Sri Subba Rao Pavuluri V. Assistant Commissioner of Income Tax

WP/8369/2023

AI Insights

The case revolves around a writ petition filed by Sri Subba Rao Pavuluri, challenging an order issued by the Assistant Commissioner of Income Tax under Section 179 of the Income Tax Act, 1961, which held him liable for the tax dues of a private company. The petitioner argued that he was not given any notice or opportunity to defend himself before the order was passed, which violated the principles of natural justice. The respondent contended that no such opportunity was necessary. The court, referencing various precedents, including a significant judgment from the Gujarat High Court, found in favor of the petitioner, highlighting the importance of natural justice in such proceedings.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 690599 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 01-10-2024
• Assessment Year: misc
• Other Referred Cases: Susan Chacko Perumal v. Assistant Commissioner of Income Tax, C.B. Gautam v. Union of India, FAG Precision Bearings v. Sales Tax Officer, Sahara India (Firm) v. Commissioner of Income Tax, Kesar Enterprises Limited v. State of Uttar Pradesh, Mehul Jadavj Shah v. Deputy CIT
• Laws Referred To: Income Tax Act, 1961, Article 226 of the Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P MURALIKRISHNA
• Assessee Lawyers: A V RAGHURAM
• Keywords: Director's Liability; Income Tax; Natural Justice; Writ of Mandamus
• Section: 179

Judgement Text

"[34{1] HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (SPecial Original Jurisdiction) TUESDAY, THE FIRST DAY OF OCTOBER TWO THOUSAND AND TWENTY FOUR PRESENT THE HON'BLE SRI JUSTICE SUJOY PAUL AND THE HON'BLE SRI JUSTICE NAGESH BHEEIVIAPAKA WRIT PETITION NO: 8369 OF 2023 Between: sri Subba Rao Pavuluri, s/o. Late sri P.Siva Rama Krishnaiah, Plot No.1355C, Road No.45, Jubilee Hills, Hyderabad - 500033. ...PETITIONER AND Assistant commissioner of lncome Tax, Circle - B(1), signature Towers, opp Botanical Gardens, Kondapur, Hyderabad - 500084' ...RESPONDENT Petition under Article 226 of the constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleasedtoissueawritorordermoreparticularlyoneinthenatureofWR|ToF MANDAMUS holding that the order dated 07'03-2023 passed by the Respondent with DIN & order No: ITBA/COMlFt17t2o22-2311050476565(1) forthe assessment years2015-16and2017-l8undersectionlTgofthelncomeTaxAct,asbeing illegal, arbitrary and violative of principles of natural justice and therefore is unsustainable in law, and consequently set aside the same' lA NO: 1 OF 2023 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to susPEND the operation of the order dated 07.03.2023 passed by the Respondent with DIN & order No: ITBA/COM tFl1712022-2311050476565(1) for the assessment years 2015-16 and 2017-18, under section 179 of the lncome Tax Act' -,r$&7 v lA NO: 1 OF 2024 Between: 8369t2023. Assistant Commissioner of lncome .Tax, Circle _ g(.1), Signature Towers, Opp. Botanicat Gardens, t(ondapur, HydeiaOaO'- SibiE+. \" ...VACATE PETITIONERYRESPONDENT AND s. subba Rao pavuluri. S/o Late gri p,.Siva Rama Krishnaiah, prot No.1355c, Road No.45, Jubitee Hills, Hyderabad - 500035 - ...RESPONDENT/PETITIONER Petition under section 15'r cpc praying that in the circumstances stated in the affidavit fired in support of the petition, the High cou( may be preased to Vacate rnterim ordr:r granted on 28.03-2023 in I.A.No.1 0f 2023 in w.p. No. Counsel for the petitioner: SRI A. V. RAGHU RAM Counsel for the Respondent: SRI p. MURALI KRISHNA, SENIOR STANDING COUNSEL FOR INCOME TAX The Court made the following: ORDER l I I I i i l i i il 3 THE HONOURABLE SRI JUSTICE SUJOY PAUL AND THE HONOURABLE SRI JUSTICE NAGF^SH BHEEMAPAXA WRIT PETITION No.8369 of 2023 ORDER: (per Hontrle Sri Justice Sujoy Paul) Sri A.V.Raghu Ram, learned counsel for the petitioner and Sri P. Murali Krishna, learned Senior Standing Counsel for respondent' 2. With the consent, hnallY heard' 3. This petition filed under Article 226 of the Constitution of India takes exception to the order dated 07'03'2023 passed in exercise of Power under Section (for short \"the Act\")' 179 of the Income Tax Act, 1961 4. Learned counsel for the petitioner advanced singular contention by taking this Court to Section 179 of the Act that liability of Directors of private company can be determined in the manner prescribed in the statute' A careful reading of the Section shows that such liability can be fastened on the Director' unless' he proves that the non-recovery cannot be attributable to arty misfeasance or breach of duty on his part' gross neglect, relation to the notrce affairs of the Company' This burden can be ln discharged bY the Director/ petitioner only, when is he put to The petitioner, a Director of Company was not put to any 4 kind of notice and directly a final order, dated 07 .O3.2O23 , is passed in purprtrted exercise of power flowing from Section 179 of the Act. By placing reliance on the Division Bench judgment of High Court of Gujarat in Susan Chacko perumal v. Assistant Commissioner of Income Taxr, it is submitted that similar final order was set aside by Gujarat High Court, by reserving liberty to revenue to follorv the principles of natura,l justice and pass a fresh order and thus, similar course may be adopted. 5. Learned Senior Standing Counsel opposed the prayer and submits that ad interim order in this matter was passed in favour of the petitioner few months back. The petitioner couid not prove before this cou.t the necessa-ry ingredients mentioned in section 179 of the Act. Section 179 does not provide opportunity of any nature. Thus, n,: interference mav be made. 6. The parties; confrned their arguments to the extent indicated above. 7 . We han e bestowed our anxious consideration on rival contentions and perused the record. 8. Before dealing with rival contentions, it is apposite to reproduce Sub-section 1 of Section lT9 of the Act, which reads thus: l Source {2017) 249 Taxman 501 {cu.i) (sectioa 179: Liability of directors of orivate com av ln liquidatioa:- NotwithstandinB anything contained in ttre Cornpanies Act, 1956 (1 of 1956), [where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private companyl cannot be recovered, then, every person who was a director of the private company at arry time during the relevant previous year shall be jointly and severally liable for the payment of such tax ut ess he proves that the Don-recoyery canlot be attributed to ary gross neglect, misfeasance or breach of duty otr his part la relatior to the affalrs of the company.\" (Emphasis SuPPliedl g. On a specifrc query from the Bench, Iearned Senior Standing Counsel fairly admitted that before passing the impugned order dated O7.O3.2O23, the petitioner was not put to notice' It is seen that the counter is drafted in an artistic manner still it is clear that all the notices issued were issued to the Company and not to the Director. Thus, pivotal question before us is, whether in a case of this nature, where impugned order is passed against the Director, whether Director was required to be put to irotice. 10. As noticed above, leamed Senior Standing Counsel submits that there was no need of providing opportunity. We are unable to persuade ourselves w'ith this line of €rrgument of learned Senior Standing Counsel, in view of the language employed in Section 179 of the Act. A ptain reading of which shows that such tax can be fastened or directed to be shouldered by the Director, unless, he proues that non-recovery cannot be attributable to any gross 6 neglect, misfear;alce or beach of duty on his part in relation to the affairs of the company. 11. We {ind srrbstantial force in the argument of learned counsel for the petitioner that the petitioner could have proved the aforesaid ingredients and discharge reverse burden on him only when he was pr-rt to notice and given an opportunity to prove it. Thus, in the m:rnner sub-section 1 of Section 179 of the Act is framed, the pri.ciples of natural justice are to be read into the provision. The principles of natural justice were reacr into in various taxation statutes by the Supreme Court. Reference may be made to judgments in the cases of C.B. Gautam v. Union of India and others2, FAG precision Bearings v. Sales Tax Officer (Il and Another3, Sahara India (Firmf , Lucknow v. Commissioner of Income Tax, Central_I and Anothera and Kesar Enterprises Limited v. State of Uttar pradesh and otherss. L2. In the instant case, the petitioner was admittedly, not put to notice and the impugned order which entails civil consequences is passed against him. It runs contraq/ to the principles of natural '1tss:y r scc z8 '1rssz1 r scc aae ' (2008) 14 scc 1s1 '1zot11 t3 scc z:3 7 justice. The similar view is taken by Gujarat High Court in Susan Chacko Perumalts case (supra)- Relevant portion reads as under \"8. It is therefore, not correct to suggest that the moment the tax dues of a private company remain unpaid, the consequence under section 179(1) must follow against each of the directors Before such an order can be oassed, the statute envisases an imDortant stage wherebv the concerned director would have an oDDortunitv to Drove that the non-recoverv cannot be attributed to any gross neslisent. misfeasance or breach of dutv on his art in relation to the affairs of the com This o tuni would have to be made available to the director before an effective order under section 179 1 of the Act can be oassed- This would necessarily require followine the DrinciDles of natural iustice. By no stretch of imaPination can the [T authorities dto in terms of sub section 1 the tax dues of the comDany remained unpaid- This is onlv one element of the requirement of sub section (l) ofsection 179. The other requirement can be fulfilled only after hearing the director concerned. Any other view would amount to eliminating the requirement of hearing and following the principles of natural justice before an adverse civil order that may be passed.\" (Emphasis Supplied) 13. So far argument of the learned Senior Standing Counsel for the respondent that the petitioner after getting the interim order in this matter could not establish that non-recovery cannot be attributed to him is concerned, sufflce it to say that the scope of judicial review in this petition under Article 226 of the Constitution is regarding decision making process adopted by the respondents. This Court at this stage is under no obligation to examine whether on merits the non-recovery can be attributed to the conduct of the petitioner. Since decision making process is found to be faulty and runs contrary to the principles of natural justice, the proper course is to set aside the order arrd permit the , I I t of section 179 by merely holdinq that despite repeated efforts, 8 Revenue to follow the principles of natural justice and proceed in accordance il'it h law. 14. In case of Mehul Jadavj Shah v. Deputy CIT6, a Division Bench of Bombay High Court set aside a fina_i order against a Director passerl under Section lT9(Il of the Act despite the fact that the petitioner therein was put to show cause notice before passing the final order. Since show cause notice was not containing adecluate details, interference was made. In the instant case, admitteclllr directly a final order is passed u,ithout putting the petrtloner to nor_ice. 15. in viern, of the foregoing discussion, the impugned order dated 17.O3.201]3, is liable to be jettisoned. 16. According.ly, the Writ petition is allowed The rmpugned order dated lT .O3.2O23 is set aside. Liberty is reserved to the respondents to follow the principles of natural justice and pass a fresh order, in accordance with law. No costs. interlocutory applications, 1f qlv pending, shall also stand closed. t 6 r-otg gc. O', Lln e Born al26 SD/.V.KAVITHA ASSISTANT REGISTRAR [tt SECTION OFFICER //TRUE COPY// One fair copy to the HON,BLE SRt JUSTICE SUJOY pAUL (For His Lordship'qKind perusal) AND One fair copy b the HON'BLE SRt JUSTTCE NAGESH BHEEMAPAKA (For His Lordship,s Kind perusal) 1 1 L.R. Copies. To, 2 I] t, j The Under Ser;retary, Union of rndia, tvrinistry of Law, Justice and company Affairs, New Delhi. 1 1 r 3- The Secretary, Telangana Advocates Association Library' High Court Buildings, HYderabad 4. The Assistant commissioner of lncome Tax, Circle ---8(1), signature Towers' ' Opp e;iiniCat Gardens, Kondapur, Hyderabad - 500084 5. One CC to SRI A. V. RAGHU RAtt'4, Advocate [OPUC] 6. one cc to sRl P. [/URALI KRISHNA, Senior standing counsel for lncome Tax [OPUC] T.OneCCtoSRlMs.SUNDARI,StandingCounselforlncomeTax[OPUC] 8. Two CD CoPies I MP GJP qr I t I HIGH COURT DATED:01 11012024 1 '- Sl :__:: ,- '(i i, c, 26 0E[ c (.: It ORDER WP.No.8369 of 2023 , ALLOWING THE WRIT PETITION WITHOUT COSTS I w.of d k*rq ), r-l ,A t + Op:l nT tt (-'j "