MAILAKKATTU VARGHESE UTHUP V. THE PRINCIPAL COMMISSIONER OF INCOME TAX

WP(C)/10675/2018

AI Insights

The case involves Mailakkattu Varghese Uthup, the petitioner, who challenged orders issued under Sections 230 and 179 of the Income Tax Act by the income tax authorities. The petitioner was implicated in a case involving the recruitment of nurses to Kuwait and faced multiple tax liabilities both personally and as a director of a company. The court examined whether the orders were issued in compliance with legal and procedural requirements, particularly focusing on the lack of proper notice to the petitioner for the Ext.P13 order, which made him liable for the company's tax dues. The court's decision to quash the Ext.P13 order was influenced by the procedural error in serving the notice, leading to a directive for a fresh hearing.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755203 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 11-06-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH; N NAGRESH
• Assessee Lawyers: PREETHA NAIR
• Keywords: Assessment Order; Income Tax; Judicial Custody; Notice; Penalty order; Tax clearance certificate
• Section: 230; 220; 179

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR MONDAY, THE 11TH DAY OF JUNE 2018 / 21ST JYAISHTA, 1940 WP(C).No. 10675 of 2018 PETITIONER: MAILAKKATTU VARGHESE UTHUP, S/O.THOMAS VARGHESE, MAILAKKATTU HOUSE, PUTHUPPALLY P.O., KOTTAYAM DISTRICT-686 011. BY ADV.SMT.PREETHA S.NAIR RESPONDENT(S): 1. THE PRINCIPAL COMMISSIONER OF INCOME TAX, C.R.BUILDING, I.S.PRESS ROAD,KOCHI-682 018. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM, ALFA LIZA BUILDING, NEAR AMBADY CHAMBERS, CHITOOR ROAD, OPP. SRV LP SCHOOL, KOCHI-682 011. 3. DIRECTOR GENERAL OF INCOME TAX (INV), S.A.ROAD, KOCHI-682 020. 4. BUREAU OF IMMIGRATION, (MINISTRY OF HOME AFFAIRS), COCHIN INTERNATIONAL AIRPORT LTD., KOCHI-682 311. *ADDL.R5 IMPLEADED *R5. THE REGISTRAR OF COMPANIES, KOCHI. *ADDL.R5 IS SUO MOTU IMPLEADED AS PER ORDER DATED 03/04/2018. R1 TO R3 BY SRI.JOSE JOSEPH, SC, R4 & R5 BY SRI.N.NAGARESH, ASSISTANT SOLICITOR GENERAL OF INDIA THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 11-06-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts 13/6/2018 WP(C).No. 10675 of 2018 (H) APPENDIX PETITIONER(S)' EXHIBITS EXHIBIT P1- TRUE COPY OF THE BAIL ORDER DATED 10/08/2017 PASSED BY THIS HON'BLE COURT IN B.A.NO.4615 OF 2017. EXHIBIT P2- TRUE COPY OF THE ORDER DATED 21/12/2017 PASSED BY THE COURT OF THE ADDITIONAL SPECIAL SESSIONS JUDGE (SPE/CBI)-III, ERNAKULAM IN CRL.M.P.NO.685/17 IN C.C.NO.1/17. EXHIBIT P3- TRUE COPY OF THE LETTER ISSUED TO VARGHESE UTHUP MAILAKKATTU, THE PETITIONER HEREIN FIXING THE DATE OF APPOINTMENT WITH THE OSC SK NEPHROLOGY TO 18/03/2018. EXHIBIT P4- TRUE COPY OF THE DOCUMENT DATED 04/01/2018 GIVING APPOINTMENT TO THE PETITIONER FOR CONSULTATION AT IMPERIAL COLLEGE OF LONDON DIABETES CENTRE. EXHIBIT P5- TRUE COPY OF THE ORDER DATED 06/03/2018 OF THIS HON'BLE COURT IN CRL.M.A.NO.1971/2018 IN B.A.NO.4615/2017. EXHIBIT P6- TRUE COPY OF THE APPLICATION DATED 13/03/2018 FILED BY THE PETITIONER (WITHOUT ANNEXURES) BEFORE THE CBI COURT FOR RELEASE OF THIS PASSPORT. EXHIBIT P7- TRUE COPY OF THE ORDER DATED 15/03/2018 OF THE CBI COURT IN CRL.M.P.NO.182/2018 IN C.C.NO.1/2017 EXHIBIT P8- TRUE COPY OF THE ORDER DATED 05/03/2018 PASSED BY THE 2ND RESPONDENT UNDER SECTION 230 OF THE INCOME TAX ACT. EXHIBIT P9(A)- TRUE COPY OF THE ASSESSMENT ORDER DATED 29/11/2016 FOR AY 2009-10. EXHIBIT P9(B)- TRUE COPY OF THE ASSESSMENT ORDER DATED 30/11/2016 FOR AY 2010-11. EXHIBIT P9(C)- TRUE COPY OF THE ASSESSMENT ORDER DATED 30/11/2016 FOR AY 2012-13. EXHIBIT P9(D)- TRUE COPY OF THE ASSESSMENT ORDER DATED 30/11/2016 FOR AY 2013-14. EXHIBIT P9(E)- TRUE COPY OF THE ASSESSMENT ORDER DATED 30/11/2016 FOR AY 2014-15. 2/- -2- WP(C).No. 10675 of 2018 (H) EXHIBIT P9(F)- TRUE COPY OF THE ASSESSMENT ORDER DATED 30/11/2016 FOR AY 2015-16. EXHIBIT P10(A)- TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM DATED 19/03/2018 FOR AT 2009-10. EXHIBIT P10(B)- TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM DATED 20/03/2018 FOR AT 2010-11. EXHIBIT P10(C)- TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM DATED 20/03/2018 FOR AT 2012-13. EXHIBIT P10(D)- TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM DATED 21/03/2018 FOR AT 2013-14. EXHIBIT P10(E)- TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM DATED 21/03/2018 FOR AT 2014-15. EXHIBIT P10(F)- TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM DATED 21/03/2018 FOR AT 2015-16. EXHIBIT P11- TRUE COPY OF COMMUNICATION DATED 23/03/2018 REGARDING STAY FOR BALANCE DEMAND ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-4. EXHIBIT P12- TRUE COPY OF FORM 32 RETURN FILED BY THE COMPANY BEFORE ROC, KERALA, KOCHI. EXHIBIT P13- TRUE COPY OF ORDER PASSED UNDER SECTION 179 DATED 14/08/2017. EXHIBIT P14- TRUE COPY OF THE APPLICATION DATED 26/05/2017 FILED BY THE PETITIONER'S CHARTERED ACCOUNTANT BEFORE THE 2ND RESPONDENT INFORMING HIM THAT THE PETITIONER WAS IN JUDICIAL CUSTODY. EXHIBIT P15- TRUE COPY OF THE ATTACHMENT ORDER DATED 16/08/2016 ISSUED BY THE 2ND RESPONDENT. EXHIBIT P16- TRUE COPY OF THE LETTER INTIMATING THE APPOINTMENT FOR CONSULTATION IN OSC SK NEPHROLOGY (MEDICINE NEPHROLOGY) TO THE PETITIONER FOR 01/04/2018. 3/- -3- WP(C).No. 10675 of 2018 (H) EXHIBIT P17(A) COPY OF THE PENALTY ORDER DATED 30/05/2017 FOR ASSESSMENT YEAR 2009-10 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, KOCHI EXHIBIT P17(B) COPY OF THE PENALTY ORDER DATED 30/05/2017 FOR ASSESSMENT YEAR 2010-11 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, KOCHI EXHIBIT P17(C) COPY OF THE PENALTY ORDER DATED 30/05/2017 FOR ASSESSMENT YEAR 2012-13 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, KOCHI EXHIBIT P17(D) COPY OF THE PENALTY ORDER DATED 30/05/2017 FOR ASSESSMENT YEAR 2014-15 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, KOCHI EXHIBIT P17(E) COPY OF THE PENALTY ORDER DATED 30/05/2017 FOR ASSESSMENT YEAR 2015-16 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, KOCHI EXHIBIT P18(A) COPY OF THE APPEAL DATED 25/03/2018 FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM FOR ASSESSMENT YEAR 2009-10 EXHIBIT P18(B) COPY OF THE APPEAL DATED 26/03/2018 FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM FOR ASSESSMENT YEAR 2010-11 EXHIBIT P18(C) COPY OF THE APPEAL DATED 26/03/2018 FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM FOR ASSESSMENT YEAR 2012-13 EXHIBIT P18(D) COPY OF THE APPEAL DATED 26/03/2018 FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM FOR ASSESSMENT YEAR 2014-15 EXHIBIT P18(E) COPY OF THE APPEAL DATED 26/03/2018 FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM FOR ASSESSMENT YEAR 2015-16 EXHIBIT P19 COPY OF THE STAY ORDER DATED 27/3/2018 ALONG WITH CHALLANS EVIDENCING PAYMENT OF THE 20% OF THE DISPUTED DEMAND EXHIBIT P20 COPY OF THE FORM 32 FILED ON 30/10/2009 CERTIFIED AS TRUE COPY OF THE REGISTRAR OF COMPANIES, ERNAKULAM 4/- -4- WP(C).No. 10675 of 2018 (H) RESPONDENT'S ANNEXURES: ANNEXURE R2(A) COPY OF THE LETTER ADDRESSED TO THE DIRECTOR GENERAL OF INCOME TAX SEEKING APPROVAL TO PASS ORDER U/S 230 DATED 20/02/2018 ANNEXURE R2(B) COPY OF THE LETTER FROM THE OFFICE OF THE DIRECTOR GENERAL CONVEYING THE APPROVAL OF DGIT DATED 27/02/2018 /TRUE COPY/ P.A.TO JUDGE sts 13/6/2018 P.B.SURESH KUMAR, J. -------------------------------------------- W.P.(C).No.10675 of 2018-H --------------------------------------------------------------- Dated this the 11th day of June, 2018 J U D G M E N T Exts.P8 and P13 orders issued under Sections 230 and 179, respectively of the Income T ax Act (“the Act”), are under challenge in the writ petition. 2. The facts relevant for adjudication of the issues raised are the following: The petitioner is the third accused in C.C.No.1/2017 on the files of the Additional Special Sessions Judge (SPE/CBI)-III, Ernakulam. The said case is one registered on a final report filed by the Central Bureau of Investigation in connection with recruitment of nurses to Kuwait by a company called M/s.Al Zarafa Travels and Manpower Consultants Pvt.Ltd. (“the company”). The petitioner was not arrested in the case at the stage of investigation. According to the petitioner, he was not W.P.(c).No.10675 of 2018 : 2 : aware of the case and he surrendered before the Court and obtained bail on coming to know of the case. It is stated by the petitioner that he was residing in Abu Dhabi for more than 20 years and that he was undergoing medical treatments in Abu Dhabi under a health insurance cover. It is stated that as he had to go to Abu Dhabi for the purpose of renewing the said insurance cover and to complete formalities concerning the examinations of his children, he moved the trial court seeking permission to go abroad, and in terms of Ext.P3 order, the trial court permitted him to go abroad for 45 days. It is stated by the petitioner that in terms of the said order, the petitioner went abroad and came back on 13.02.2018. It is also stated by the petitioner that as he had an appointment in the Nephrology Department of Sheik Khalifa Medical City Hospital, Abu Dhabi in connection with the treatments for his renal ailments, he approached the trial court again for permission to go abroad and he was permitted by the trial court to go abroad again in terms of Ext.P5 order. 3. In the meanwhile, Ext.P8 order was issued by W.P.(c).No.10675 of 2018 : 3 : the second respondent under Section 230 of the Act stating that the petitioner is an assessee in default as understood within the meaning of Section 220 of the Act; that the outstanding liability of the petitioner in his individual capacity is Rs. 22,66,713/-; that he has been held jointly and severally liable for payment of tax and penalty demands of the company under Section 179 of the Act to the extent of Rs.408.6 Crores; that the petitioner has been evading payment of the outstanding demands; that he has not made any satisfactory arrangements to clear the outstanding demands and that therefore he shall not leave the territory of India by land, sea or air unless he furnishes a T ax Clearance Certificate to the effect that satisfactory arrangements have been made by him for payment of his tax dues. According to the petitioner, he is unable to go abroad in terms of Ext.P5 order on account of his inability to obtain T ax Clearance Certificate as directed in Ext.P8 order. As far as the personal liability of the petitioner mentioned in Ext.P8 order is concerned, it is pointed out by the petitioner that the orders, on the basis of which demand is raised W.P.(c).No.10675 of 2018 : 4 : against him, have been challenged by the petitioner in appeals and realisation of the amounts in terms of the demand has been stayed. As far as the liability of the company mentioned in Ext.P8 order is concerned, it is stated by the petitioner that it is only from Ext.P8 order that he came to know of Ext.P13 order making him also liable for the tax dues of the company under Section 179 of the Act. According to the petitioner, Ext.P13 order is illegal in as much as the same was one issued without notice to him. On the merits of the matter covered by Ext.P13 order, the case of the petitioner is that he was the director of the company only till 01.10.2009 and liability has been fastened on him on the premise that he was the director of the company till 2016. The petitioner, therefore challenges Exts.P8 and P13 orders in the writ petition on that basis. 4. A statement has been filed on behalf of the respondents. It is stated, among others, in the statement that a notice was issued to the petitioner on 31/07/2017 before issuing Ext.P13 order; that in terms of the said notice, the matter stood posted for hearing on 11/08/2017; that the W.P.(c).No.10675 of 2018 : 5 : petitioner did not turn up for hearing on 11/08/2017 and that it is in the said circumstances that Ext.P13 order was issued on 14/08/2017. It is also stated by the respondents in the statement that there was a search in the premises of the petitioner as also in the premises of the company on 27.03.2015 by the authorities under the Act; that the petitioner left India immediately thereafter; that he did not co-operate in the assessment proceedings initiated subsequently and that the assessment proceedings in respect of the petitioner as also that of the company for the periods from 2009-10 to 2015-16, in the circumstances, had to be completed with the materials available on record, determining the liability of the petitioner and the company as indicated in Ext.P8 order. It is also pointed out in the statement filed on behalf of the respondents that the assessee has not co-operated even with the Central Bureau of Investigation, who were investigating the case registered against him; that the Central Bureau of Investigation, in the circumstances, issued red corner notices through interpol for securing the presence of the petitioner in India and it is at W.P.(c).No.10675 of 2018 : 6 : that point of time that the petitioner has come back to India and surrendered before the Court. As regards the contention of the petitioner that he was the director of the company only till 01/10/2009, it is stated that in the Form-20B filed by the company with the Registrar of the Companies during 2011, the petitioner is the managing director of the company with 33.34% share holding. It is also stated by the respondents that Form-32 filed with the Registrar of Companies which is relied on by the petitioner to substantiate his case that he was the managing director of the Company only till 01/10/2009, is one filed by one Renny Eapen, who is authorised by the Board of the company to sign and submit forms on behalf of the company only on 27.01.2011. 5. Heard the learned Senior Counsel for the petitioner as also the learned Standing Counsel for the respondents. 6. The learned Senior Counsel for the petitioner contended that when notice preceding Ext.P13 order was issued, the petitioner was in judicial custody and therefore, W.P.(c).No.10675 of 2018 : 7 : the notice in the said proceedings should have been served on the petitioner through the Superintendent of the Jail. According to the learned Senior Counsel, in so far as the said course was not adopted by the second respondent in the matter of passing Ext.P13 order, the same can be reckoned only as an order passed without notice to the petitioner and hence liable to be struck down. It is also contended by the learned Senior Counsel that since Ext.P8 order is issued based on Ext.P13 order, the same is also liable to be struck down. 7. The learned Standing Counsel for the respondents submitted that if persons like the petitioner are permitted to go abroad, without making adequate provision for settlement of their tax liability, the Revenue may not be able to realise their tax dues running to crores. 8. I have given my thoughtful consideration to the contentions raised by the parties. 9. The first proviso to sub-section (1A) of Section 230 of the Act makes it clear that no person who is domiciled in India and in respect of whom circumstances exist, which in W.P.(c).No.10675 of 2018 : 8 : the opinion of the income-tax authority rendering it necessary for such person to obtain a certificate under the said Section, shall leave the country unless he obtains a certificate from the income-tax authority stating that he has no liabilities under the Act or that satisfactory arrangements have been made for discharging the liability under the Act. It is in exercise of the power conferred under the first proviso to sub-section (1A) of Section 230 of the Act that the second respondent has issued Ext.P8 order. In the light of the various orders issued by the authorities under the Act against the petitioner in his personal capacity and in the light of Ext.P13 order, the petitioner cannot dispute his liability mentioned therein. The liability of the petitioner mentioned in Ext.P8 order is more than 400 Crores. In the circumstances, the second respondent cannot be found fault with for having insisted T ax Clearance Certificate for the petitioner to leave the country under the first proviso to sub- section (1A) of Section 230 of the Act. 10. The case of the petitioner as regards his personal liability mentioned in Ext.P8 order is that he W.P.(c).No.10675 of 2018 : 9 : preferred appeals against all the orders, on the basis of which demand is raised against him and the enforcement of the demand remains stayed in terms of the orders passed by the appellate authorities. Placing reliance on the instructions issued by the Central Board of Direct T axes on 05.02.2004, the learned Senior Counsel for the petitioner contended that in so far as the enforcement of the demand raised against the petitioner in his personal capacity remains stayed, in the light of the said instructions, the competent authority under the Act cannot insist T ax Clearance Certificate for the said liability. Exts.P11 and P19 are the orders of stay obtained by the petitioner in the appeals preferred against assessment and penalty orders imposed on the petition in his personal capacity. The said orders are issued on 23.03.2018 and 27.03.2018 respectively. The petitioner cannot challenge Ext.P8 order issued on 05.03.2018 on the basis of Exts.P11 and P19 orders issued subsequently. 11. Coming to the liability of the company mentioned in Ext.P8 order, as noted above, the petitioner W.P.(c).No.10675 of 2018 : 10 : was made jointly and severally liable for the liability of the company in terms of Ext.P13 order. The case of the petitioner is that the same is an order passed without notice to him and as he ceased to be the director of the company with effect from 01.10.2009, at any rate, there should not have been an order against him for the liability of the company for the subsequent period. It is also the case of the petitioner that even if it is assumed that he was the director of the company all throughout, an order under Section 179 of the Act should not have been passed without compliance of the provisions contained in the said section. According to the petitioner, he is entitled to show that the non-recovery of the dues of the company cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company and in that event, he cannot be made jointly and severally liable for the dues of the company. According to the petitioner, in so far as Ext.P13 order was passed without notice to the petitioner, he lost the opportunity to establish the said fact. 12. There cannot be any dispute to the fact that W.P.(c).No.10675 of 2018 : 11 : an order under Section 179 of the Act cannot be passed without affording the parties concerned an opportunity of hearing. The statement filed on behalf of the respondents indicates that a notice was issued to the petitioner prior to Ext.P13 order on 31/07/2017 directing him to appear for hearing on 11/08/2017. The specific case of the petitioner in the writ petition is that he was remanded to judicial custody on his appearance before the Criminal Court on 29/03/2017 and he was released on bail only on 11/08/2017. This fact is not seen disputed in the statement filed on behalf of the respondents. In so far as the petitioner was in jail when notice was ordered in the proceedings initiated against him under Section 179 of the Act, the said notice should have been served on him through the Superintendent of the jail wherein he was detained. The said course admittedly has not been adopted by the respondents. In the circumstances, I am of the view that Ext.P13 order cannot be reckoned as one issued in compliance with the principles of natural justice. Ext.P13 order, in the circumstances, is liable to be set aside and the matter has to be considered afresh. W.P.(c).No.10675 of 2018 : 12 : 13. In so far as it is found that fresh orders need to be passed in the proceedings initiated against the petitioner under Section 179 of the Act, it is for the competent authority under the Act to consider in the said proceedings, the contentions raised by the petitioner as regards his liability to pay the tax arrears of the company. In the result, the writ petition is allowed in part as follows: (i) Ext.P13 order is quashed and the second respondent is directed to pass fresh orders in the proceedings initiated against the petitioner under Section 179 of the Act, after affording the petitioner an opportunity of hearing. This shall be done within six weeks. (ii) After the conclusion of the proceedings under Section 179 of the Act as directed, the second respondent shall consider whether an order under Section 230 of the Act is required to be issued against the petitioner, having regard to the order passed in the proceedings under Section 179 of the Act as also the interim orders obtained by the petitioner in the appeals preferred challenging the assessment and W.P.(c).No.10675 of 2018 : 13 : penalty orders against him, and issue a fresh order either confirming Ext.P8 order or varying the same. This shall be done within four weeks from the date of the order under Section 179 of the Act. Ext.P8 order will continue to be in force until fresh orders are passed under Section 230 of the Act. Sd/- P.B.SURESH KUMAR JUDGE rsr "