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TMI Blog2014 (4) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... n executive Director. 1.2 The company was assessed for the assessment year 1995-96, 1996-97 and 1997-98 and the substantial tax demands were raised against the company. 1.3 A notice dated October 14, 2001 was issued under section 221(1) of the Act for non-payment of dues of the company to the tune of Rs.297 lakh. The petitioner replied to the same inter alia stating that he was no longer associated with the company since many years and he cannot be held liable for any tax demand raised against the company. The order is passed holding that the petitioner was a director of the company and was managing the affairs of the company in his capacity as a director. Keeping in mind all the circumstances, it came to be deduced that the demands were raised due to gross neglect, misfeasance or breach of duty by the directors and as the said amount could not be recovered from the company, the directors are to be held responsible and are liable for recovery. It is further held that M/s. Blue Information Technology Ltd. is a private limited company and by virtue of being the director during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. (2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962." 3. As contained in the said provision, where any tax is due from a private company in respect of any income from the said company or any other company in respect of any income of the company of the previous year during which year such company was a private company, if the Revenue is not in a position t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries of such principle have not yet been defied and areas where such principle may have to be applied may expand. Principally, the concept of corporate body being an independent entity enjoying existence independent of its directors, is a well known principle. Its assets are distinct and separate and distinct from those of its members. Its creditors cannot obtain satisfaction from the assets of its members. However, with ever developing world and expanding economic complexities, the Courts have refused to limit the scope and parameters or areas where corporate veil may have to be lifted. 16. Howsoever cautiously, the concept of piercing of corporate veil is applied by the Courts in various situations. Two situations where such principle is consistently applied are, one where the statute itself so permits or provides for and second where due to glaring facts established on record it is found that a complex web has been created only with a view to defraud the revenue interest of the State. If it is found that incorporation of an entity is only to create a smoke screen to defraud the revenue and shield the individuals who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i (supra), the Revenue had put forth sufficient material and when both the conditions of meeting with the emergent need of the situation were held to be duly satisfied, double application of lifting of veil was permitted by the Court. 6. This Court in the case of Special Civil Application No.10686 of 2013 with Special Civil Application No.10688 of 2013 in the case of Sandeep A. Mehta v. Income Tax Officer decided on October 15, 2013, also had an occasion to refer to the decision in the case of Pravinbhai M. Kheni (supra). The facts somewhat similar to the present case were presented, wherein the petitioners were the directors of the Company, where the notice was issued to the Directors for recovery of demand under section 179 of the Act in their capacity as Directors. The Company admittedly was a public limited company since the year 1995 and the petitioners were appointed as directors of the Company in December, 2005. They were not even share holders at the time of conversion of the company from private limited company to public limited company. The request was also made by the Revenue to lift the corporate 'veil. On duly considering the judicial pronouncements' on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors of the Private Company behind the veil are the beneficiaries and who have created such a complex web for their personal interest so as to defraud the Revenue. 25. When the facts are eloquent enough in the instant case, where the petitioners were never concerned with the affairs of the Company until 28.12.2005 and the Company had already become Public Limited Company and by the time they became Directors, they were not even simple shareholders for the entire period till the year 2006, there does not arise any question of applying the ratio of decision of Pravinbhai M. Kheni vs. Assistant Commissioner of Income-Tax and others (supra) or for that matter upholding the action of the respondents of invoking the provisions of section 179 of the Act." 7. In the present case, as we can notice, the company M/s. Blue Information Technology is a Public Limited Company. It was incorporated as a Public Limited Company vide certificate of incorporation dated May 25, 1992. It came out with a public issue in June ,1996. The petitioner-director of the said Company resigned on September 6, 1997. Admittedly, the dues are of the years 1995-9 ..... 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