JAGDISH JAGMOHANDAS KAPADIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this petition under Art. 226 of the Constitution of India, the petitioner has challenged the notice of demand dated December 9, 1983, issued by the TRO, Bombay, under S. 179 of the IT Act, 1961. Briefly stated, the relevant facts are that the petitioner became a director of a private limited company known as Kapadia Construction Company (P) Ltd. on November 30, 1966. The income tax assessments of the said company for the asst. yrs. 1970 71 to 1973 74 were completed and certain demands were raised. The demands were not paid. Eventually, by a notice dated July 22, 1983, the ITO, Central Circle XXVIII, Bombay, required the petitioner to show cause why the arrears of demand of the said company be not recovered from him as a defaulter under S. 179 of the Act. The petitioner, by his letter dated August 16, 1983, informed the ITO that though he had become a director of the said company on November 30, 1966, he had ceased to be a director some time in February, 1967, as he did not attend any board meeting after he became a director. It was stated that, in the circumstances, he was not liable under S. 179 of the Act at all.

(2.) IT appears that, thereafter, the TRO issued a notice of demand dated December 9, 1983, to the petitioner treating him as a defaulter in respect of an amount of Rs. 27,67,668 which was stated to be the taxes due from the company. By an order of attachment dated December 28, 1983, the TRO attached the petitioner's residential flat in a building known as "Mount Unique" on G. Deshmukh Marg, Bombay 26. Thereafter, the petitioner approached the CIT by an application dated February 21, 1984, requesting him to cancel the attachment and sought a personal hearing. Soon thereafter, the TRO issued proclamation of sale dated March 15, 1984 (which date seems to be wrong as this petition itself was filed only on March 8, 1984). It was at that stage that this petition was filed. Rule was issued and interim stay in terms of prayer cl. (c)(ii) was granted on March 9, 1984.

(3.) ON merits, it was the case of Shri Dwarkadas that when, in reply to the show cause notice, the petitioner submitted to the ITO that he had ceased to be a director from February, 1967, of the said company, the ITO was not justified in issuing a demand notice without giving him an opportunity of hearing or at least passing an order under S. 179 of the Act. It is pertinent to mention that Dr. Balasubramaniam for the IT Department, at this stage, stated that the Department had filed an affidavit in reply some time in September, 1988. However, this affidavit is not found in the Court's records and counsel for the petitioner stated that no such affidavit was served on him. To ascertain as to what was the case of the Department as regards the petitioner's statement that he had ceased to be a director of the said company from February, 1967, Dr. Balasubramaniam read out from the affidavit in reply, a copy of which was in his hand, an averment which was found to be that the ITO had made enquiries in the office of the Company Law Board and from the records of the company maintained in that office, the petitioner, it appears, was a director up to September 16, 1971. As regards the further fact whether, on receipt of the petitioner's reply to the showcause notice, any hearing was given to the petitioner or any order under S. 179 of the Act was passed, the affidavit in reply (though not filed) was silent. It merely stated that the Department takes liberty to refer to the records as regards these averments in the petition. Under the circumstances, it will have to be assumed that no hearing was given to the petitioner after the reply to the show cause memo was filed nor was there any order passed under s. 179 of the Act.