Directors of a private company cannot be held liable for the company's tax dues if they prove that the non-recovery cannot be attributed to any gross neglect, misfeasance, or breach of duty on their part.

JUDGMENT :

M.M.Sathaye, J.

1. Rule. Rule made returnable forthwith. Learned Counsel Mr. Sureshkumar waives service for Respondents. Taken up for final disposal with consent.

2. By this Petition filed under Articles 226 and 227 of the Constitution of India, Petitioner is seeking a writ of Certiorari for quashing and setting aside (a) order dated 22nd December 2017 passed by Income Tax Officer-10(1)(3), Mumbai under Section 179 of the Income Tax Act, 1961 (“the Act” for short) holding Petitioner liable for taxes allegedly due from Company Kaizen Automation Pvt. Ltd. (“KAPL” for short) for Assesment Year 2008-09 & 2009-10 and (b) Order dated 18th March 2019 passed by Chief Commissioner of Income Tax(OSD) holding charge of Pr. Commissioner of Income Tax-10, Mumbai, under Section 264 of the Act in Petitioner’s revision against aforesaid order dated 22nd December 2017. Petitioner is also seeking a writ of mandamus directing Respondents to withdraw, revoke and cancel the said impugned orders.

3. Heard Mr. Mistry, learned senior counsel for Petitioner and Mr. Suresh Kumar for Respondents - Revenue. Perused the record.

CASE

4. Petitioner has come with following case :

(4.1) Petitioner is a mechanical Engineer who had developed a smart card based ticketing solution in the year 2000, which could be used for various public transport like BEST and suburban trains on both central and western railway-lines of Mumbai. It was agreed between Petitioner and said transport organisation that he would run a test project to check its utility and viability. After the successful trial run, BEST as well as Central Railway gave their consents to go ahead with implementation of the smart card ticketing system on built, operate and transfer (BOT) basis. Since implementation of the said scheme required huge funds to the tune of Rs. 50 to 60 crores as initial investment, one Khaleej Finance and Investment, a Company registered in Bahrain (“KFI”for short) agreed to make an investment and MOU was executed between Petitioner and KFI. The said KFI invested in said project through its Mauritius based Company AFC system Limited (“AFC” for short) and thereafter a Joint Venture Agreement, Deed of Pledge and Irrevocable Power of Attorney (JVA, DP and IPOA for short) were executed in June 2006. Managing Director Agreement (MDA for short) was also executed in February 2007. Thus the assessee company KAPL came to be incorporated on 30th March 2006.

(4.2) The clauses of the aforesaid documents provided that the Management and real control of the assessee Company was in the hands of 6 Directors appointed by KFI (out of 8) the other two being Petitioner and his wife Geeta P. Kamat and decision in respect of Company’s accounts and/or audits were solely in the control of Board of Directors of KFI. The important decisions could not be taken without approval of Directors of KFI. In the JVA it was clearly provided that management of the Company KAPL was under full power, authority and control of Board of Directors where the voting rights were with KFI to the extent of 74%. Said documents also provided that KFI had not only reserved the absolute right, power and control over the decision taken in respect of its 74% shareholding but had also taken right over power, control and authorisation of Petitioner and his wife’s share holding in the company aggregating 26%. It is, therefore, case of Petitioner that he and his wife were name-sake Directors and were at the mercy of the decision of KFI and they did not have any real control over any of KAPL’s decision. It is Petitioner’s further case that till his removal from the Company, composition of the Board did not change.

(4.3) Since disagreement arose between the J V Partners, Petitioner was forcibly removed from the post of Managing Director in January 2009 and his wife as Director, pursuant to which though arbitration clause was invoked, since KFI did not co-operate, arbitration proceedings never took place. Finally, directorship of Petiti