Bombay High Court
Geeta P. Kamat vs Principal Commissioner Of ... on 20 February, 2023
Bench: Dhiraj Singh Thakur, Abhay Ahuja
WP-3159-2019-J-18-02-2023.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
Digitally
signed by
SHRADDHA
SHRADDHA KAMLESH
WRIT PETITION NO. 3159 OF 2019
KAMLESH TALEKAR
TALEKAR Date:
2023.02.20
19:45:43 Geeta P. Kamat, adult, Indian Inhabitant, ]
+0530
Currently residing at Plot No.69, Laxmi Gruh, ]
Flat No.701, 7th Floor, Hindu Colony, ]
Lane No.1, Dadar (East), Mumbai-400014. ]... Petitioner
Versus
1. Principal Commissioner of Income-tax-10, ]
having his offce at Aaykar Bhavan, ]
Maharshi Karve Road, Mumbai-400020. ]
]
2. Income Tax Offcer-10(1)(3), ]
having his offce at Aaykar Bhavan, ]
Maharshi Karve Road, Mumbai-400020. ]
]
]
4.Union of India through the Secretary, ]
Department of Revenue, Ministry of Finance, ]
Government of India, North Block, ]
New Delhi-110 001. ]..Respondents
WITH
INTERIM APPLICATION NO. 752 OF 2019
IN
WRIT PETITION NO. 3159 OF 2019
Geeta P. Kamat, adult, Indian Inhabitant, ]
Currently residing at Plot No.69, Laxmi Gruh, ]
Flat No.701, 7th Floor, Hindu Colony, ]
Lane No.1, Dadar (East), Mumbai-400014. ]... Applicant
In the matter between :
]
Geeta P. Kamat, adult, Indian Inhabitant, ]
Currently residing at Plot No.69, Laxmi Gruh, ]
Flat No.701, 7th Floor, Hindu Colony, ]
Lane No.1, Dadar (East), Mumbai-400014. ]... Petitioner
Shraddha Talekar, PS 1/16
WP-3159-2019-J-18-02-2023.doc
Versus
1. Principal Commissioner of Income-tax-10, ]
having his offce at Aaykar Bhavan, ]
Maharshi Karve Road, Mumbai-400020. ]
]
2. Income Tax Offcer-10(1)(3), ]
having his offce at Aaykar Bhavan, ]
Maharshi Karve Road, Mumbai-400020. ]
]
]
4.Union of India through the Secretary, ]
Department of Revenue, Ministry of Finance, ]
Government of India, North Block, ]
New Delhi-110 001. ]..Respondents
****
Mr.J.D. Mistri, Senior Advocate with Mr.Madhur Agrawal, Mr.
Fenil Bhatt, Mr. Jas Sanghavi and Mr.Viraj Y. Bhate i/b PDS
Legal, Advocates for petitioner.
Mr.Suresh Kumar, Advocate for respondents.
*****
CORAM : DHIRAJ SINGH THAKUR &
ABHAY AHUJA, JJ.
PRONOUNCED ON : 20th FEBRUARY, 2023
JUDGMENT
PER DHIRAJ SINGH THAKUR, J.
1. The petitioner challenges the order dated 22 nd December
2017 passed by the Income Tax Offcer under section 179 of the
Shraddha Talekar, PS 2/16
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Income Tax Act, 1961 ('the Act') treating the petitioner liable for
taxes allegedly due from the company M/s. Kaizen Automation
Pvt. Ltd. (KAPL) for the assessment years 2008-09 and 2009-10.
Order dated 18th March 2019 passed by the Principal
Commissioner of Income-tax, Mumbai dismissing the revision
petition under section 264 of the Act is also challenged in the
present petition.
2. Briefy stated the material facts are as under :
2.1 A show cause notice dated 12th January 2017 was served
upon the petitioner in terms of section 179 of the Act requiring the
petitioner to show cause as to why recovery proceedings be not
initiated against her in her capacity as a director of KAPL
inasmuch as the assessee company was not traceable on the
available addresses and further that the tax dues could not be
recovered despite attachment of the bank accounts as the funds
available were insuffcient. An amount of Rs.1404.42 lacs was
thus sought to be recovered from the petitioner.
2.2 With a view to prove that the non-recovery of the taxes due
could not be attributed to any gross neglect, misfeasance, breach
Shraddha Talekar, PS 3/16
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of duty on her part, in relation to the affairs of the company, the
petitioner in her response to the show cause noticed dated 23 rd
October 2017, took a stand that the petitioner, as a director in the
company had no liberty, authorization or independence to act in a
particular manner for the beneft of KAPL and that she did not
have any control over the company's affairs. It was stated that the
petitioner did not have any authority to sign any cheque
independently or take any decision on behalf of the company nor
did KAPL provide any operational control or space to the petitioner
to perform her duties. It was also stated that the petitioner did not
have any functional responsibility assigned to her and no one
from KAPL reported to her or her husband Shri Prakash Kamat,
who was also a shareholder and director in the company.
3. With a view to elucidate that the operational control and the
decision making authority did not lie with the petitioner, certain
details were referred to in the said reply to the show cause notice.
Averments have also been made in that regard in the present writ
petition. It would be worthwhile to briefy advert to them for
purposes of clarity. This would also give the background in which
the assessee company was formed and the agreements that were
executed between various entities in that regard.
Shraddha Talekar, PS 4/16
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Brief Background :
4. The petitioner's husband, Shri Prakash Kamat is stated to
have developed a smart card based ticketing solution for being
used at various public transport organizations like BEST, Central
and Western Suburban trains etc. Trials were run successfully
and an agreement was entered into between Shri Prakash Kamat
and BEST and Central Railways in 2006.
The projects with BEST and Railways were to be
implemented on "BOT" model and required funds to the tune
of Rs.50 to 60 Crores as initial investment. Khaleej Finance
and Investment, a company registered in Baharain
(hereinafter referred to as "KFI") agreed to make an
investment in the said project subject to certain conditions,
according to which a Special Purpose Vehicle was to be
incorporated to carry on the said project which lead to
incorporation of KAPL on 30th March 2006. Investment was
made by KFI in the said project through its Mauritius based
company "AFC System Ltd. (hereinafter referred to as
"AFC")".
A Joint Venture Agreement dated 21 st June 2006
("JVA"), Deed of Pledge dated 21st June 2006 ('"DP") along
Shraddha Talekar, PS 5/16
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with Irrevocable Power of Attorney dated June 2006 ("IPOA"),
was between into among Shri Prakash Kamat, the petitioner,
KFI and the said company-KAPL.
5. Some of the clauses of the JVA were referred to by Mr.Mistri,
learned counsel for the petitioner. It was stated that as per clause
7.2.1 in Article 7, the Auditor of the JVC had to be nominated by
the investor i.e., majority shareholding directors as long as KFI
held 50% shares in the JVC, and had be to appointed by the
Board. Clause 7.2.2 in Article 7 envisaged that the internal
Auditors of the JVC were to be nominated by the investors.
Reference was made to clause 8.1 in Article 8 to show that the
management of the JVC had to be vested with the Board, which
would exercise all such powers and do all such things as would be
exercised or done by the JVC. Reliance was placed upon Clause
8.2.1 in Article 8 to highlight the fact that maximum strength of
the Board was to be eight directors out of which 6 were of KFI.
Clause Clause 8.4 in Article 8 was referred to show that the
Chairman of the Board, at all times was to be from the Directors
nominated by the investor and fnally Clause 8.5.4 in Article 8
was referred to show that the decisions of the Board were to be
Shraddha Talekar, PS 6/16
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taken by a simple majority till such time the investor held more
than 50% of the total paid up share capital of the JVC.
6. In the reply to the show cause notice, the petitioner also
stated and highlighted the fact that due to some differences that
had cropped up with KFI since January 2009 the petitioner's
husband was removed as Managing Director of KAPL in
September 2009 along with the petitioner herein. It was also
stated that while the petitioner was a director during the fnancial
year 2007-08, since the petitioner stood removed as such director
in September 2009, she could not be held liable for the liability of
KAPL for the fnancial year 2008-09 relevant to assessment year
2009-10. It was also stated that the petitioner was not at all aware
till after she had been removed that there was any tax liability
which was due and payable by KAPL, and therefore, it was stated
that she could not have been held guilty of any gross neglect,
malfeasance or breach of duty on her part in relation to the affairs
of the company.
7. The Assessing Offcer ('AO'), by virtue of the order impugned
dated 22nd December 2017 passed under section 179 of the Act
Shraddha Talekar, PS 7/16
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rejected the contention of the petitioner. It was held that not only
had the petitioner failed to establish that she was not actively
involved in the management of the company during the fnancial
year 2007-08 and 2008-09 and further that she had failed to
establish that there was no gross neglect, malfeasance or breach
of duty on her part. The AO held that there was not a 'shred of
doubt' that Mrs.Kamat was actively involved in the day-to-day
affairs of the company till she was removed in September 2009. As
regards the disputes between the petitioner and KFI, the AO held
that it was normal to have such disputes during the working of an
enterprise.
8. The petitioner preferred a revision petition under section 264
of the Act against the order dated 22 nd December 2017 passed
under section 179 of the Act, which too, came to be dismissed vide
order dated 18th March 2019 simply on the ground that the
petitioner was a director for the relevant assessment years and
hence was liable.
9. Mr.Mistri, learned senior counsel for the petitioner urged
that the entire approach adopted by the AO in passing the order
Shraddha Talekar, PS 8/16
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under section 179 of the Act was misplaced and the mistake was
perpetuated by the revisional authority in dismissing the revision
petition fled by the petitioner against the said order. Reliance was
placed upon the judgment in Maganbhai Hansrajbhai Patel Vs.
Assistant Commissioner of Income-tax & Anr. 1 and Ram Prakash
Singeshwar Rungta & Ors. Vs. Income-tax Offcer 2
10. It was urged that the order passed by the AO was perverse
inasmuch as based upon the facts on record, no proceedings
under section 179 of the Act could have been initiated against the
petitioner for the purposes of recovery from the petitioner the
liability of the company for the assessment years 2007-08 and
2008-09. It was urged that even when the petitioner had placed
enough material on record refecting that the petitioner was not
the Managing Director of the company and was not at the helm of
affairs as such, and that she had not any independent authority
to take any decision on behalf of the company nor did she have
any independent operational control, yet the AO proceeded to hold
that the petitioner had failed to prove that there was no gross
neglect, malfeasance or breach of duty on her part in relation to
1 [2013] 353 ITR 567 (Guj.)
2 [2015] 370 ITR 641 (Guj.)
Shraddha Talekar, PS 9/16
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the affairs of the company.
11. In the reply affdavit fled by the revenue, it is reiterated that
the petitioner was an important working director of the assessee-
company and was bestowed with many important responsibilities
in order to run the day-to-day affairs of the company and her
claim that she did not hold any important position for purposes of
day-to-day affairs of the company was incorrect. This statement
was sought to be made based upon the minutes of the Board
Meeting which was referred to by the AO. It was, therefore, urged
that the proceedings under section 179 of the Act were rightly
initiated against the petitioner.
12. Heard learned counsel for the parties.
13. Section 179 of the Act inter-alia envisages that the where
any due from a private company in respect of any income of any
previous year cannot 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
Shraddha Talekar, PS 10/16
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his part in relation to the affairs of the company. It therefore
follows that if tax dues from a private company cannot be
recovered then the same can be recovered from every person who
was a director of a private company at any time during the
relevant previous year. However, such a director can absolve
himself if he proves that the non-recovery cannot be attributed to
any gross neglect, misfeasance or breach of duty in relation to the
affairs of the company.
14. In so far as the requirement of the frst part of the section is
concerned, it can be seen from the order passed under section
179 of the Act that steps were taken for recovery against the
company M/s. Kaizen Automation Pvt. Ltd. (KAPL) including
attachment of its bank accounts which did not yield any results.
The company is also stated to be not traceable on the addresses
available with the AO, and therefore, according to the AO, the only
course left was to proceed against the directors in terms of section
179 of the Act.
15. The stand of the petitioner is that she could not be
proceeded against, inasmuch as there was no gross neglect,
malfeasance or breach of duty on her part in relation to the affairs
Shraddha Talekar, PS 11/16
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of the company. The AO, however, did not accept this assertion. It
laid emphasis on the fact that the petitioner had actively
participated in the affairs of the company atleast till the date of
her removal in September 2009 and proceeded to hold that the
petitioner had failed to prove that there was any gross neglect,
misfeasance or breach of duty on her part as regards the affairs of
the company.
However, in the order impugned dated 22nd December 2017
passed under section 179 of the Act, although the AO did make a
reference to various Board meetings which were attended by the
petitioner from time to time from 2006 till 8 th January 2008, there
was no material highlighted by the AO, contrary to the material
on record placed by the petitioner, based upon which the
petitioner could be held to be guilty of gross neglect, malfeasance
or breach of duty in regard to the affairs of the company. The
petitioner having brought on record material to suggest lack of
fnancial control, lack of decision making powers in the light of
her stand that she had a very limited role to play in the company
as a director and that the entire decision making process was
with the directors appointed by the investors, i.e., KFI which was
the single largest shareholder of the JVC had, in our opinion,
Shraddha Talekar, PS 12/16
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suffciently discharged the burden cast upon her in terms of
section 179 to absolve herself of the liability of the company.
16. The AO appears to have applied himself more on the issue of
the petitioner participating in the affairs of the company for
purposes of pinning liability in terms of section 179 rather than
discovering the element of 'gross neglect', misfeasance or 'breach
of duty' on the part of the petitioner in relation to the affairs of the
company and establishing its corelation with non-recovery of tax
dues. The petitioner having discharged the initial burden, the AO
had to show as to how the petitioner could be attributed such a
gross neglect, misfeasance or breach of duty on her part. In
Maganbhai Hansrajbhai Patel (Supra), it was held :
"20.................Thus the responsibility to
establish such facts are on the director.
However, once the director places before the
authority his reasons why it should be held
that non recovery cannot be attributed to any
of the three factors, the authority would have
to examine such grounds and come to a
conclusion in this respect. Signifcantly, the
question of lack of gross negligence,
misfeasance or breach of duty on part of the
director is to be viewed in the context of non
recovery of the tax dues of the company. In
other words, as long as the director
establishes that the non recovery of the tax
cannot be attributed to his gross neglect, etc.,
his liability under section 179(1) of the Act
Shraddha Talekar, PS 13/16
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would not arise. Here again the legislature
advisedly used the word gross neglect and not
a mere neglect on his part. The entire focus
and discussion of the Assistant
Commissioner in the impugned order is with
respect to the petitioner's neglect in
functioning of the company when the
company was functional. Nothing came to be
stated by him regarding the gross negligence
on part of the petitioner due to which the tax
dues from the company could not be
recovered. In absence of any such
consideration, the Assistant Commissioner
could not have ordered recovery of dues of the
company from the director. We would clarify
that in the present case the petitioner had
putforth a strong representation to the
proposal of recovery of tax from him under
section 179 of the Act. In such
representation, he had detailed the steps
taken by him and the circumstances due to
which non recovery of tax cannot be
attributed to his gross neglect. It was this
representation and the factors which the
petitioner had putforth before the Assistant
Commissioner which had to be taken into
account before the order could be passed. It
is not even the case of the department that
the petitioner paid the dues of other creditors
of the company in preference to the tax dues
of the department. It is not the case of the
department that the petitioner negligently
frittered away the assets of the company due
to which the dues of the department could
not be recovered, To suggest that the
petitioner did not oppose the GSFC's auction
sale is begging the question. GSFC had sold
the property after several attempts through
auction. It is not the case of the department
that proper price was not fetched."
17. A similar view was expressed in Ram Prakash Singeshwar
Rungta & Ors. (Supra) in the following words :
Shraddha Talekar, PS 14/16
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"12 ........On a plain reading of the
impugned order, it is apparent that
nothing has been stated therein regarding
any gross-negligence, misfeasance or
breach of duty on the part of the
petitioners due to which the tax dues of
the Company could not be recovered. The
respondent, has, therefore, passed the
impugned order under section 179(1) of
the Act against the directors in respect of
alleged neglect on their part in the
functioning of the Company due to which
the demand in question has arisen and
not on account of any gross neglect,
misfeasance or breach of duty on their
part in the non-recovery of the dues of the
Company. Thus, the very basis on which
the respondent has proceeded, suffers
from non-application of mind to the
requirements for exercise of powers under
section 179(1) of the Act. In the absence of
any fnding that non recovery of the tax
due from the company can be attributed
to any gross-negligence, misfeasance or
breach of duty on the part of the
petitioners, no order could have been
made under section 179(1) of the Act for
recovering the same from the directors.
The upshot of the above discussion is that
the impugned order being inconsistent
with the provisions of section 179(1) of the
Act, cannot be sustained......"
18. The ratio of the aforementioned judgments squarely apply to
the present case as well. Even in the present case, the AO has not
specifcally held the petitioner to be guilty of gross neglect,
misfeasance or breach of duty on part in relation to the affairs of
the company. Not a single incident, decision or action has been
Shraddha Talekar, PS 15/16
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highlighted by the AO, which would be treated as an act of gross
neglect, breach of duty or malfeasance which would have the
remotest potential of resulting in non-recovery of tax due in
future.
19. In our opinion, in the order impugned dated 22nd December
2017 as also the order dated 18 th March 2019 in revision passed by
respondent No.1 on similar grounds is unsustainable.
20. Be that as it may, the petition is allowed. The impugned
orders dated 22nd December 2017 and 18th March 2019 are set
aside.
21. In view of disposal of the petition, interim application does
not survive and accordingly stands disposed of.
[ ABHAY AHUJA, J. ] [DHIRAJ SINGH THAKUR, J.]
Shraddha Talekar, PS 16/16
