The doctrine of piercing the veil of corporate personality may be applied when the corporate character is employed for the purpose of committing illegality or defrauding others.

( 1 ) HEARD learned counsel for the parties.

( 2 ) THE petitioner is challenging the demand of road tax in respect of truck No. U. P. 78-N/8638 by order dated 3-6-2003 (vide annexure 2 to the writ petition ).

( 3 ) THERE was an earlier litigation being writ No. 5806/2002 which had been decided by a Division Bench of this Court on 8-5-2003. The facts are given in the judgment, copy of which is Annexure I to this petition. In that decision a direction was given that m/s. Nav Instalments will be treated as the financer of the truck.

( 4 ) IN para 4 of the petition it is stated that the petitioner has handed over the truck in question to M/s. Nav Instalments, and has now nothing to do with the truck, and is not liable to pay the taxes in respect of the truck.

( 5 ) LEARNED counsel for the petitioner has submitted that the road tax should be realized from M/s. Nav Instalments, and not the petitioner, which is a different legal entity.

( 6 ) THE petitioner M/s. Nand Auto Hire purchase Private Ltd. is a private limited company whose Managing Director is Sri vishnu Bhagwan Agrawal. The same Sri vishnu Bhagwan Agrawal is also the managing partner of a firm called M/s. Nav instalments.

( 7 ) LEARNED counsel for the petitioner urged that the petitioner M/s. Nand Auto hire Purchase Pvt. Ltd. is a different legal entity from the firm M/s. Nav Instalments. He has relied on the Division Bench decision of this Court in Writ Petition No. 5806 of 2002, M/s. Nand Auto Hire Purchase Pvt. Ltd. Badaun v. Regional Transport Officer, kanpur decided on 8-5-2003, reported in 2003 (52) All LR 52) copy of which is annexure. 1 to the writ petition.

( 8 ) IN our opinion the aforesaid decision is distinguishable because that case was not in connection with a tax matter. In the present petition we are concerned with the demand of road tax. It is admitted by the learned counsel for the petitioner that the truck in question is in the custody of M/s. Nav Instalments. In our opinion the doctrine of piercing the veil of corporate personality should be applied in this case as held by a division Bench decision of this Court in Writ petition No. 1039 of 2003, Sri Ram Gupta v. The Assistant Collector decided on 5-9-2003.

( 9 ) THE legal principle that a company is a distinct legal entity separate from its directors and shareholders (vide Solomon v. Soloman and Co. Ltd. , 1897 AC 22 HL) was evolved to encourage business and industry since many businessmen feared to start a new business or venture because if the said business / venture failed (due to competition, recession etc.) even their personal assets could be attached and sold for the recovery in respect of the dues against the company. Hence this principle was created so as to encourage businessmen to take risks and set up industries and business, and it has played a historical role in helping industrialization. However, this principle was not made to help tax evaders. As observed by the Supreme Court in Delhi development Authority v. Skipper Construction Co. (P.) Ltd. , AIR 1996 SC 2005 (vide para 28):"the concept of corporate entity was evolved to encourage and promote trade and commerce, but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil. "

( 10 ) THE principle of lifting the veil of corporate personality has been discussed in subhra Mukherjee v. Bharat Cooking Coal ltd. , 2003 (3) SCC 312 : (AIR 2000 SC 1203), calcutta Chromotype Ltd. v. Collector of central Excise, AIR 1998 SC, New Horizons ltd. v. Union of India, 1995 (1) SCC 478 : (1995 AIR SCW 275), CIT v. Meenakshi Mills, air 1967 SC 819, Telco v. State of Bihar, air 1965 SC 40, Juggilal Kamlapat v. CIT, air 1969 SC 932.

( 11 ) IN State of U. P. v. Renusagar Power co. , 1988 (4) SCC 59 : (AIR 1988 SC 1737)the Supreme Court observed at

Click Here to Read the rest of this document