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TMI Blog2024 (5) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... nder-liquidation passed the first ex-parte assessment order against A.Ys. 2010-11, 2011-12, 2012-13. Details of the same as given in the Counter Affidavit filed by the revenue are as below:- Date of Assessment order Assessment Year Demand Created 17.02.2014 2010-11 (UP) Rs. 1,59,18,761/- 17.02.2014 2010-11 (Central) Rs. 13,50,000/- 28.03.2015 2011-12 (UP) Rs. 2,71,54,394/- 28.03.2015 2011-12 (Central) Rs. 12,82,500/- 26.03.2016 2012-13 (UP) Rs, 4,87,28,791/- 26.03.2016 2012-13 (Central) Rs. 2,99,59,988/- Total Rs. 12,43,94,434/- 4. Thus, all assessment orders came into existence when the Provisional Liquidator had taken over. In such circumstances, it seems, the tax demand assessed against the Company-under-Liquidation remained outstanding. Since those demands were not satisfied, the assessing authority has issued recovery citation against the present petitioner to recover the tax dues of the Company-under-Liquidation from the personal assests of the petitioner. Such recoveries are being pursued against the petitioner on the strength of the fact allegation that the petitioner was the director of the Company-under-Liquidation, at the relevant time. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the subsequent division bench decision in M/s Meekin Transmission Ltd. (supra), wherein it was observed as under:- "55. In Naresh Chander Gupta (Supra) the dues of trade tax were sought to be recovered from M/s Shiv Sewa Samiti, a society registered under the Societies Registration Act of which the petitioner, Naresh Chander Gupta was the secretary. Though recovery certificate was issued against the society but it was alleged by the petitioner that the revenue recovering authorities were proceeding against the assets of the petitioner himself. On the pleadings, the Court found that the petitioner has neither shown as to whether there are other office bearers of the society or not and as to who actually is running and controlling the society. Further the Court recorded a finding that the petitioner was really managing the entire society and had control over its operations and has created society for evading tax or for other extraneous reasons as is evident from the following: 18. On the facts of the present case we are of the opinion that the petitioner was really managing the entire society and had control over its operations. He has only created the society for the evading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1948 which reads as under: 8(3) Notwithstanding anything contained in any law or contract to the contrary, the assessing authority may, at any time or from time to time, by notice in writing a copy of which shall be forwarded to the dealer at his last address known to the assessing authority, require- (a) any person from whom any amount is due or may become due to the dealer, or (b) any person who holders or may subsequently hold money for or on account of the dealer, to pay to the assessing authority- (i) forthwith upon the money becoming due or being held, or (ii) at or within the time specified in the notice not being before the money becomes due or is held. So much of the money as is sufficient to pay the amount due by the dealer in respect of arrears of tax or other dues under this Act, or the whole of the money when it is equal to or less than that amount. Explanation- For the purpose of this sub-section, the amount due to a dealer or money held or on account of a dealer by any person shall be computed after taking into account such claim, if any, as may have fallen due for payment by such dealer to such person and as may be legally subsisting." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962. 59. A perusal of Section 179 shows that it has been given an overriding effect over the various provisions of the Act and makes Director of a Private Company responsible for payment of tax dues outstanding, of the period, he was Director, provided he proves that non recovery is not attributed to any gross neglect, misfeasance or breach of duty on his part. The said provision, therefore, while making Director of the private company responsible for payment of tax dues jointly and severally, makes an exception that in case he proves that the assets of the company are not sufficient to meet tax dues and have reduced for reasons not attributable to him on account of any gross neglect, misfeasance or breach of duty, then such person would not be responsible. The legislature thus has also recognised even in the said statute the principle that the doctrine of lifting of veil in the matter of tax dues is to be applied to prevent fraud etc. and not where the company has suffered despite its normal bona fide function. The persons responsible for its management are not to be made responsible for normal depreciation of capital or assets merely because the dues are of Tax. Further even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Employees State Insurance Scheme, Provisions of Food Prevention Act, Factories Act, Provident Fund Act, Industrial Disputes Act etc. etc. There is no provision in the U.P. Government Electricity Undertaking (Dues Recovery) Act, 1958 or Electric Supply (Consumers) Regulations, 1984 or even in the Indian Electricity Act, 1910 which may make it possible to read that a Director can be taken to be the successor of the Company which had entered into the agreement with the Board as a Consumer taking note of the definition of the word 'Consumer' in any of the three laws referred to above. 62. Where under the agreement or the statutory provisions, only the company is liable to pay the dues, in such cases the Directors would not be personally responsible and the doctrine of lifting the veil cannot be invoked in such case as is evident from following in the judgement of Adesh Kumar Jain (Supra): ......In the instant case, there is an agreement between the parties and also the statutory provisions under which the only consumer company is liable for payment of the arrears of electricity dues and the Director of the company cannot be made personally liable. Hence the doctrine of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an officer of the company and not in the capacity of limited ownership by way of shareholding. Such a Director, in our view, unless is guilty of misfeasance, fraud or acting ultra vires, we are not able to understand as to how he can be made responsible personally for the dues of the company even if we apply the doctrine of piercing the veil. If in such a case the veil is to be lifted, the persons behind the veil, at the best, would be the promoters of the company or those who have sought to obtain corporate personality as a sham or bogus transaction. Similarly, in some of the companies the financial institutions, who advances funds as loan etc., nominate their Director/s to keep some kind of monitoring over the functions of the company so that it may not go on liquidation on account of negligent and careless function of the Board of Directors. Such Directors also, in our view, cannot be included in the category of the persons who would be responsible personally for the dues of the company. 71. In order to find out as to who are the persons responsible personally when the veil is lifted it would be wholly irrelevant as to whether such person is a Director or a promoter shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerations justify an exemption from the strict rule in Salomon Vs. Salomon and Co. Ltd. 77. Another learned author L.C.B. Gower in his "Principles of Modern Company Law" 4th Edition, has also given such illustration where the veil of a corporate body has been pierced and has enumerated the same as fraudulent trading, misdescription of company, and taxation mattes where the statute require etc. 26. As to procedure to be adopted, it was also observed:- "78. In the nutshell, the doctrine of lifting of veil or piercing the veil is now a well established principle which has been applied from time to time by the Courts in India also. There is no doubt about the proposition that whenever the circumstances so warrant, the corporate veil of the company can be lifted to look into the fact as to whose face is behind the corporate veil who is trying to play fraud or taking advantage of the corporate personality for immoral, illegal or other purpose which are against public policy. Such lifting of veil is also has to implemented whenever a statute so provided. However, it is not a matter of routine affair. It needs a detailed investigation into the facts and affairs of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate personality conferred upon a company and make its Directors or shareholders responsible personally. 80. In the case in hand we do not find that any such attempt has been made by the respondents before issuing the impugned notice dated 23.05.2003 to the petitioner no. 2 requiring him to pay dues of petitioner no. 1 from his personal assets. We are informed by learned Standing Counsel that pursuant to the judgment of this Court in Naresh Chander Gupta (Supra) the Commissioner, Trade Tax has issued a circular directing various authorities to initiate recovery proceedings against the Directors of the companies where the dues have not been recovered from the companies and it is pursuant to such circular the authorities are proceeded accordingly. However, no such circular has been placed before the Court and it is not part of the record. We are not making any observation with respect to the validity of said circular but it is suffice to us to make it clear that even when the tax dues are to be recovered from a corporate body, the Directors of such corporate body would not automatically be responsible unless the doctrine of lifting of veil is found to be applicable in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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