2018 (11) TMI 5 - HC - VAT and Sales Tax

Attachment of property of the legal heirs of the deceased Directors of the Company - recovery of tax arrears of the company - Held that - It is not the case of the respondents that the petitioner is one of the Directors or Share Holders or Board Members of the Company or after the demise of (late) L.Narayanan Chettiar and (late) Saraswathi Narayanan, the petitioner is taking care of the Company. It is not their case that the partition deed was made ready, once after the demand was raised, so as to escape from the clutches of law, ie., in order to avoid from payment of tax. Moreover, they have not stated anywhere that the Company has been dissolved. It is a statute that affairs of a Company has to be dealt within the chain of power of the Company. A person, who is not connected with a Company, should not be driven, just because he is a heir of the Company s Directors, unless otherwise there is a solid proof that he is also involved in the affairs of the Company, in any manner. But, that is not the case of the respondents herein. Impugned proceedings quashed - petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Impugned notice demanding tax arrears and threatening property attachment.
2. Encumbrance over subject property and partition deed dispute.

Analysis:
1. The judgment concerns two writ petitions challenging notices issued by the tax department. The first petition is against a notice demanding tax arrears from the petitioner and threatening property attachment. The second petition challenges a notice informing the petitioner about tax arrears and encumbrance on the subject property. Both petitions are disposed of together due to similar issues.

2. The petitioner, not a director or shareholder of the company in arrears, argues against being held liable for the company's tax debts. The petitioner's father and grandfather purchased the subject property, later divided into four equal shares among family members. The department's auction proceedings for the entire property are contested as infringing on private rights due to the pending partition suit.

3. The government pleader asserts the petitioner, as a legal heir enjoying benefits from deceased directors, is aware of the company's tax arrears. The department initiated action to attach the subject property to recover tax arrears, complying with relevant tax laws. The government argues the petitioner cannot evade the company's legal dues derived from properties inherited from the petitioner's father, a company director.

4. The court notes the petitioner's lack of involvement in the company post-directors' demise and ownership of a 1/4 share in the subject property as per a partition deed. The court emphasizes that a person not connected with a company should not be held liable for company affairs solely based on being an heir of directors, unless involvement is proven. The court quashes the impugned proceedings, directing the removal of encumbrance on the petitioner's 1/4 share while allowing legal action against the company for arrears.

5. In conclusion, both writ petitions are allowed without costs, with the court quashing the impugned proceedings and directing the removal of encumbrance on the petitioner's share. The judgment clarifies that the order does not prevent legal action against the company, its directors, or shareholders to recover arrears.