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Surinder Nath Khosla Vs. Excise and Taxation Commissioner and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil;Sales Tax
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Writ No. 2285 of 1963
Judge
Reported in[1964]15STC838(P& H)
AppellantSurinder Nath Khosla
RespondentExcise and Taxation Commissioner and anr.
Appellant Advocate Puran Chand, Adv.
Respondent Advocate M.R. Sharma, Adv.
Cases ReferredIn L. Parmeshwari Das v. The Collector of Bulandshahr
Excerpt:
.....filed under article 226 of the constitution of india. in a writ application filed under articles 226 and 227 of constitution, if any order/judgment/decree is passed in exercise of jurisdiction under article 226, a writ appeal will lie. but, no writ appeal will lie against a judgment/order/decree passed by a single judge in exercising powers of superintendence under article 227 of the constitution. - an incorporated company, as is well-known, is a juristic person, a separate entity distinct from any individual shareholder and the business carried on by the company belongs to it in its juristic capacity, and not to its shareholders. it is well for those wielding power of the state to remember that they are also under an obligation to keep themselves within the bounds of law and..........the indian companies act can be arrested for the realisation of arrears of sales tax due by the limited company. the limited company in the present case is the new age publication limited, patiala, and shri surinder nath khosla, advocate, its managing director.3. in the return, the grounds on which the impugned action has been sought to be justified is that the petitioner had himself been actually carrying on the business in his personal capacity under the guise of messrs new age publication limited, patiala. a further plea sought to be raised is that the petitioner was himself a dealer liable to pay the tax because he had himself been carrying on the business ; this liability was sought to be supported under rule 40( 1) of the rules framed under the east punjab general sales tax act,.....
Judgment:
ORDER

1. This writ petition was admitted to a Division Bench, on account of its importance at the time of admission, on 13th December, 1963. It was specifically ordered that it should be set down for hearing on 18th December, 1963, but in spite of this order it appears that the return was filed as late as February, 1964, though the affidavit purports to have been sworn in December, 1963.

2. The only question which this petition raises is whether the managing director of a limited company registered under the Indian Companies Act can be arrested for the realisation of arrears of sales tax due by the limited company. The limited company in the present case is the New Age Publication Limited, Patiala, and Shri Surinder Nath Khosla, Advocate, its managing director.

3. In the return, the grounds on which the impugned action has been sought to be justified is that the petitioner had himself been actually carrying on the business in his personal capacity under the guise of Messrs New Age Publication Limited, Patiala. A further plea sought to be raised is that the petitioner was himself a dealer liable to pay the tax because he had himself been carrying on the business ; this liability was sought to be supported under Rule 40( 1) of the Rules framed under the East Punjab General Sales Tax Act, 1948.

4. In my opinion, the respondents' contention is wholly unsustainable and the petitioner can by no means be arrested in connection with the realisation of the arrears of sales tax due from the New Age Publication Limited.

5. In In re Desiraju Venkatakrishna Sarma [1954] 5 S.T.C. 448, a learned single Judge of the Andhra Pradesh High Court observed that the directors of a limited liability company cannot be made personally liable for the arrears of sales tax due by the company. In such a case the taxing authorities can only proceed against the assets of the company. In support of this view, reference in the reported case was made to Public Prosecutor v. Jacob Nadar [1951] 2 S.T.C. 53 and In re Behara Lachanna Patnaick [1952] 3 S.T.C. 222. In the course of the judgment, it was observed that the company which is a body corporate can be made liable for the payment of taxes and in respect of taxes payable by it the individuals constituting the company cannot be held responsible for the default in payment of such taxes. I am inclined, as at present advised, to agree with the enunciation of law in the reported case. In L. Parmeshwari Das v. The Collector of Bulandshahr [1955] 6 S.T.C. 399, a learned single Judge of the Allahabad High Court also observed that a limited company, incorporated under the Indian Companies Act, is an entity separate and distinct from its shareholders. The shareholders have no interest in the assets of the company and are not personally liable for its debts or liabilities. Where sales tax has been assessed on the company, proceedings for its recovery can only be taken against the assets of the company and any proceedings taken against the shareholders or their personal assets are void and against law.

6. Reference to Section 6 of the Punjab General Sales Tax Act (No. 2 of 1963) made by the respondents' learned counsel appears to me to be wholly irrelevant because it merely provides for cases where a dealer is an undivided Hindu family, firm or other association of persons which has been partitioned, dissolved or disrupted. Obviously, it can have no reference to a company registered under the Indian Companies Act. An incorporated company, as is well-known, is a juristic person, a separate entity distinct from any individual shareholder and the business carried on by the company belongs to it in its juristic capacity, and not to its shareholders. A partnership unlike the company is merely an association of persons for carrying on the business of partnership, and in law the firm name is a compendious method of describing the partners. Rule 40 of the Punjab General Sales Tax Rules to which faint reference has been made provides that a dealer and his partner or partners are jointly and severally responsible for payment of the tax, penalty, or any amount due under the Act or the Rules and every dealer liable to pay tax under the Act shall pay the tax quarterly unless directed otherwise by the appropriate Assessing Authority. The respondents' learned counsel has not made any serious attempt to show that under this rule the managing director of a limited company can be arrested for the recovery of arrears of sales tax due from the company and not from the managing director personally.

7. A half-hearted contention was thrown by the respondents' learned counsel that the State is without any remedy because there may be difficulties in realising arrears of taxes from the limited company. This may or may not be so. It is, however, no ground for arresting the petitioner for the purpose of realising sales tax due from the New Age Publication Limited, Patiala, and no warrants for his arrest should have been issued. I may point out that mere difficulty in realising the arrears from the company can scarcely by itself constitute a lawful ground for the impugned action ; indeed no law has been shown by the respondents in support of it. It is well for those wielding power of the State to remember that they are also under an obligation to keep themselves within the bounds of law and to cultivate the spirit of the rule of law. This attitude of mind on their part is more necessary than ever in a set-up like ours, for if they transgress the law, then the whole society suffers.

8. On the arguments addressed at the Bar, this petition cannot but succeed and allowing the same we direct that the warrants for the petitioner's arrest for the realisation of the sales; tax due from the New Age Publication Limited be cancelled and the petitioner be not arrested for the realisation of such taxes. The petitioner is entitled to his costs.


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