attachment prevented sale of properties by the Company for settlement of arrears of tax does not appear to be genuine or bonafide. 5. Learned Standing Counsel for the Department referred to the findings of the Income Tax Authorities that the Directors have siphoned off all assets and wealth of the defaulted Company and invested in other Companies. If these are facts, those transfers and investments could be declared invalid through process in law by the Department Authorities, and in fact recovery could be proceeded against such assets though in the name of other concerns. In any case, we do not find any merit in the challenge against recovery proceedings initiated under Section 179 of the Act against Directors of the Private Limited Company including the appellant, who is admittedly a Director and the beneficiary of the income earned by the Company in respect of which tax demand survives. However, we feel the appellant can be allowed to settle liability after getting waiver of default interest in part or full provided arrears of tax and penalty are paid and if application W.A.Nos.531, 532 & 533/2011 4 is made for waiver of default interest under Section 220(2A) of the Act. However, we make it clear that without payment of tax and penalty the Commissioner need not consider any application for waiver of interest based on the observations made in this judgment. We also make it clear that the appellant is free to pursue challenge against demand of penalty or tax, if any, pending before any Court or authority. The appellant is also free to find out purchasers for the property and approach the Commissioner of Income Tax, so that on his approval property can be sold on the purchaser directly remitting sale consideration in terms of the Commissioner's order to the Department for adjustment of tax arrears. These Writ Appeals are dismissed but with the above observations. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) jg "