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TMI Blog1964 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... nies or corporation have joined. The second preliminary objection raised by the respondents is upheld and the writ petitions are dismissed as being incompetent under article 32 of the Constitution. - WRIT PETITION NOS. 112, 113 AND 202 TO 204 OF 1961 AND 79 & 80 OF 1962 - - - Dated:- 25-2-1964 - P.B. GAJENDHAGADKAR, K.N. WANCHOO, J.C. SHAH, N. RAJAGOPALA AYYANGAR AND S. M. SIKRI, JJ. N.A. Palkhivala, J.B. Dadachanji, O.C. Mathur, Ravinder Narain, G.S. Pathak and B. Dutta for the Petitioner. M.C. Setalvad, D.P. Singh, M.K. Ramamurthi, R.K. Garg, S.C. Agarwal, S.V. Gupta, N.S. Bindra and R.H. Dhebar for the Respondent. JUDGMENT Gajendhagadkar, CJ. These writ petitions have been placed for hearing before us in a group, because they raise a common question of law in regard to the validity of the demand for sales tax which has been made against tae respective petitioners by the Sales Tax Officers for different areas. The facts in respect of each one of the writ petitions are not the same and the years for which the demand is made are also different; but the pattern of contentions is uniform and the arguments urged in each one of them are exactly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates of India. The registered office of the petitioner is in Bombay. In order to promote its trade throughout the country, the petitioner has entered into dealership agreements with different persons. The modus adopted by the petitioner in carrying on its business in different parts of India is to sell its products to the dealers by virtue of the relevant provisions of the dealership agreements. Accordingly, the petitioner distributes and sells its vehicles to dealers, State transport organisations and consumers in the manner set out in the petition. The petitioner contends that the sales in respect of which the present petitions have been filed were effected in the course of Inter-State trade and, as such, were not liable to be taxed under the relevant provisions of the Sales Tax Act. The Sales Tax Officer, on the other hand, has held that the sales had taken place within the State of Bihar and were intra-State sales and, as such, were liable to assessment under the Bihar Sales Tax Act. In accordance with this conclusion, further steps are threatened against the petitioner in the matter of recovery of the sales tax calculated by the appropriate authorities. The petitioner is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract the provisions of article 32. The validity of the respective Sales Tax Acts is not challenged and if purporting to exercise their powers under the relevant provisions of the said Acts, the appropriate authorities have, during the course of the assessment proceedings, come to the conclusion that the impugned transactions are intra-States sales and do not fall under article 286(1)( a ), that is a decision which is quasi-judicial in character and even an erroneous decision rendered in such assessment proceedings cannot be said to contravene the fundamental rights of a citizen which would justify recourse to article 32. In other words, the alleged breach of the petitioners' fundamental rights being referable to a quasi-judicial order made by a tribunal appointed under a valid Sales Tax Act, does, not bring the case within article 32. That is the first preliminary ground on which the competence of the writ petitions is challenged. In support of this plea, reliance is placed by the respondents on a recent decision of a special bench of this court in Smt. Ujjam Bai v . State of Uttar Pradesh [1963] 1 S.C.R. 778. There is another preliminary objection raised by the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the merits of the pleas raised by them. Since we have come to the conclusion that the second preliminary objection raised by the respondents must be upheld, we do not propose to pronounce any decision on the first preliminary objection. However, as the point covered by the said objection has been elaborately argued before us, we would prefer to indicate briefly the broad arguments urged by both the parties in that behalf. The controversy between the parties as to the scope and effect of the provisions contained in article 32 on which the validity of the first preliminary objection rests, substantially centers round the question as to what is the effect of the decision of this court in Smt. Ujjam Bai's case ( supra ). The petitioners argue that though the majority view in that case was that the writ petition filed by Ujjam Bai was incompetent, it would appear that the reasons given in most of the judgments support the petitioners' case that where the fundamental rights of a citizen are contravened, may be by a quasi-judicial order, in pursuance of which a tax is attempted to be recovered from a citizen, the erroneous conclusion in regard to the nature of the transaction must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute in the undoubted exercise of its jurisdiction, it cannot be challenged under article 32 on the sole ground that it is passed on a misconstruction of a provision of the Act or of a notification issued thereunder. Subba Rao J., on the other hand, took the view that article 32 confers wide jurisdiction on this court to enforce the fundamental rights, and he held that it is the duty of this court to entertain a writ petition wherever a fundamental right of a citizen is alleged to have been contravened, irrespective of whether the question raised involves a question of jurisdiction, law, or fact; this is the minority view pronounced in Ujjam Bai's case ( supra ). Hidayatullah J., who agreed broadly with the majority view, expressed the opinion that if a quasi-judicial tribunal embarks upon an action wholly outside the pale of the law he is enforcing, a question of jurisdiction would be involved and that would justify an application under article 33. Ayyangar J. held that if it-appeared that the impugned order of assessment was based upon a plain and patent misconstruction of the provisions of the taxing statute, that itself would give rise to a plea that the authority was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the notification violates the provisions of article 265 of the Constitution and thereby brings in the breach of article 31(1) ; in the other case, the misconstrurtion as to the taxable character of the transaction violates article 286(1)( a ) and thereby brings in article 31(1). Therefore, it is urged that the necessary consequence of the decision in Ujjam Bai's case ( supra ) is that even if the Sales Tax Officer has held wrongly that the impugned transactions are not inter-State transactions, the remedy of petition under article 32 is not open to the aggrieved citizen. On the other hand, Mr. Palkhivala has strenuously urged that the decision in Ujjam Bai's case ( supra ) rested on the basis that the misinterpretation of the notification did not involve the violation of any constitutional limitations or prohibitions and he has referred us to some passages in the judgments of Das, Kapur and Mudholkar JJ. In support of his argument that where an erroneous decision of a Sales Tax Officer results in the violation of a constitutional prohibition or limitation, different considerations would arise and an aggrieved citizen would be entitled to move this court under article 32. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en's right protected by article 286(1)( a ). Mr. Palkhivala urged the argument of jurisdiction in a slightly different way. He contended that the concept of jurisdiction on which he relied was not based on the view that jurisdiction means authority to decide. According to him the concept of jurisdiction was of a different category and was of a vital character when constitutional limitations or prohibitions were involved in the decision of any case brought before a Sales Tax Officer. On the other hand, Mr. Setalvad has urged that the Sales tax Officer is not a tribunal of limited jurisdiction and the charging sections of the respective Sales Tax Acts leave it to the Sales Tax Officer and the hierarchy of officers contemplated by them to decide the question about the taxability of any given transaction and impose a tax on it in accordance with the provisions of the Acts. Where a tribunal is entitled to deal with transactions which fall under the charging sections of the statute, it would be erroneous to contend that the decision of the tribunal on the said question about the taxability of the transaction is the decision on a collateral jurisdictional fact. If the said argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its members; the liability of the members or shareholders is limited to the capital invested by them ; similarly, the creditors of the members have no right to the assets of the corporation. This position has been well-established ever since the decision in the case of Salomon v. Salomon and Co. [1897] A.C. 22 (H.L.) was pronounced in 1897; and, indeed, it has always been the well-recognised principle of common law. However, in course of time, the doctrine that the corporation or a company has a legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be-lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the complexity of economic factors, judicial decisions have sometimes recognised exceptions to the rule about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic proble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doctrine of the lifting of the veil has been applied, in the words of Palmer, in five categories of cases: where companies are in the relationship of holding and subsidiary (or sub-subsidiary) companies; where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum; in certain matters pertaining to the law of taxes, death duties and stamps, particularly where the question of the "controlling interest" is in issue; in the law relating to exchange control ; and in the law relating to trading with the enemy where the test of control is adopted Palmer s Company Law, 20 th Ed. p. 136 . In some of these cases, judicial decisions have no doubt lifted the veil and considered the substance of the matter. Gower has similarly summarised this position with the observation that in a number of important respects, the legislature has rent the veil woven by the Salomon case ( supra ). Particularly is this so, says Gower, in the sphere of taxation and in the ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1057 (SC) we do not see how we can legitimately entertain the petitioners' plea in the present petitions, because if their plea was upheld, it would really mean that what the corporations or the companies cannot achieve directly, cant he achieved by them indirectly by relying upon the doctrine of lifting the veil. If the corporations and companies are not citizens, it means that the Constitution intended that they should not get the benefit of article 19. It is no doubt suggested by the petitioners that though article 19 is confined to citizens the Constitution-makers may have thought that in dealing with the claims of corporations to invoke the provisions of article 19, courts would act upon the doctrine of lifting the veil and would not treat the attempts of the corporations in that behalf as falling outside article 19. We do not think this argument is well-founded. The effect of confining article 19 to citizens as distinguished from persons to whom other articles like 14 apply, clearly must be that it is only citizens to whom the rights under article 19 are guaranteed. If the legislature intends that the benefit of article 19 should be made available to the corporations, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 30 guarantees rights to the citizens as such, and associations cannot lay claim to the fundamental rights- guaranteed by that article solely on the basis of their being an aggregation of citizens, that is to say, the right of the citizens composing the body. The respective rights guaranteed by article 10(1) cannot be combined as suggested by Mr. Pilkhivala, but must be asserted each in its own way and within its own limits; the sweep of the several rights is no doubt wide, but the combination of any of those two rights would not justify a claim such as is made by Mr. Palkhivala in the present petitions. As soon as citizens form a company, the right guaranteed to them by article 19(1)( c ) has been exercised and no restraint has been placed on that right and no infringement of that right is made. Once a company or a corporation is formed, the business which is carried on by the said company or corporation is the business of the company or corporation and is not the business of the citizens who get the company or corporation formed or incorporated, and the rights of the incorporated body must be judged on that footing and cannot be judged on the assumption that they are the right ..... X X X X Extracts X X X X X X X X Extracts X X X X
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