Income Tax Appellate Tribunal - Hyderabad
R. Subbarao (Former Md As Aggrieved ... vs Assessee on 13 February, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI D.MANMOHAN, HON'BLE VICE PRESIDENT
AND SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
ITA No.1475/Hyd/2014 : Assessment year 2003-04
Shri R.Subba Rao, V/s. Income Tax Officer,
Former Managing Director Ward 3(4), Hyderabad
of M/s.Suvistas Software Pvt.
Ltd., Hyderabad
(PAN - ACGPR 6994 J)
(Appellant) (Respondent)
Appellant by : Shri S.Rama Rao
Respondent by : Shri Rajat Mitra DR
Date of Hearing 23.1.2015
Date of Pronouncement 13.02.2015
ORDER
Per P.M.Jagtap, Accountant Member :
This appeal against the order of the learned Commissioner of Income-tax (Appeals) IV, Hyderabad dated 30.11.2007 passed in the case of M/s. Suvista Software Private Limited (Company) is filed before this Tribunal by Shri R.Subba Rao, its former Managing Director (Appellant), and the preliminary issue that arises out of the same for our consideration is whether the same is maintainable as per the provisions of S.253.
2. The material facts of the case relevant to this preliminary issue are as follows: The Company in the present case was incorporated on 24th May, 2000 and the Appellant was inducted therein as an Additional Director on 14th August, 2000. Thereafter on 10th July, 2001, the Appellant was appointed as Managing Director and he continued to hold that position till his resignation 2 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad was accepted by the Board on 23rd December, 2002. He also resigned as a Director of the Company subsequently on 2nd June, 2005. Meanwhile, the return of income of the Company, filed for assessment year 2003-04 on 1.12.2003, was signed by the Appellant in his capacity as a Director. The assessment of the Company for assessment year 2003-04 was completed by the Assessing Officer on 20th February, 2006 and an order imposing penalty under S.271(1)(c) amounting to Rs.2,37,039 was also passed by him on 30th August, 2006. Although no appeal apparently was filed by the Company against the order passed by the Assessing Officer under S.143(3), an appeal against the order imposing penalty under S.271(1)(c) was filed by it before the learned CIT(A) on 29th September, 2006. The learned CIT(A) vide his appellate order dated 30th November, 2007 dismissed the said appeal and confirmed the penalty imposed by the Assessing Officer under S.271(1)(c). The Company did not file any appeal against the said order of the learned CIT(A) before the Tribunal.
3. Subsequently, on 30th March, 2009, a show-cause notice was issued by the Assessing Officer, proposing to launch prosecution proceedings against the Appellant under S.276C of the Act. When the Appellant approached the concerned Chief Commissioner of Income-tax to compound the offence as per the provisions of S.279(2) of the Act, he was informed that his request could be considered only after the payment of tax as well as the interest and penalty payable by the Company relating to assessment year 2003-04. The Appellant, therefore, was requested to pay these outstanding amounts and produce the challans.
4. The appellant claimed to have obtained thereafter copy of the order passed by the Assessing Officer imposing penalty under 3 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad S.271(1)(c) as well as the order of the learned CIT(A) confirming the said penalty and found that the levy of penalty under S.271(1)(c) itself was not justifiable. He therefore, filed an appeal on behalf of the Company before the Tribunal against the order of the learned CIT(A) confirming the levy of penalty under S.271(1)(c). The said appeal, however, was dismissed by the Tribunal holding the same to be not maintainable on the ground that the appellant was not authorised to file the appeal in the name of the Company. It was observed by the Tribunal that if at all the Appellant is aggrieved in his individual capacity, he could exercise the right to file the appeal before the Tribunal in his individual capacity in accordance with law. Thereafter, the Appellant has filed the present appeal in his individual capacity before the Tribunal against the order of the learned CIT(A) passed in the case/name of the Company, and the question that now arises is whether the same is maintainable.
5. The learned counsel for the assessee submitted that as per the provisions of S.253, any assessee aggrieved inter alia by the order of the learned CIT(A) passed under S.250 can appeal to the Appellate Tribunal against such order. He invited our attention to the definition of the 'assessee' given in S.2(7) of the Act and contended that 'any person' in respect of whom any proceedings under the Act have been taken could be called as an assessee. He submitted that the Assessing Officer in the present case has initiated prosecution proceedings under S.276C of the Act in respect of the Appellant, i.e. Shri R. Subba Rao' by issuance of a show cause notice vide letter date 30th March,2009 and the said proceedings are presently pending. He submitted that when the appellant sought for compounding of the offence, by filing a letter dated 15.3.2010, the Assessing Officer vide letter dated 4.8.2011 4 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad required the assessee to make the payment of penalty imposed under S.271(1)(c) amounting to Rs.2,37,039. He contended that the proceedings for collection of penalty and the proceedings in consequence to filing of the compounding application thus are also pending and the Appellant therefore is required to be considered as an assessee within the meaning of S.2(7) of the Act.
6. The learned counsel for the appellant further contended that the Appellant was a Director of the assessee Company at the relevant time and the said company being a private limited company, he would be liable jointly and severally for the payment of tax due by the company as per the provisions of S.179. He contended that the Appellant is therefore, required to be treated as an assessee as per clause (c) of S.2(7), being a person who is deemed to be an assessee in default. In support of this contention, he relied on the decision of the Hon'ble Bombay High Court in the case of Union of India and Others V/s. Manik Dattatreya Lotlikar (172 ITR 1).
7. The Learned Counsel for the appellant further submitted that the proceedings under S.276C of the Act are already initiated by the Assessing Officer as a result of confirmation by the learned CIT(A) of the penalty imposed by the Assessing Officer under S.271(1)(c), and as per the provisions of S.278B of the Act, the appellant would be treated as responsible and would be proceeded against for the offence committed by the company, as he has signed the return of income of the Company filed for assessment year 2003-04. He contended that the appellant thus is clearly aggrieved by the order of the learned CIT(A), confirming the penalty imposed by the Assessing Officer under S.271(1)(c) making him entitled to file an appeal before the Tribunal against the 5 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad said order as per the provisions of S.253 of the Act. In support of these contentions, he relied on the following judicial pronouncements-
(a) Benoy Kurien V/s. Agricultural Income Tax Officer and Others (234 ITR 617)-Ker.
(b) Kikabhai Abdulali V/s. ITAT, Bombay932 ITR 762)-Bom.
(c) Gokuldas V/s. Kikabhai Abdulali and Others (33 ITR
94)-Bom.
(d) Maersk BV V/s. Dy. Director of Income-
tax(International Taxation) (264 CTR 26)-Bom.
(e) CIT V/s. N.Ch.R.Row & Co (144 ITR 557)-Cal.
8. The Learned Departmental Representative, on the other hand, submitted that as per the provisions of S.2(7) of the Act, the assessee is defined to mean a person by whom any tax or any other sum of money is payable under this Act, and includes inter alia every person in respect of whom any proceedings under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable. He contended that the provisions of S.179 relied upon by the learned counsel for the assessee in this regard deal with the liability of Directors of private company in liquidation and since the assessee- company in the present case is not in liquidation, the appellant cannot be said to be jointly and severally liable for the payment of tax due from the Company for the year under consideration. He also contended that no proceedings under the Act have been taken in respect of the appellant for the assessment of his income or of the income of any other person in respect of which he is assessable, and therefore, he cannot be treated as an assessee, even as per clause (a) of S.2(7) of the Act.
6 ITA No.1475/Hyd/2014Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad
9. The Learned Departmental Representative invited our attention to the letter dated 4.8.2011 issued by the Assessing Officer (copy at page 4 of the paper-book) and pointed out that the assessee is requested to pay the outstanding demand pending in the name of the Company, in order to consider his request for compounding the offence as per the provisions of S.279(2) of the Act and it cannot be said on the basis of the said letter that the demand payable by the Company for the year under consideration is payable by the appellant. He contended that there is in fact no provision in the Act, whereby the outstanding demand of the Company can be recovered from the appellant and the only provision of S.179 relied upon by the learned counsel for the appellant is applicable only in the case of private Company in liquidation. As regards the case laws cited by the learned counsel for the appellant, he submitted that none of the same is applicable in the fact situation of the present case of the appellant. He contended that the Appellant thus cannot be considered as assessee aggrieved by the order of the learned CIT(A) confirming the penalty imposed by the Assessing Officer under S.271(1)(c) and the present appeal filed by him is not maintainable.
10. We have heard the arguments of both the sides and also perused the relevant material on record. The order of the learned Commissioner of Income-tax(Appeals) IV, Hyderabad dated 30.11.2007 passed in the case of M/s. Suvistas Software Pvt. Ltd., a private limited company, confirming the penalty of Rs.2,37,039 imposed by the Assessing Officer under S.271(1)(c) is impugned in the present appeal filed by Shri R.Subba Rao, former Managing Director of the said company, in his individual capacity, and the issue that arises for our consideration is whether the said appeal is maintainable or not. As per the provisions of S.253, any 7 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad assessee aggrieved inter alia by the order of the learned CIT(A) passed under S.250 can appeal to the Tribunal against such order, and the question is whether the appellant in the present case can be said to be an assessee aggrieved by the order of the learned CIT(A) passed in the case of private limited company, M/s. Suvistas Software Pvt. Ltd. The term 'assessee' used in the Income Tax Act, 1961 is defined in sub-section (7) of S.2 as under-
"Section 2(7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes-
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;
(b) every person who is deemed to be an assessee under any provision of this Act;
(c) Every person who is deemed to be an assessee in default under any provision of this Act;"
11. Relying on the above definition, the learned counsel for the appellant has contended that the appellant in the present case is to be considered as an assessee, being a person by whom any tax or any other sum of money is payable under the Act. According to him, the penalty amount in question imposed by the Assessing Officer and confirmed by the learned CIT(A) by the impugned order is payable by the assessee as per the letter dated 4.8.2011 issued by the Assessing Officer. A copy of the said letter is placed 8 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad at page No.4 of the paper-book and the contents thereof are extracted below-
"......
Sir, Sub: Prosecution under section 276C in the case of M/s.
Suvistas Software Pvt Ltd- assessment year -2003- 04- Compounding -Reg.
Ref: Your letter dated 15.03.2010 filed in the office of the Chief Commissioner of Income Tax-3,Hyderabad on 19.03.2010.
******** Please refer to the above.
Vide the letter cited in the reference, you have requested the Chief Commissioner of Income Tax -3, Hyderabad to compound the offence as per the provisions of section 279(2) of the Income Tax Act 1961 . In order to consider your request for compounding of offences, the tax as well as interest and penalty relating to the assessment year 2003-04 should be paid. It is verified from this office record, the tax demand of Rs.2,32,554/- raised under section 143(3) on 20.02.2006 and penalty demand of Rs.2,37,039/- raised under section 271(1)(c) on 31.08.2006 were not paid fully. In this context. you are requested .to pay the amounts immediately and file the chalans. If the amounts were already paid, please produce the chalans.
Yours faithfully, ........"
12. A perusal of the above letter dated 4.8.2011 issued by the Assessing Officer clearly shows that there is nothing in the said letter to show that the amount of penalty in question payable by the company is sought to be recovered by the Assessing Officer from the appellant. The said letter is issued by the Assessing Officer in response to the request made by the appellant to the Chief Commissioner for compounding the offence as per the provisions of 9 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad S.279(2) of the Act, and since it was necessary for the purposes of considering the said request that the corresponding dues on account of penalty etc. payable by the company should be paid, a request has been made to the appellant to arrange for the said payment. As rightly contended by the Learned Departmental Representative, there is thus nothing in the letter dated 4.8.2011 even to indicate that the amount of penalty in question outstanding in the name of the company is payable by the appellant.
13. Relying on the aforesaid letter dated 4.8.2011 issued by the Assessing Officer, the learned counsel for the appellant has also contended that prosecution proceedings under S.276C of the Act having been initiated against the appellant as a consequence of imposition of penalty under S.271(1)(c), the appellant has to be treated as an assessee within the meaning of clause (a) of S.2(7) being a person in respect of whom any proceeding under the Act has been taken. We are unable to accept this contention of the learned counsel for the appellant as well. As per clause (a) of S.2(7), 'an assessee' is defined to mean a person in respect of whom any proceeding under the Act has been taken for the assessment of his income or of the assessment of any other person in respect of which he is assessable and the proceedings initiated against the appellant for prosecution under S.276C of the Act, not being the proceedings taken for the assessment of his income or of the income of any other person in respect of which he is assessable, the appellant, in our opinion, cannot be treated as an assessee, even as per clause (a) of subs-section (7) of S.2 of the Act.
14. The learned counsel for the assessee has relied on the provisions of S.179 to contend that the appellant being a person, who was the director of a private company during the relevant 10 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad previous year, is jointly and severally liable for the payment of tax relating to the said company. As rightly contended by the Learned Departmental Representative, the caption of the S.179 however, clearly indicates that the provisions of S.179 deal with the liability of directors of a private company in liquidation and in the present case, although the assessee is a private company, the same not being in liquidation, the appellant, as a Director, cannot be said to be jointly and severally liable for the payment of any tax in relation to the said company.
15. In support of his contention raised in support of the appellant's case relying on the provision of S.179, the learned counsel for the assessee has relied on the decision of the Hon'ble Bombay High Court in the case of Union of India V/s. Manik Dattratreya Lotlikar (supra). A perusal of the decision rendered by the Hon'ble Bombay High Court in the said case however shows that the concerned private company of which the assessee was director was already in liquidation and the issue involved before the Hon'ble High Court was entirely different, i.e. whether the provisions of S.179 are applicable retrospectively or not. The learned Single Judge had earlier held in this context that the liability of the Director under S.179 is only in respect of tax due from the private company, after 1st October, 1975 and not in respect of earlier period, and on appeal preferred by the revenue against the said decision before the Division Bench, Hon'ble Bombay High Court held that the Directors of a private company are liable for tax due of the company in respect of assessment years commencing from 1st April, 1962. Although it was also held by the Hon'ble High Court that the Directors are also liable for penalty, interest and recovery charges, this proposition is subsequently held to be not a good law by the Hon'ble Bombay 11 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad High Court in the case of Dinesh T. Tailor V/s.TRO (326 ITR 85), wherein it was held that S.179 imposes joint and several liability upon a Director of a private company, only in respect of tax due from the company which cannot be recovered. A similar view has been expressed by the Hon'ble Gujarat High Court in the case of Kantilal Sakarlal Gandhi V/s. ITO (215 Taxman 340), wherein it was held that a Director may be considered an assessee under S.2(7) by virtue of S.179 only qua tax of the company which was due and remained unpaid.
16. The Hon'ble Bombay High Court in the case of Union of India V/s. Manik Dattatreya Lotlikar (supra) and the Hon'ble Gujarat High Court in the case of Dinesh T. Tailor V/s. TRO (supra) relied on the definition of the term 'tax' given in S.2(43) which reads as under-
"S.2 in this Act, unless the context otherwise requires- .............
(43) 'tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent year includes the fringe benefit tax payable under s.115WA."
A reference was also made by the Hon'ble Bombay High Court and the Hon'ble Gujarat High Court to other provisions of the Act such as S.170, S.177, S.188A, S.189, S.221(1) and S.226,wherein a distinction has been clearly made by the Parliament between a tax and a penalty. It was held that the expression "tax due" used in S.179, thus, cannot comprehend within the meaning of that expression liability to pay penalty that might have been imposed on the company.
12 ITA No.1475/Hyd/2014Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad
17. It is thus clear that by virtue of S.179(1), a Director of a private company can be jointly and severally liable for the payment of tax only and that too, only in case that company goes into liquidation. In the present case, such situation, however, is not obtained in as much as the private company of which the appellant was a Director, is not in liquidation and the amount payable by the said company is on account of penalty which, in any case, cannot be recovered from the appellant as a director of the said company. We therefore, hold that the appellant in the present case cannot be said to be an assessee within the meaning of S.2(7) as he is not a person by whom any tax or any other sum of money is payable under the Act.
18. Having held that the appellant cannot be considered as an assessee within the meaning of S.2(7), it follows that the question of treating the appellant as an ' assessee aggrieved', as envisaged under S.253, does not arise. However, since the learned counsel for the appellant has cited certain judicial pronouncements to support his contentions raised relying on the provisions of S.253, and there are also other judicial pronouncements explaining the scope and meaning of the term 'assessee aggrieved', we consider it necessary to discuss and deal with the same. In the case of Kikabhai Abdulali V/s. ITAT & Ors (32 ITR 762), it was no doubt held by the Hon'ble Bombay High Court that the right of appeal to the Tribunal and right to apply for a reference is not confined technically to the party who is a party to the appeal. It was however, clarified that such right can be exercised by any person, who becomes liable to pay tax by any order against which the appeal is preferred. As already discussed by us, the appellant in the present case is not a person who has become liable to pay penalty, the imposition of which is confirmed by the learned CIT(A) 13 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad by his impugned order and therefore, he cannot exercise the right of appeal to the Tribunal.
19. In the case of Gokuldas V/s. Kikabhai Abdulali &Ors (33 ITR 94) and Maersk B.V. V/s. Deputy Director of Income-tax International Taxation (264 CTR (Bom) 26), the issue relating to maintainability of appeal filed before the Tribunal was involved in the context of partnership firms and their partners and keeping in view the specific provisions of S.188A making a partner of a firm and the legal representative of such partners who is deceased, jointly and severally liable alongwith the firm for the amount of taxes, penalty or other sum payable by the firm, it was held by the Hon'ble Bombay High Court that the partner(s) are entitled to file appeals before the Tribunal against the orders passed in the case of firm, as they are liable or at least potentially liable to pay taxes and other sums payable by the firm. As already discussed by us, there is no provision in the Act by virtue of which the appellant, as a Director, can be held liable for any amount, especially, the amount of penalty payable by the company and he, therefore, cannot be treated as an assessee aggrieved by the order of the learned CIT(A) confirming the penalty imposed by the Assessing Officer under S.271(1)(c) on the company, making him entitled to file an appeal under S.253.
20. In the case of CIT V/s. Ambala Flour Mills (78 ITR 256), it was held by the Hon'ble Supreme Court that if a person is fastened with the liability to tax, he has a right of appeal so as to challenge the liability with which he is sought to be fastened. In the case of CITV/s. N.Ch.R.Row and Co. (44 ITR 557), Hon'ble Calcutta High Court held that the right to appeal before the Tribunal from an order passed by the AAC is not confined technically to the 14 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad party who is a party to the appeal but is a much wider right which might be exercised by any person who is liable to pay tax by any other order against which the appeal was preferred. In the case of MICO Employees Association V/s. ACIT (292 ITR 567) before the Hon'ble Karnataka High Court, there was a dispute between the MICO Employees Association and the Department regarding TDS vis-à-vis service of employees and the appeal filed by the Employees Association was held to be not maintainable by the Hon'ble High Court holding that only an assessee whose liability is to pay tax in terms of an order, is provided with the right of appeal under S.253. It was held that though the Employees Association might be an aggrieved party to certain extent, it was not an assessee in terms of definition given in S.2(7) of the Act, which would mean a person from whom any tax or a sum of money is payable. It was held that in terms of the statute only the assessee who is liable to pay tax in terms of the order alone is provided with the right to appeal, though, to a certain extent, association may be an aggrieved party, it is not an assessee. It was held that no appeal, therefore, could have been filed by the association in terms of the Act.
21. The legal position clearly emanating from the judicial pronouncements discussed above thus is that the term 'assessee aggrieved' used in S.253(1), being a person competent to file an appeal before the Tribunal, is only the person who is an aggrieved party liable to pay tax in terms of the order against which the appeal is to be preferred. As already discussed by us, there is no tax payable by the appellant in the present case as a result of the impugned order passed by the learned CIT(A), and consequently, he cannot treated as an 'aggrieved party'. We, therefore, hold that the appellant is not entitled to file the present appeal against the 15 ITA No.1475/Hyd/2014 Shri R.Subba Rao, former Managing Director of M/s.Suvistas Software Pvt.
Ltd., Hyderabad impugned order passed by the learned CIT(A) confirming the penalty imposed by the Assessing Officer under S.271(1)(c) on the company and consequently the present appeal, being not maintainable, is liable to be dismissed in limine. We accordingly dismiss this appeal holding the same to be not maintainable.
22. Keeping in view our decision rendered above dismissing the present appeal as not maintainable, the other issues involved therein, including the preliminary issue relating to condonation of delay of 2417 days on the part of the appellant to file this appeal have become infructuous. We, therefore, do not consider it necessary to adjudicate upon the same.
23. In the result, this appeal is dismissed as not maintainable.
Order pronounced in the court on 13th February, 2015 Sd/- Sd/-
(D.Manmohan) (P.M.Jagtap)
Vice President Accountant Member
Dt/- 13th February, 2015
Copy forwarded to:
1. Shri R.Subba Rao, Former Managing Director of M/s.Suvistas Software Pvt. Ltd., C/o. Shri S.Rama Rao, Flat No.102, Shirya's Elegance, No.3-6-643, Street No.9, Himayatnagar, Hyderabad 500029
2. Income Tax Officer Ward 3(4), Hyderabad
3. Commissioner of Income-tax(Appeals) IV, Hyderabad
4. Commissioner of Income-tax III Hyderabad
5. Departmental Representative, ITAT, Hyderabad. B.V.S