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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 ..... es had lifted the corporate veil and had found the petitioner to be the real person who benefited from the business transactions of the Company-under-Liquidation. The law on the issue has been dealt with by a coordinate bench of this Court in M/S Meekin Transmission Ltd. and others Vs. State of Uttar Pradesh and others [ 2008 (2) TMI 406 - ALLAHABAD HIGH COURT] where it was held that no recovery can be made against the director. In the case of present petitioner, similar recovery initiated by the Maharashtra VAT authority for the Assessment Years 2009-2010, 2010-11, 2011-12 were withdrawn. Direction is issued to the revenue authorities to restrain them from recovering the disputes tax dues of the Company-under-Liquidation from the personal assests of the petitioner. However, the revenue authorities shall be at liberty to proceed against the assests of the Company-under-Liquidation, without any objection of the petitioner. The writ petition is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... les Tax Act, 1956. The Company-under-Liquidation was duly incorporated and was real. It was not a proprietary enterprise of the present petitioner and the petitioner had not conducted himself in any manner vis-a-vis the affairs of the Company-under-Liquidation as may ever have allowed the revenue authorities to reach a conclusion that the petitioner was the real person who had done business in the name of the Company-under-Liquidation. The pleadings made in the writ petition are to the effect that the petitioner had conducted himself in accordance with law vis-a-vis the affairs of the Company-under-Liquidation. In paragraph No.15 of the Counter Affidavit it has been stated as below:- "That the directors who had been managing the company were completely negligent in taking steps by participating in assessment proceedings or by taking legal recourse after obtaining assessment orders, but no care was taken to participate in the assessment proceedings and assessment order had been passed ex-parte. No steps were taken for recalling the orders or for filing appeal under Section 55 of the U.P. Value Added Tax Act." 7. Besides the above, no other special fact has been pleaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. The Supreme Court has held in some of the above decisions that in tax matters the veil of corporate personality can be lifted so that the tax dues can be realized. The doctrine of piercing the veil of corporate personality has an expanding horizon. We are therefore expanding this doctrine and declare that ordinarily if there are tax dues against the corporate personality (or societies) they can be realized from the Directors, Secretary of the Society, or others who control the company or the society. This is necessary because in our country what is happening is that tax dues are often evaded by business under the cover of the doctrine of corporate personality. The petitioner society is not a charitable society doing social work but is doing business. Thus the petitioner is not entitled to the protection of the principle laid by the decision in Salomon Vs. Salomon and Co. Ltd. (supra). We find that in para 19 of the judgement on the basis of the factual finding recorded in the said case the Court declined to exercise its discretionary remedy under Article 226 of the Constitution in favour of the petitioner. The observations made in para 20 of the judgement were thus not on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch does not include a person merely for the reasons that he is Director or shareholder or otherwise office bearer of the corporate body. Besides Section 8 sub-section 3, there is no other provision under the U.P. Trade Tax Act which empowers respondents to recover the dues of a dealer from the assets of any other person. In the present case it is not disputed that petitioner no. 1 who was registered under the provisions of U.P. Trade Tax Act, 1948 was a dealer for the purpose of liability of tax and not the petitioner no. 2. Wherever the legislature has intended, has provided statutory provision empowering tax authorities to recover the dues of a corporate body from its Directors, shareholders or others. For illustration, we may refer to Section 179 of the Income Tax Act, 1961 which reads as under: 179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where by tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time. Section 147(4) of the Act provides that if an officer of a company signing bill of exchange, hundi, promissory note, cheque, if not mention the name of the company in the prescribe manner, such officer can be held personally liable to the holder of the bill of exchange, hundi etc. unless it is duly paid by the company. Section 542 of the Act provides that if during the course of winding up of a company it appears that any business of the company has been carried on with intent to defraud the creditors of the company or any other person or for any fraudulent purpose, the persons who were knowingly party to such carrying on business, shall be personally responsible without any limitation of liability for all or any of the debts or other liabilities of the company, as the court may direct. 61. We have not been shown that any similar provision exist in U.P. Trade Tax Act empowering recovery of dues of the company from the Directors or shareholders personally. At this stage it would be appropriate to notice another Division Bench decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above is that in a case where the corporate personality has been obtained by certain individuals as a cloak or a mask to prevent tax liability or to divert the public funds or to defraud public at large or for some illegal purposes etc., to find out as to who are those beneficiaries who have proceeded to prevent such liability or to achieve an impermissible objective by taking recourse to corporate personality, the veil of the corporate personality shall be lifted so that those persons who are so identified are made responsible. However, this doctrine is not to be applied as a matter of course, in a routine manner and as a day to day affair so as to recover the dues of a company, whenever and for whatever reason they are unrecoverable, from the personal assets of the Directors. If such a course is permitted, it would lead to not only disastrous results but would also destroy completely the concept of juristic personality conferred by various statutes like the Act in the present case and would make several enactments and their effect to be redundant and illusory. Moreover, the shallowness of arguments in favour of making Directors personally responsible can be considered from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understand as to how and what manner a Director of a company can straightway be proceeded personally for recovering dues of a company unless it is so provided by some provision of the statute. 76. In brief, we can categories the cases in which the corporate personality of the incorporate body can be ignored and it would be better to refer the renowned author Palmer's Company Law 23rd Edition where he has categorised the cases, in which the principle of separate entity of the Company has been discarded by adopting the doctrine of lifting the veil, in 15 categories and some of which are as under: (1) where companies are in relationship of holding and subsidiary (or sub-subsidiary) companies; (2) 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; (3) in certain matters pertaining to the law of taxes; death duty and stamps, particularly where the question of the "controlling interest" is in issue; (4) in the law relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so made plain:- "79. Whether in respect to tax dues or other public revenue or in other cases, if one has to discard the corporate personality, then the initial burden would lie upon it to place on record relevant material and facts to justify invocation of doctrine of lifting of veil and to plead that the corporate shell be not made a ground of defence. A personality conferred by the statute cannot be overlooked or ignored lightly and in a routine manner or on a mere asking. In fact whenever the veil is to be pierced, it would mean that somebody, individual or group of individuals, have obtained the shell of corporate personality as a pretext or mask to cover up a transaction or intention of those individual/individuals is neither legal nor otherwise in public interest. In effect the attempt of those individuals have to be shown akin to fraud or misrepresentation. The legal personality of the corporate body thus can be ignored in such cases since it is well settled that fraud vitiates everything and, therefore, the benefit of legal personality obtained by someone for purposes other than those which are lawful or even if lawful but not otherwise permissible, the corporate person ..... X X X X Extracts X X X X X X X X Extracts X X X X
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