MALIAKKATTU VARGHESE UTHUP vs. THE PRINCIPAL COMMISSIONR OF INCOME TAX

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WP(C)/28722/2018HC KeralaKLHC01064072201801 April 2022Author: HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS10 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the order passed by the Appellate Tribunal (Ext.P29) fundamentally altered the scenario. The Court agreed with the petitioner that proceedings under Section 179 of the Income Tax Act can only be initiated if there is a tax due from the company. The very basis for issuing Ext.P10 was the existence of a tax liability against the company. However, Ext.P29 effectively effaced this tax liability by setting aside the assessment order to the extent challenged and remanding the remaining issues for reconsideration. Therefore, in the eyes of law, there is no tax due from the company at this juncture, and consequently, no recovery can be initiated from any Director. The Court found that Ext.P10 had no legs to stand in view of Ext.P29. The Court explicitly stated that it had not considered the merits of any findings in Ext.P10, and the contentions raised by both parties against Ext.P10 were left open to be considered at an appropriate future stage if the occasion arises. The operative direction was to set aside Ext.P10.

What were the facts?

The petitioner, Mailakkattu Varghese Uthup, was the Managing Director of M/s. Al Zarafa Travels and Manpower Consultants Pvt. Ltd. He contends he resigned as Director on October 1, 2009, and had no further connection with the company. The Revenue initiated recovery proceedings against the petitioner under Section 179 of the Income Tax Act, 1961, through an order dated July 10, 2018 (Ext.P10), alleging him to be a Director responsible for the company's income tax dues. While this writ petition challenging Ext.P10 was pending, the company pursued its appeal against the assessment order creating the liability. The Appellate Tribunal, by order Ext.P29, set aside the assessment order in part and remanded the remaining issues for reconsideration by the assessing officer.

What were the issues?

1. Whether the impugned order under Section 179 of the Income Tax Act, 1961, initiating recovery proceedings against the petitioner as a Director, is valid when the underlying tax liability of the company has been set aside in appeal and remanded for reconsideration. Assessee's Contention: The petitioner argued that since the Appellate Tribunal's order (Ext.P29) has set aside the assessment order and remanded the matter, there is no tax due from the company. Consequently, proceedings under Section 179 of the Act are invalid and Ext.P10 should be quashed. The petitioner relied on the fact that the entire assessment order against the company was set aside in the second appeal, leaving no tax liability outstanding. Revenue's Contention: The Revenue contended that Ext.P10 cannot be considered without basis as, at the time of its issuance, a tax liability was due from the company. Furthermore, the Revenue argued that the issue might still arise for consideration under Section 179 if the Assessing Officer passes fresh orders creating a tax liability for the company subsequent to the remand order.

Which sections of the Income-tax Act were involved?

Section 179

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 1ST DAY OF APRIL 2022 / 11TH CHAITHRA, 1944 WP(C) NO. 28722 OF 2018 PETITIONER: MAILAKKATTU VARGHESE UTHUP, S/O.THOMAS VARGHESE, MAILAKKATTU HOUSE, PUTHUPPALLY P.O., KOTTAYAM DISTRICT-686 011 BY ADV PREETHA S.NAIR RESPONDENTS: 1 THE PRINCIPAL COMMISSIONR OF INCOME TAX C.R BUILDING, I.S, PRESS ROAD,KOCHI-682 018 2 THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2, ERNAKULAM, ALFA BUILDING, NEAR AMBADY CHAMBERS, CHITTOOR ROAD, OPP.SRV LP SCHOOL, KOCHI-682 011 3 DIRECTOR GENERAL OF INMCOME TAX (INV) S.A.ROAD, KOCHI-682 020 4 BUREAU OF IMMIGRATION (MINISTRY OF HOME AFFAIRS) COCHIN INTERNATIONAL AIRPORT LTD, KOCHI-682 311 5 THE REGISTRAR OF COMPANIES KERALA COMPANY LAW BHAVAN, B.M.C. ROAD, THRIKKAKARA,KOCHI-682 021 BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.T.V.VINU, CGC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 01.04.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 28722 OF 2018 2 BECHU KURIAN THOMAS, J. ----------------------------------------- W.P.(C) No. 28722 of 2018 ---------------------------------------- Dated this the 1st day of April 2022

JUDGMENT Petitioner challenges Ext.P10 order dated 10/7/2018, issued in exercise of the powers under Section 179 of the Income Tax Act 1961 (for short the Act). Further, a relief of declaration that petitioner is not liable for any income tax dues of M/s.Al Zarafa Travels and Manpower Consultants Pvt.Ltd., has also been sought for.

2.

Petitioner was the Managing Director of M/s. Al Zarafa Travels and Manpower Consultants Pvt.Ltd.,(for short the “Company”). According to the petitioner, he was the Director of the Company only for a very short period and had resigned as Director on 1/10/2009 after which, he had no connection with the Company. In the meanwhile, since arrears of income tax were due from the Company recovery proceedings were initiated against the Directors of the Company. By the impugned order Ext.P10

WP(C) NO. 28722 OF 2018 3 dated 10/7/2018, proceedings were initiated against the petitioner alleging him to be a Director of the Company.

3.

While the challenge against Ext.P10 was pending before this Court the Company had, admittedly, pursued its challenge against the order of assessment that created the liability as against it. According to the petitioner, in the first appeal filed by the Company, a partial relief was obtained, and in the second appeal before the Appellate Tribunal, the entire assessment order against the Company was set aside. The Appellate Tribunal allowed

the appeal by Ext.P29, in respect of the issues in appeal and remanded the remaining issues for reconsideration to the assessing officer. Thus, as far as the liability of tax due from the Company is concerned, the matter has been left open for consideration by the Assessing Officer.

4.

In view of the subsequent events that has arisen on account of Ext.P29, the learned Senior Counsel Sri.Joseph Markose contended that, no tax is due from the Company, warranting any proceedings under Section WP(C) NO. 28722 OF 2018 4 179 of the Act. It was therefore submitted that, the entire proceedings in the form of Ext.P10 becomes invalid and the same has not left to stand.

5.

The learned Standing Counsel Sri.Jose Joseph, on the other hand, contended that the issue may still arise for consideration under Section 179 of the Act if the Assessing Officer, subsequent to the remand order passes fresh orders, creating any tax liability for the Company. He also submitted, that it cannot be contended that Ext.P10 is without any basis since at the time, when the said order was issued, tax liability was due from the Company.

6.

On a consideration of the various contentions raised by the learned Senior Counsel as well as the learned Standing Counsel, I am of the view that, by virtue of the order passed in appeal by the Appellate Tribunal, produced as Ext.P29, a total change of scenario has occurred. As rightly, contended by the learned Senior Counsel Sri.Joseph Markose, the proceedings under WP(C) NO. 28722 OF 2018 5 Section 179 of the Act can be initiated only when there is a tax due from the Company, in respect of any income of any previous year. As per Section 179 of the Act if tax is due from a private Company and the same cannot be recovered, then every person, who was a Director of the Company, at any during the relevant previous year, will be liable for payment of such tax. The very basis for issue of Ext.P10 was the existence of a tax liability against the Company. The said tax liability has been effaced completely by virtue of Ext.P29, and the same has been remanded for reconsideration.

7.

When the issue that was pending consideration before the Tribunal has been directed to be reconsidered, in the eyes of law after setting aside the order of assessment to the extent challenged before the Tribunal, there is no tax due from the Company. Consequently there cannot be any recovery of tax from any Director of the Company for any assessment year, relevant to the previous year. Therefore, I am of the view that, Ext.P10 has no legs to stand, in view of Ext.P29. WP(C) NO. 28722 OF 2018 6

8.

Accordingly, Ext.P10 shall stand set aside. It is made clear that, I have not considered the merits of any of the findings entered into in Ext.P10 and the contentions raised by both parties against Ext.P10 are left open to be considered at an appropriate stage, if such an occassion arises. Accordingly, this writ petition is allowed, setting aside Ext.P10. BECHU KURIAN THOMAS JUDGE AJM

WP(C) NO. 28722 OF 2018 7

Appendix — schedule of exhibits
APPENDIX OF WP(C) 28722/2018 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE FORM 32 RETURN FILED BY THE COMPANY BEFORE THE REGISTRAR OF COMPANIES, KERALA EXHIBIT P2 TRUE COPY OF THE ORDER DATED 05.03.2018 PASSED BY THE 2ND RESPONDENT UNDER SECTION 230 OF THE INCOME TAX ACT EXHIBIT P3 TRUE COPY OF THE COMMUNICATION/ORDER OF STAY OF BALANCE DEMAND DATED 23.03.2018 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) EXHIBIT P4 TRUE COPY OF THE ORDER DATED 14.08.2017 PASSED UNDER SECTION 179 OF THE INCOME TAX ACT EXHIBIT P5 TRUE COPY OF THE ORDER OF ATTACHMENT DATED 16-08-2016 EXHIBIT P6 TRUE COPY OF THE JUDGMENT DATED 11.06.2018 PASSED BY THIS HON'BLE COURT IN W.P(C) NO.10675/2018 EXHIBIT P7 TRUE COPY OF THE JUDGMENT DATED 25.06.2018 PASSED BY THE DIVISION BENCH OF THIS HON'BLE COURT IN W.A. NO.1180/2018 EXHIBIT P8 TRUE COPY OF THE NOTICE UNDER SECTION 179 DATED 06.06.2018 (TO BE READ AS 29.06.2018) ISSUED BY THE 2ND RESPONDENT EXHIBIT P9 TRUE COPY OF THE DETAILED OBJECTION DATED 06.07.2018 FILED BY THE PETITIONER (WITHOUT EXHIBITS) EXHIBIT P10 TRUE COPY OF THE ORDER DATED 10.07.2018 PASSED BY THE 2ND RESPONDENT UNDER SECTION 179 EXHIBIT P11 TRUE COPY OF THE SHOW CASE NOTICE DATED 11.07.2018 ISSUED BY THE 2ND RESPONDENT EXHIBIT P12 TRUE COPY OF THE OBJECTIONS DATED 12.07.2018 FILED BY THE PETITIONER EXHIBIT P13 TRUE COPY OF THE IMPUGNED ORDER DATED 19.07.2018 PASSED BY THE 2ND RESPONDENT UNDER SECTION 230 Exhibit P14 TRUE COPY OF THE APPELLATE ORDER DATED WP(C) NO. 28722 OF 2018 8 25/1/2021 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) KOCHI Exhibit P15(A) TRUE COPY OF THE REVISED ASSESSMENT ORDER DATED 22/2/2020 (SUBSEQUENTLY CORRECTED TO 22/2/2021 BY CORRIGENDUM ORDER )FOR ASSESSMENT YEAR 2009-10 Exhibit P15(b) TRUE COPY OF THE REVISED ASSESSMENT ORDER DATED 22/2/2020 (SUBSEQUENTLY CORRECTED TO 22/2/2021 BY CORRIGENDUM ORDER )FOR ASSESSMENT YEAR 2010-11 Exhibit P16(a) TRUE COPY OF THE CORRIGENDUM ORDER DATED 17/3/2021 FOR ASSESSMENT YEAR 2009-10 Exhibit P116(b) TRUE COPY OF THE CORRIGENDUM ORDER DATED 17/3/2021 FOR ASSESSMENT YEAR 2010-11 Exhibit P117(a) TRUE COPY OF THE REVISED PENALTY ORDER DATED 30/03/2021 FOR ASSESSMENT YEAR 2009-10 Exhibit P17(b) TRUE COPY OF THE REVISED PENALTY ORDER DATED 30/03/2021 FOR ASSESSMENT YEAR 2010-11 Exhibit P18 TRUE COPY OF THE APPELLATE ORDER DATED 12/7/2021 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), KOCHI Exhibit P19(a) TRUE COPY OF THE REVISED ASSESSMENT ORDER DATED 22/2/2020 FOR ASSESSMENT YEAR 2011-12 Exhibit P19(b) TRUE COPY OF THE REVISED ASSESSMENT ORDER DATED 22/2/2020 FOR ASSESSMENT YEAR 2012-13 Exhibit P19(c) TRUE COPY OF THE REVISED ASSESSMENT ORDER DATED 22/2/2020 FOR ASSESSMENT YEAR 2014-15 Exhibit P19(d) TRUE COPY OF THE REVISED ASSESSMENT ORDER DATED 19/11/2020 FOR ASSESSMENT YEAR 2015-16 Exhibit P20(a) TRUE COPY OF THE CORRIGENDUM ORDER DATED 17/3/2021 FOR ASSESSMENT YEAR 2011-12 Exhibit P20(b) TRUE COPY OF THE CORRIGENDUM 0RDR DATED 17/3/2021 FOR ASSESSMENT YEAR 2012-13 Exhibit P20(c) TRUE COPY OF THE CORRIGENDUM 0RDR DATED 17/3/2021 FOR ASSESSMENT YEAR 2014-15 WP(C) NO. 28722 OF 2018 9 Exhibit P20(d) TRUE COPY OF THE CORRIGENDUM 0RDR DATED 17/3/2021 FOR ASSESSMENT YEAR 2015-16 Exhibit P21(a) TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 30/3/2021 FOR ASSESSMENT YEAR 2011-12 Exhibit P21(b) TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 30/3/2021 FOR ASSESSMENT YEAR 2012-13 Exhibit P21(c) TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 30/3/2021 FOR ASSESSMENT YEAR 2014-15 Exhibit P21(d) TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 30/3/2021 FOR ASSESSMENT YEAR 2015-16 Exhibit P22 TRUE COPY OF THE APPLICATION DATED 12/7/2021 FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT Exhibit P23 TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 12/10/2021 FOR ASSESSMENT YEAR 2009-10 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM Exhibit P24 TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 12/10/2021 FOR ASSESSMENT YEAR 2010-11 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM Exhibit P25 TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 12/10/2021 FOR ASSESSMENT YEAR 2011-12 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM Exhibit P26 TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 12/10/2021 FOR ASSESSMENT YEAR 2012-13 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM Exhibit P27 TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 12/10/2021 FOR ASSESSMENT YEAR 2014-15 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM Exhibit P28 TRUE COPY OF THE REVISED PENALTY ASSESSMENT ORDER DATED 12/10/2021 FOR ASSESSMENT YEAR 2015-16 ISSUED BY THE WP(C) NO. 28722 OF 2018 10 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, ERNAKULAM Exhibit P29 TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 10/2/2022 IN ITA NOS.25- 30/COCH/2021 AND ITA NOS.88 & 89/COCH/2021 Exhibit P30 TRUE COPY OF THE ORDER DATED 2/9/2021 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, KOCHI Exhibit P31(a) TRUE COPY OF THE ORDER GIVING EFFECT TO U/S.250 AND COMPUTATION SHEET DATED 28/10/2021 FOR AY 2009-10 Exhibit P31(b) TRUE COPY OF THE ORDER GIVING EFFECT TO U/S.250 AND COMPUTATION SHEET DATED 28/10/2021 FOR AY 2010-11 Exhibit P31(c) TRUE COPY OF THE ORDER GIVING EFFECT TO U/S.250 AND COMPUTATION SHEET DATED 28/10/2021 FOR AY 2012-13 Exhibit P31(d) TRUE COPY OF THE ORDER GIVING EFFECT TO U/S.250 AND COMPUTATION SHEET DATED 28/10/2021 FOR AY 2013-14 Exhibit P31(e) TRUE COPY OF THE ORDER GIVING EFFECT TO U/S.250 AND COMPUTATION SHEET DATED 28/10/2021 FOR AY 2014-15 Exhibit P31(f) TRUE COPY OF THE ORDER GIVING EFFECT TO U/S.250 AND COMPUTATION SHEET DATED 28/10/2021 FOR AY 2015-16 Exhibit P32 TRUE COPY OF THE LETTER DATED 22/2/2022 ALONG WITH THREE CHALLANS //TRUE COPY// PA TO JUDGE

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