Allowed

Smt.Radha Bai, Hyderabad v. Dy. C.T.O. Hyderabad and Another

Telangana HC22 Nov 2022WP/23268/2006

Case brief

AI extract

What is this about?

The High Court allowed a writ petition challenging a notice of attachment issued against the Petitioner, an ex-director of a private company. The Court held that tax arrears cannot be recovered from a director under Section 168 of the APGST Act, 1957 unless the company is wound-up, liquidation proceedings are initiated, or the statutory pre-conditions are met. Since the company was not wound-up an

What did the court decide?

Impugned Notice of Attachment dated 08.08.2006 against the Petitioner set aside with liberty to initiate recovery proceedings against the Company.

Smt.Radha Bai, Hyderabad Vs Dy. C.T.O. Hyderabad and… — Company and Corporate | Telangana HC (2022)

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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction)

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TUESDAY, THE TWENTY SECOND DAY OF NOVEMBER TWO THOUSAND AND TWENTY TWO

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PRESENT

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THE HONOURABLE SRI JUSTICE T.VINOD KUMAR AND THE HONOURABLE SRI JUSTICE PULLA KARTHIK

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WRIT PETITION NO:232 68 0F 2006

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Between:

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SMT. Plot I|D{A^{BAl, HYDERABAD, Wo. Sri K.seetharam reddyR/o} No 775/A1, Road No.45, Jubilee Hills, Hyderabad - 500 033.

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...PETITIONER

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AND

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1 The Deputy Commercial Tax Officer, Fatehnagar Circle, Hyderabad.

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2 M/s. Kolan Pharmachem Private Limited, Plot No.5, S.V.Coop. Industrial Estate, Opposite to l.D.P.L. Research Centre, Balanagar, Hyderabad - 500 037.

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...RESPONDENTS

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Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a writ, order or direction, more particularly one in the nature of writ of mandamus, set aside the Notice of Attachment in Form No.S dated 08.08.2006, issued by the first respondent for attachment of the property bearing Plot No.1/A4 in Survey No.712, situated at Kukatpally, village Ranga Reddy District belonging to the petitioner and to declare the same as illegal, contrary to the provisions of the APGST ACt, 1957 and violative of principles of natural justice.

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l.A. NO: 'l OF 2006(WPMP. NO: 29632 OF 2006)

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Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to

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stay the operation of Notice of Attachment dated 08.08.2006 to attach the property bearing Plot No.1/A4, in survey No.712, situated at Kukatpally village, Ranga Reddy District, belonging to the petitioner, issued by the first respondent.

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Counsel for the Petitioner: SRI B. CHANDRASEN REDDY

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Counsel for the Respondent No.1 : SRI K. RAJI REDDY (sc FoR coMMERGIAL TAXES)

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Counsel for the Respondent No.2: - - - -

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The Court made the following: ORDER

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THE HON'BLE SRI JUSTICE T. VINOD KUMAR AND

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THE HON'BLE SRI JUSTICE PULLA KARTHIK

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WP. No. 23268 of 2006

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ORDER:per rro n'ble Si Justice T.Vinod Kumar)

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The challenge in the present Writ Petition is to the notice of attachment issued by the lst respondent in Form No.S, dt.O8.08.2006, attaching the property bearing Plot No.1/A4 in Sy.No.712, situated at Kukatpally Village, Ranga Reddy District, belonging to the^petitioner arrd to declare the said notice of attachment as being il1ega1, contrary to the^{provisions of APGSTAct,} 1957(for short the Act') and violative of^principles of natural^justice.

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Heard Sri B.Chandrasen Reddy, learned Senior Counsel appearing for the counsel for petitioner and Sri K.Raji Reddy, learned Special Standing Counsel for Commercial Taxes appearing on behalf of the 1't respondent, and perused the record.

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Petitioner contends that she was Director of the 2nd respondentCompany during the period 1999 onwa-rds and resigned in the^{year 2OO1-O2} on account of reshuffle in the Board of Directors and thus ceased to be a Director of the 2"d respondent-Company.

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Petitioner further contends that the impugned notice of attachment under Section 27 ol the Revenue Recovery Act, 1864 was^issued to^the petitioner on 08.08.2O06, aJter the petitioner ceased to be a Director of the 2'd respondent-Company, claiming that the 2"d respondent-Company is due for payment of arrears of tax in a sum of Rs.1O,31,390/-, for which the property

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)

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of the petitioner was attached under the impugned^proceeding by the^1$ respondent; that the notice is purported to have been issued in exercise of powers conferred under Section 16B of the Act, and such exercise of power by the Authority in issuing notice of attachment is contrarlr to the provisions of the said Act, inasmuch as the said provision can be invoked against a director of the private company, only when tJ:e private company is wound-up, and any tai assessed on the company before or in the course of or a-fter its liquidation, car-rnot be recovered. It is further contended that only when the authorities fail to recover the said arrears from the company in liquidation, resort c-an be madc to recover from the Directors.

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l-earned Senior Counsel appearing for the petitioner contends that the impugned notice docs not make any reference to the steps that have been taken lbr recol/cry of the arrears from the company ar-rd the respondentauthority had issued the impugned notice straight away to the petitioner attaching her propcrty. He further contends that the pre-condition for invoking Section 168 also does not stand attracted in the facts of the present case inasmuch as the Company is an on-gorng concern and is not wound-up, for the authorities to recover the tax arrears from the Directors as provided under Section 168 of the Act.

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In suppor:t of the above said contentions, reliar-rce is placed on the decision of the erstrvhile High Court of Andhra Pradesh in the case of Maddi Swarna v. Commercial Tax Officer and Ors.l and Sunil Kumar Agarwal v.

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'^{20or r2asrc203 np= MANU/Aplog29/2001}

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The commercial Tax OfEcer2. Learned Senior Counsel would further^rely on a decision of this court, dt.28.Lo.2022, in wP.No.20345 0f 2007, wherein this Court took a similar view that arrears of tax cannot be recovered from the Directors except when the company is wound-up or going through the process of liquidation. Learned Senior Counsel therefore seeks for similar relief to the petitioner by setting aside the impugned notice of attachment.

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Counter afhdavit on beha-lf of the 1$ respondent is filed. By the said counter affidavit filed, the respondent does not controvert the assertion made by the petitioner in the writ affidavit that the petitioner ceased to be a Director of the 2,d respondent-Company during the year 2OOl-O2. Further, in reply to paragraph 8 of the writ petition affidavit, the 1"t respondent, merely stated as under:

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"9. ...... it is submitted that the management of the company changed only during the financial year 2OO1-O2. the present arrears relate to the years 1999-2000 and 2O00-2001, during which period the petitioner was one of the directors of the company, As the company did not have any other movable or immovable property and as it has wound up its activities the recovery proceedings r.r'ere initiated."

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By the said counter aifidavit, the l"t respondent further stated that the department made its best efforts to reaJize the arrears from the 2nd respondent-Company but in r,,ain; that the 2"d respondent-Company has no movable or immovable properties in its name for making recovery under the Revenue Recovery Act, as it had closed its business operations long ago and

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'rualtu/nplrr:s/zoro

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sold au.ay its properties; and thus the l,t respondent proceeded against the petitioner being a Director of the Company during the relevant period. It is a.lso contendecr on beharf of the respondent that the petitioner being a Director of the compa.y at ttre relevant point of time is responsible to see that the ta-xes are paid and that in certain exceptional cases, the Court is entitled to lift the corporate veil and pay regard to the economic realities behind the legal faqade.

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We have taken note ofthe respective contentions urged.

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A reading of Section 16E} of the Act indicates thar the liability of the Directors of a private company would a-rise only when the a private company is wound-up and any tax assessed on the company under the Act for any period before or in thc course of or after its liquidation ..nnot be recoveredThus, every person who was a Director of the private company at any time during the period for which the tax is due shdl be jointly and severalv liable for payment of said ta-x.

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1i. Further the pro'isions of Section 168 of the Act does not provide for recovery from the Director automatica,y in the event of fairure to recover from the private limited company. On the otherhand the provision specifies that if the Director proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his pa-rt in relation to the aIlairs of the company, no rccovery can be made from the said Director.

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Perusal of the impugned notice of attachment firstly, does not mention any efforts/steps that have been taken by the l*t respondent to recover the dues from the 2"d respondent_Company and the reasons lor such non_

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recovery. Secondly, the l"t respondent by their counter a{frdavit admit to the fact of change in the management of the 2",1 respondent_Company which implies that the 2"a respondent is not wound_up for triggering of provision of Section 168 of the Act.

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As noted above, since the 2"a respondent_Company is not wound_up, no recourse can be made to recover the dues from the Director, who either continues to be on Board or ceases to be Director of the Company, inasmuch as the respondents-authorities can take steps to recover such arrears from the 2"a respondent-Company.

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Since the petitioner in the present case is an Ex-Director of the 2nd respondent-Company, which admittedly is not wound_up, the impugned notice of attachment for recovery of arrears of tax cannot be sustained.

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Accordingly, the Writ petition is allowed and the impugned notice of attachment for recovery of arrears of tax is set aside. However, the 1"t respondent is at liberty to initiate recovery proceedings against the 2"d respondent-Company, in accordance with law. No order as to costs.

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