What did the High Court hold?

The tribunal held that to treat someone as a Principal Officer, there must be substantial material establishing their connection with the management or administration of the company. This basis must be reflected in the notice issued.

The petitioner challenged an order treating him as a Principal Officer of Kingfisher Airlines for FY 2009-10 to 2012-13. He argued that his objections were not considered and he was not involved in the company's management or administration.

What were the issues?

Whether the petitioner was correctly identified as a Principal Officer without sufficient material demonstrating his connection to the company's management or administration.

Sri A Harish Bhat vs ACIT | Karnataka High Court 2019

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 17TH DAY OF OCTOBER, 2019

BEFORE

THE HON’BLE MRS.JUSTICE S.SUJATHA

W.P.No.34252/2018 (T – IT)

BETWEEN :

SRI A.HARISH BHAT S/O LATE A.CHANDRA BHAT, AGED ABOUT 65 YEARS R/AT NO.28, 4TH MAIN, SHANKARNAGAR, MAHALAXMI LAYOUT, BANGALORE-560 096.

...PETITIONER

(BY SRI CHYTHANYA K.K., ADV.)

AND :

THE ASSISTANT COMMISSIONER OF INCOME TAX, TDS CIRCLE 1 (1) 4TH FLOOR, NO.59, HMT BHAVAN, BELLARY ROAD, BENGALURU-560 095. …RESPONDENT

(BY SRI JEEVAN J. NEERALGI, ADV.)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH AS FAR AS THE PETITIONER IS CONCERNED, IMPUGNED ORDER DATED 18.06.2018 IN RELATION TO ENCLOSED IN ANNEXURE- A.

THIS PETITION COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

- 2 - O R D E R

The petitioner has assailed the order dated 18.06.2018 of the respondent whereby the petitioner has been treated as a Principal Officer of the Company- M/s Kingfisher Airlines Limited for the financial year 2009- 10 to 2012-13 under Section 2(35) of the Income Tax Act, 1961 (‘Act’ for short). The said action of the respondent has been challenged mainly on the ground that the objections submitted by the petitioner to the notice issued, has not been duly considered.

Learned counsel Sri. Chythanya K.K. for the petitioner submitted that treating the petitioner as a ‘Principal Officer’ would result in serious consequences. To come within the ambit of ‘Key Management Personnel’ as stated by the respondent, the petitioner is neither the Managing Director nor the Chief Executive Officer/the Whole time Director/the Company Secretary/the Chief Financial Officer/anyway connected with the Management/Administration of the Company.

- 3 -

Learned counsel submits that these aspects though brought to the notice of the respondent Authority, has not been properly appreciated and a blanket order has been passed treating the petitioner as a ‘Principal Officer’ without any substantial material, hence seeks for setting aside the order impugned.

Learned counsel

Sri.Jeevan J. Neeralgi appearing for the revenue justifying the impugned order submits that the petitioner was the Treasurer of the U.B.Group of companies during the relevant financial years and hence he was treated as the ‘Principal Officer’ under Section 2(35) of the Act. Neither a personal hearing nor an order is necessary to treat the person as a Principal Officer under Section 2(35) of the Act. It is suffice if a notice of the intention of the Assessing Officer of treating any person as a Principal Officer is issued. Accordingly, seeks for dismissal of the writ petition.

Learned counsel for the revenue has placed reliance on the judgment/order of the Hon’ble High Court

- 4 - of Calcutta in the case of Hungerford Investment Trust Limited Vs. Income Tax Officer, ‘F’ Ward, reported in Laws (Cal)1982 4 30.

Having considered the rival submissions of the learned counsel for the parties and perusing the material on record, the order impugned deserves to be set aside for the reason that a Principal Officer, as contemplated under Section 2(35) of the Act, used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means: (a) the secretary, treasurer, manager or agent of the authority, company, association or body, or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof;

- 5 - 7. It is clear that to treat any person as a Principal Officer, such person should be connected with the management or administration of the local authority/company or association or body.

Such connection with the management or administration is the basis for treating any person as a Principal Officer. Such connection has to be established or to be supported with substantial material to decide the connection of any person with the management or administration. Without disclosing the basis, no person can be treated as a ‘Principal Officer’ of the company recognising him as the Key Management Personnel of the company. The details of such information on the basis of which the Key Management Personnel tag is made, has to be explicitly expressed in the notice of the intention of treating any person as a Principal Officer by the Assessing Officer. Neither in the show cause notice nor in the order impugned, such connection of the petitioner with the management or administration of the company M/s Kingfisher Airlines Limited is established. The phrase ‘Key Management Personnel’ of the company has a wide

- 6 - connotation and the same has to be supported with certain material unless such connection is established, no notice served on the petitioner would empower the respondent Authority to treat the petitioner as a Principal Officer.

The judgment relied on by the learned counsel for the Revenue was rendered in a different context, considering the notice issued under Section 148 of the Act, whether was properly served as required under Section 282 of the Act, as the appellant therein contended that he could not be treated as a Principal Officer in terms of Section 2(35) of the Act. At the first instance, the learned Judge had negated the contention of the appellant and held that it could not be said that the finding that the appellant No.2 was connected with the management and administration of the appellant No.1 was based on no material or was wholly arbitrary. On further consideration by the division bench, it was observed that before treating a person concerned as a Principal Officer under Section

- 7 - 2(35) of the Act by the ITO, it is not necessary to determine that question upon hearing the submission or representation of the person concerned.

In the present case, the question inasmuch as neither service of notice nor hearing of the petitioner before treating the petitioner as a Principal Officer is involved. The fulcrum of dispute revolves around the aspect whether the petitioner is the person connected with the management or administration of the company. Such finding has to be supported by substantial material and has to be reflected in the notice issued under Section 2(35) of the Act to treat a person as a Principal Officer of the company which will have wider consequences. The said aspect is lacking in the present order impugned. Merely on surmises and conjectures, no person shall be treated as a Principal Officer.

10.

Writ petition is allowed. The impugned order dated 18.06.2018 at Annexure – A is quashed. It is

- 8 - needless to observe that liberty is reserved to the Department to proceed in accordance with law.

Sd/- JUDGE

Dvr:

SRI A HARISH BHAT vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

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