ARVIND KUMAR GUPTA Vs. TAX RECOVERY OFFICER

JUDGEMENT

(1.) Both these writ petitions have been filed by the same petitioner challenging the proceedings and the order passed under Section 179 of the Income-tax Act, 1961, hereinafter referred to as the Act. While in writ petition No. 1502 of 2002, the petitioner has sought a writ order or direction in the nature of certiorari quashing the notice dated 26-3-2002 issued by the Tax Recovery Officer, Noida, respondent No. 1, filed as Annexure No. 1 to the writ petition in respect of the alleged outstanding income tax dues against M/s. Shashank Polyplast Limited formerly Shashank Polyplast Private Limited, respondent No. 3 and other consequential reliefs, in writ petition No. 911 of 2003 the petitioner seeks a writ, order or direction in the nature of certiorari quashing the order dated 29th May, 2003 passed by the Assistant Commissioner, Income Tax, Circle Noida, respondent No. 1, filed as Annexure No. 1 to the writ petition and other consequential reliefs.

(2.) Briefly stated the facts giving rise to the present writ petitions are as follows: According to the petitioner, after doing post graduation in Commerce from Gorakhpur University he got a job on 12th February, 1979 in M/s. Prestige Engineering India Private Limited at its factory at Noida. It is a sister concern of M/s. Shashank Polyplast Limited respondent No. 3. He worked there upto 31st March, 1992. Thereafter he was transferred to another sister concern of respondent No. 3, namely, M/s. Prestige H.M. Polycontainers Limited where he served till 30th June, 1997. He left the company on 30-6-1997. The Managing Director of Prestige H.M. Polycontainers Limited issued a certificate on 30th June, 1997 stating therein that there was no financial liability against the petitioner. Thereafter he started his own business at Noida. According to the petitioner, all the three companies, namely, Prestige Engineering India Private Limited, Prestige H.M. Polycontainers Limited and Shashank Polyplast Limited are being managed by one Sri P.K. Gupta, resident of A-7 Maharani Bagh, New Delhi. He has been Managing Director of M/s. Prestige H.M. Polycontainers Limited. In M/s. Shashank Polyplast Limited, Sri P.K. Gupta has been holding 9994 shares of Rs. 100 each out of total issued and paid up capital of 10000 shares of Rs. 100 each through his proprietorship firm Paribhas Investment & Finance Company. Out of the remaining six shares of Rs. 100 each, four shares are held by Sri Shashank Gupta son of Sri P.K. Gupta, one share is held by Mrs. Gauri Shriya, daughter of Sri P.K Gupta and the remaining one share is held by Sri Brij Narain Agarwal, an employee of the company. Thus, the petitioner was not even a shareholderin M/s. Shashank Polyplast Limited. The affairs of M/s. Shashank Polyplast Limited were being looked after by Sri P.K. Gupta who was director and major shareholder. As an employee of M/s. Prestige H.M. Polycontainers Limited he was asked to sign some forms by Sri P.K. Gupta wherein he was made Director of M/s. Shashank Polyplast Limited w.e.f. 3rd April, 1993. However, he was a director just for the namesake and being an employee of a group company he had no option but to sign the required forms pertaining to his appointment in respondent No. 3. According to the petitioner, he was neither an employee of the said company nor had received any remuneration whatsoever from the respondent No. 3 in the capacity of a director or otherwise. It is further alleged by the petitioner that M/s. Shashank Polyplast Limited was incorporated on 20th November, 1984 as a private limited company. It became a public limited company under Section 43A of the Companies Act, 1956 w.e.f. 9th February, 1992. The petitioner had resigned from the directorship of respondent No. 3 vide letter dated 20th September, 1997.

(3.) It appears that there were income-tax dues of Rs. 70, 14,000 outstanding against respondent No. 3. The Tax Recovery Officer, respondent No. 1, issued a notice dated 26th March, 2002 calling upon the petitioner to appear before him on 3rd April, 2002 and to show cause as to why the warrant of arrest be not issued against the petitioner for non payment of outstanding dues. The petitioner appeared before the respondent No. 1 on the date fixed and explained in great detail that for the first time on 3rd April, 1993 when he became a director from 9th February, 1992 the respondent No. 3 had already become a public limited company under Section 43A of the Companies Act, 1956. He further stated that he was a director for namesake only and had signed the relevant forms regarding his appointment as director on the dictates of the owners. The recovery proceedings-should have been initiated against Sri P.K. Gupta who was a de facto director of the company during all the relevant previous years. According to the petitioner, he was not aware about the steps taken by the Department for recovery of the alleged dues from the company and how the Department had failed to recover the said dues. Moreover, he had never signed or filed income-tax return for respondent No. 3 nor had ever attended any assessment proceedings. The Tax Recovery Officer appeared to be not satisfied with the explanation given by the petitioner. He did not furnish requisite documents/information sought by the petitioner and issued an order of attachment on 5th April, 2002 under rule 48 of the II Schedule of the Income-tax Act attaching the residential House No. A-71, Sector 30, Noida, which is owned by the petitioner's wife. The notice dated 26th March, 2002 and the consequent recovery proceedings are under challenge in writ petition No. 1502 of 2002. While the aforesaid writ petition was pending before this Court, and the interim order was operating wherein the operation of the notice dated 26th March, 2002 and the recovery proceeding pursuant thereto had been stayed, the Assistant Commissioner of Income-tax, Circle Noida, sent a show-cause notice on 27th June, 2002 purporting to be under Section 179 of the Act requiring the petitioner to show cause as to why a sum of Rs. 60,04,614 said to be due from M/s. Prestige Cops. Limited along with interest under Section 220(2) be not recovered from him. On receipt of the notice the petitioner submitted his reply vide letter dated 24th July, 2002 pointing out that he was never a director of M/s. Prestige Cops. Limited and the recovery of dues of Shashank Polyplast Limited has been stayed by this Court. Thereafter, the respondent No. 1 issued another show-cause notice dated 21st January, 2003 again purporting to be under Section 179 of the Act calling upon the petitioner to show cause as to why a sum of Rs. 70,13,514 due from M/s. Shashank Polyplast Private Limited be not recovered from him along with interest under Section 220(2) of the Act. The show-cause notice was replied by the petitioner vide letter dated 28th March, 2003 giving the same explanation as was given by him to the show-cause notice dated 26-3-2002 issued by the Tax Recovery Officer. The Assistant Commissioner of Income-tax, Circle Noida, respondent No. 1, however, did not accept the explanation given by the petitioner and passed an order on 29th May, 2002 holding the petitioner liable to pay dues of M/s. Shashank Polyplast Pvt. Ltd. as mentioned in the notice, which is under challenge in Civil Misc. Writ Petition No. 911 of 2003.