The main legal point established in the judgment is that the liability of directors of a private company for tax dues under Section 26C of the Kerala General Sales Tax Act arises only if the revenue cannot recover the tax arrears from the company.

J. Chelameswar, J.

1. These two writ appeals arise out of a common judgment dated 9th January, 2008 in W.P.(C) Nos. 39383 and 39760 of 2002. The appellants herein are the writ petitioners in the abovementioned writ petitions.

2. By the judgment under appeal both the writ petitions were disposed of with certain observations, but without granting the relief as the one sought by the petitioners in the writ petitions and hence these writ appeals.

3. The three appellants common to each of these appeals were the directors of a private limited company known as 'Kurians Ink and Chemicals (P) Limited'. The said company was a registered dealer within the meaning of the said expression as defined under the Kerala General Sales Tax Act, 1963. The further details of the business of the company may not be necessary for the purpose of this order except to state that for the assessment years 1990-91, 1991-92 and 1992-93, the company came to be assessed under the provisions of the abovementioned Act and was found liable to pay the following amounts towards tax for the abovementioned three assessment years.

1990-91 - Rs. 3,60,111/-

1991-92 - Rs. 5,32,116/-

1992-93 - Rs. 6,70,795/-

4. It is not very clear from the records as to the exact date of assessment with reference to each of the abovementioned assessment years. However, three separate demand notices dated 5th December, 2002 came to be issued u/s 7 of the Kerala Revenue Recovery Act, 1968 for the recovery of the above mentioned amounts. The said Section provides that if a person who is served with a demand notice under the said Section fails to remit the amount demanded, the said demand shall have the authority for making the attachment. Section 5 of the Revenue Recovery Act authorises attachment and sale of the defaulter's movable and immovable property or in the alternative appointment of an agent for the management of the defaulter's immovable property or in the further alternative for arrest of the defaulter and his detention in prison.

5. Challenging the abovementioned notices issued u/s 7 of the Revenue Recovery Act the appellants herein approached this Court by way of the writ petitions from out of which the present appeals arise.

6. It may be mentioned here that the impugned notices were addressed to the appellants who are the shareholders and directors of the assessee company demanding them in their individual capacity to make payment of the amount specified in the demand notices.

7. The impugned notices were challenged by the appellants on the ground that by virtue of the operation of the Companies Act, the liability of the shareholders and also the directors is limited and the tax liability of the company cannot be passed on to the shareholders or the directors as it is well established that a company duly incorporated under the provisions of the Companies Act has a distinct legal entity which is capable of acquiring rights and incurring obligations on its own.

8. However, a learned Judge of this Court by the judgment under appeal rejected the challenge on the ground that the petitioners/appellants herein are the exclusive beneficiaries of the business of the company. The learned Judge sought to support such a conclusion on the basis of two decisions of the Supreme Court reported in The Commissioner of Income Tax, Madras Vs. Sri Meenakshi Mills Ltd., Ors., and McDowell and Co. Ltd. Vs. Commercial Tax Officer, .

9. Both before the learned Judge and before us an attempt was made on behalf of the respondents to justify the impugned notices by which the amounts due from the company are sought to be recovered from the appellants on the basis of Section 26C of the Kerala General Sales Tax Act, which reads as follows:

26C. Liability of Directors of a Private Company.-Subject to the provisions of the Companies Act 1956 (Central Act 1 of 1956) where any tax or other amount recoverable under this Act from any private company, whether existing or wound up or under liquidation, cannot be recov