# Sri R.S. Shukla & others v. Asstt. Collector, Collection, Trade Tax, Sikandrabad

- **Citation:** (2004) 2 ILRA 535
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2004-05-17
- **Case number:** Civil Misc. Writ Petition (Tax) No. 648 of 2004
- **Bench:** M. Katju, R.S. Tripathi
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/sri-r-s-shukla-others-v-asstt-collector-collection-trade-tax-sikandrabad-40415
- **Pages:** 6

## Headnote

Act-Doctrine
of
Separate
Corporate entity-Exceptions-Doctrine of
lifting viel of Corporate personalityApplicability Petitioners claiming to be
directory of Company-Yet no disclosure
about assets of Company against which
impugned recovery can proceed, names
of
other
directions,
shareholders,
Managing Director-Hence presumption
that petitioners have diverted assets of
Company for their own benefit for
evasion of trade tax recovery petitioners
are seeking to use component character
of company for evading Tax-Applying
doctrine of piercing vail of Corporate
personality, held, petitioners are not
entitled to protection of doctrine of
separate entity of Corporation-Directior
held liable to pay tax.

In our opinion, the veil of separate entity
of the company should be lifted in the
present case. The petitioners claims to
be the Directors of the Company but they
have not mentioned in the writ petition
whether there are any assets of the
Company against which the impugned
recovery can proceed. They have also not
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 INDIAN LAW REPORTS ALLAHABAD SERIES [2004
536
mentioned who are the other Directors
and shareholders of the Company and
who
really
runs
and
controls
the
Company. In the absence of these facts,
which have been suppressed by the
petitioners, we can reasonably assume
that the assets of the Company have
been diverted or siphoned off by the
petitioners for their own benefit. Tax
dues have to be paid and we will not
permit the use of the doctrine of
corporate personality to help anyone to
evade tax recoveries.

Para 15

On the facts of the present case we are
of the opinion that the petitioners were
really managing the Company and had
control over its operations. They are only
seeking to use the corporate character of
the Company for evading tax.
Para 16

The Supreme Court has held in some of
the above decisions that in tax matters
the veil of corporate personality can be
lifted so that the tax dues can be
realized. The doctrine of piercing the veil
of
corporate
personality
has
an
expanding horizon. We are therefore
expanding this doctrine and declare that
ordinarily if there are tax dues against
the corporate personality they can be
realized from the Directors, or others
who
control
the
company.
This
is
necessary because in our country what is
happening is that huge tax dues are
often being evaded by unscrupulous
businessmen under cover of the doctrine
of corporate personality. The time has
come when this widespread malpractice
which is seriously harming the national
economy
must
be
stopped.
The
Government cannot run, and it cannot
carry on its welfare programmes, if it
does not respondent receive taxes. As
observed by the Supreme Court in Asst.
Collector of Central Excise Vs. Dunlop
India Ltd., AIR 1985 SC 330 (vide para
7).

'No government business or for that
matter no business of any kind can be
run on mere bank guarantees. Liquid
cash is necessary for the running of a
Government
or
indeed
any
other
enterprise.'

Thus the petitioners are not entitled to
the protection of the principle laid by
kthe decision in Salomon vs. Salomon
and Co. Ltd. (supra).

Para 18
Case law discussed:
1897 AC 22 (HL)
(2000) 3 SCC 312
AIR 1998 SC 1651
(1995) 1 SCC 478
(1996) 4 SCC 622
AIR 1967 SC 819
AIR 1969 SC 932
AIR 1965 SC 40
(1964) 6 SCR 895
(1988) 4 SCC 59
W.P. 37833 of 2002, decided on 24.9.2002
JT 2003 (6) SC 20
(1997) 1 SCC 134
2004 ALJ 924
AIR 1985 SC 330 (Pr.7)
W.P. 1039 of 2003, decided on 5.9.2003
W.P. 382 of 2003, decided on 13.3.2003

## Text

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2 All] Sri R.S. Shukla & others V. Asstt. Collector, Collection, Trade Tax, Sikandrabad
535
otherwise suitable to act as adhoc
principal.

7. Where a senior most teacher was
found suitable and was allowed to work
as officiating principal, his right cannot be
defeated on the ground that he was
allowed and was unable to carry on
functions as officiating principal for some
period of time. In the present case,
respondent no. 5 gave in writing that he is
unable to officiate as principal on account
of illness. The second senior most teacher
took over the charge but resigned on the
ground of domestic circumstances and
third senior most teacher declined to
accept the office as he was going to
shortly retire. By this time respondent no.
5 recovered from illness and requested to
be appointed as officiating principal. His
right cannot be defeated only on the
ground that he was ill at the time when he
expressed his inability to continue on
account of ill health. Once he has
recovered and has requested to accept the
responsibility, his right cannot be defeated
on the ground that he had in the past,
expressed his inability to continue on the
ground of illness. There is no averment in
the writ petition and any material on
record to show that he was unsuitable or
was disqualified for any act of misconduct
or otherwise, after he declined to continue
on the ground of illness. The petitioner
has not pressed any principle of law
which may disqualify respondent no. 5 to
assume charge as officiating principal.

8. For the aforesaid reasons, I do not
find any error in the order of District
Inspector of Schools, Buland Saher. The
writ petition is dismissed.
---------
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 17.5.2004

BEFORE
THE HON'BLE M. KATJU, J.
THE HON'BLE R.S. TRIPATHI, J.

Civil Misc. Writ Petition (Tax) No. 648 of 2004

Sri Ram Shyam Shukla and others

...Petitioner
Versus
Assistant Collector, Collection, Trade
Tax, Sikandrabad
...Respondents

Counsel for the Petitioners:
Sri M. Manglik
Sri Santosh Misra

Counsel for the Respondents:
S.C.

U.P.
Tax
Act-Doctrine
of
Separate
Corporate entity-Exceptions-Doctrine of
lifting viel of Corporate personalityApplicability Petitioners claiming to be
directory of Company-Yet no disclosure
about assets of Company against which
impugned recovery can proceed, names
of
other
directions,
shareholders,
Managing Director-Hence presumption
that petitioners have diverted assets of
Company for their own benefit for
evasion of trade tax recovery petitioners
are seeking to use component character
of company for evading Tax-Applying
doctrine of piercing vail of Corporate
personality, held, petitioners are not
entitled to protection of doctrine of
separate entity of Corporation-Directior
held liable to pay tax.

In our opinion, the veil of separate entity
of the company should be lifted in the
present case. The petitioners claims to
be the Directors of the Company but they
have not mentioned in the writ petition
whether there are any assets of the
Company against which the impugned
recovery can proceed. They have also not
http://www.allahabadhighcourt.nic.in
 INDIAN LAW REPORTS ALLAHABAD SERIES [2004
536
mentioned who are the other Directors
and shareholders of the Company and
who
really
runs
and
controls
the
Company. In the absence of these facts,
which have been suppressed by the
petitioners, we can reasonably assume
that the assets of the Company have
been diverted or siphoned off by the
petitioners for their own benefit. Tax
dues have to be paid and we will not
permit the use of the doctrine of
corporate personality to help anyone to
evade tax recoveries.

Para 15

On the facts of the present case we are
of the opinion that the petitioners were
really managing the Company and had
control over its operations. They are only
seeking to use the corporate character of
the Company for evading tax.
Para 16

The Supreme Court has held in some of
the above decisions that in tax matters
the veil of corporate personality can be
lifted so that the tax dues can be
realized. The doctrine of piercing the veil
of
corporate
personality
has
an
expanding horizon. We are therefore
expanding this doctrine and declare that
ordinarily if there are tax dues against
the corporate personality they can be
realized from the Directors, or others
who
control
the
company.
This
is
necessary because in our country what is
happening is that huge tax dues are
often being evaded by unscrupulous
businessmen under cover of the doctrine
of corporate personality. The time has
come when this widespread malpractice
which is seriously harming the national
economy
must
be
stopped.
The
Government cannot run, and it cannot
carry on its welfare programmes, if it
does not respondent receive taxes. As
observed by the Supreme Court in Asst.
Collector of Central Excise Vs. Dunlop
India Ltd., AIR 1985 SC 330 (vide para
7).

'No government business or for that
matter no business of any kind can be
run on mere bank guarantees. Liquid
cash is necessary for the running of a
Government
or
indeed
any
other
enterprise.'

Thus the petitioners are not entitled to
the protection of the principle laid by
kthe decision in Salomon vs. Salomon
and Co. Ltd. (supra).

Para 18
Case law discussed:
1897 AC 22 (HL)
(2000) 3 SCC 312
AIR 1998 SC 1651
(1995) 1 SCC 478
(1996) 4 SCC 622
AIR 1967 SC 819
AIR 1969 SC 932
AIR 1965 SC 40
(1964) 6 SCR 895
(1988) 4 SCC 59
W.P. 37833 of 2002, decided on 24.9.2002
JT 2003 (6) SC 20
(1997) 1 SCC 134
2004 ALJ 924
AIR 1985 SC 330 (Pr.7)
W.P. 1039 of 2003, decided on 5.9.2003
W.P. 382 of 2003, decided on 13.3.2003

(Delivered by Hon'ble M. Katju, J.)

1. This writ petition has been filed
for a writ of certiorari quashing the
impugned recovery proceedings initiated
against the petitioners under the U.P.
Trade Tax Act.

2. Heard learned counsel for the
parties.

3. The petitioners are the Directors
of M/s Sikandrabad Chemicals Private
Limited which is a limited liability
Company. For the assessment year 199596 against the aforesaid Company under
the Central Sales Tax Act a demand of
Rs.7,66,072/- was raised by the Assessing
Officer and pursuant thereto the recovery
proceedings were initiated against the
petitioners.
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2 All] Sri R.S. Shukla & others V. Asstt. Collector, Collection, Trade Tax, Sikandrabad
537

4. It is alleged by learned counsel
for the petitioners Sri M. Manglik that the
petitioners
being
Directors
of
the
Company are not personally liable to pay
the dues of the Company.

5. We have carefully considered the
submissions of the parties. It is true that
the legal principle is that a Company is a
separate legal entity distinct from its
Directors and shareholders vide Solomen
vs. Solomin & Co. Ltd. 1897 AC 22 (HL).
However, the principle of piercing the
veil of corporate personality has also been
evolved by the Courts vide Subhra
Mukherjee vs. Bharat Coking Coal Ltd.
2000 (3) SCC 312. Calcutta Chromotype
Ltd. Vs. Collector of Central Excise AIR
1998 SC 1651. New Horzons Limited vs.
Union of India 1995 (1) SCC 478. Delhi
Development
Authority
vs.
Skipper
Construction Co. Pvt. Ltd. 1996 (4) SCC
622, CIT vs. Minakshi Mills AIR 1967 SC
819, Juggilal Kamapat Vs. CIT AIR 1969
SC 93, etc.

6. In the Delhi Development
Authority case (supra), the Supreme
Court following its decision in Tata
Engineering and Locomotive Company
Ltd. Vs. State of Bihar AIR 1965 SC 40
observed:

"The law as stated by Palmer and
Gower has been approved by this Court in
Tata
Engineering
and
Locomotive
Company Limited vs. State of Bihar
(1964) 6 SCR 895: (AIR 1965 SC 40. The
following passage from the decision is
apposite (para 27 of AIR)

"Gover
has
classified
seven
categories of cases where the veil of a
corporate body has been lifted. But it
would not be possible to evolve a rational,
consistent and inflexible principle which
can be invoked in determining the
question as to whether the veil of the
corporate personality should be lifted or
not. Broadly, where fraud in intended to
be prevented, or trading with enemy is
sought to be defeated, the veil of
corporate is lifted by judicial decisions
and the shareholders are held to be
persons who actually work for the
corporation."

7. In the same decision the Supreme
Court also observed that 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 ate the
reality behind the corporate veil so as to
enable it to pass appropriate orders to do
justice between the parties concerned. The
Supreme Court also observed quoting
'Gower's
Modern
Company
Law'-
"Where the protection of public interest is
of paramount importance or where the
company has been formed to evade
obligation imposed by the law, the Court
will disregard the corporate veil."

8. In State of U.P. vs. Remesagar
Power Co. 1988 (4) SCC 59 the Supreme
Court observed:

"It is high time to reiterate that in the
expanding
horizon
of
modern
jurisprudence, lifting of corporate veil is
permissible. Its frontiers are unlimited. It
must, however, depend primarily on the
realities of the situation. The horizon of
the doctrine of lifting of corporate veil is
expanding."
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538

9. In Tata Engineering's case
(supra) the Supreme Court observed that
doctrine of the lifting of the veil thus
marks a change in the attitude that the law
had originally adopted towards the
concept
of
the
separate
entity
or
personality of the Corporation. As a result
of the impact of the complexity of
economic factors, judicial decisions have
sometimes recognized exceptions to the
rule about the juristic personality of the
corporation. It may be that in course of
time these exceptions may grow in
number and to meet the requirements of
different economic problems the theory
about the personality of the corporation
may be confined more and more.

10. Thus the Supreme Court itself
has stated that with the passage of time
the exceptions to the rule of corporate
personality can grow in number to meet
the
new
requirements,
and
these
exceptions have an expanding horizon.

11. The aforesaid decisions have
been followed by this Court in a Division
Bench decision in Civil Misc. Writ
Petition No. 37833 of 2002 Sanjay Kumar
Gupta vs. District Magistrate, Fatehpur,
decided on 24.9.2002.

12. We may mention that the
principle that a Company (or Society) is a
district legal entity was evolved to
encourage business and industry since
many businessmen feared to start new
businesses or ventures because if the said
business/venture
failed
(due
to
competition, recession etc.) their personal
assets e.g. house, car, furniture, clothing
savings etc. could be attached and sold for
the recovery in respect of the dues against
the company or society. This principle
was not made to help tax evaders as stated
in the aforesaid decisions. As observed by
the Supreme Court in Tata Engineering's
case (supra), 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
purposes
of
committing illegality or for defrauding
others the court will ignore the corporate
character and will look at the reality
behind the corporate veil so as to enable it
to pass appropriate orders to do justice
between the parties concerned. The
Supreme Court also observed that where
the protection of public interest is of
paramount importance, or where the
company has been formed to evade
obligation imposed by the law, the Court
will disregard the corporate veil.

13. In State of U.P. vs. Renusagar
Power Co. (supra) the Supreme Court
observed ' 'the horizon of the doctrine of
lifting of corporate veil is expanding. '

14. The doctrine of the lifting of the
veil thus marks a change in the attitude
that the law had originally adopted
towards the concept of the separate entity
or personality of the Corporation. The
Supreme
Court
has
evolved
many
exceptions to the principle that a company
is a distinct legal entity and it has
observed in the above case that these
exceptions may grow in number to meet
the requirement of different economic
problems. And the theory about the
personality of the corporation may be
confined more and more.

15. In our opinion, the veil of
separate entity of the company should be
lifted in the present case. The petitioners
claims to be the Directors of the Company
http://www.allahabadhighcourt.nic.in
2 All] Sri R.S. Shukla & others V. Asstt. Collector, Collection, Trade Tax, Sikandrabad
539
but they have not mentioned in the writ
petition whether there are any assets of
the Company against which the impugned
recovery can proceed. They have also not
mentioned who are the other Directors
and shareholders of the Company and
who
really
runs
and
controls
the
Company. In the absence of these facts,
which have been suppressed by the
petitioners, we can reasonably assume
that the assets of the Company have been
diverted or siphoned off by the petitioners
for their own benefit. Tax dues have to be
paid and we will not permit the use of the
doctrine of corporate personality to help
anyone to evade tax recoveries.

16. On the facts of the present case
we are of the opinion that the petitioners
were really managing the Company and
had control over its operations. They are
only seeking to use the corporate
character of the Company for evading tax.

17. Moreover writ is a discretionary
remedy vide JT 2003 (6) SC 20, 1997 (1)
SCC 134, 2004 ALJ 924. We are not
inclined to exercise our discretion under
Article 226 in favour of such persons like
the petitioners who wish to evade tax. The
decision cited by the petitioners are in our
opinion distinguishable for the reasons
given above.

18. The Supreme Court has held in
some of the above decisions that in tax
matters the veil of corporate personality
can be lifted so that the tax dues can be
realized. The doctrine of piercing the veil
of corporate personality has an expanding
horizon. We are therefore expanding this
doctrine and declare that ordinarily if
there are tax dues against the corporate
personality they can be realized from the
Directors, or others who control the
company. This is necessary because in
our country what is happening is that
huge tax dues are often being evaded by
unscrupulous businessmen under cover of
the doctrine of corporate personality. The
time has come when this widespread
malpractice which is seriously harming
the national economy must be stopped.
The Government cannot run, and it cannot
carry on its welfare programmes, if it does
not respondent receive taxes. As observed
by the Supreme Court in Asst. Collector
of Central Excise Vs. Dunlop India Ltd.,
AIR 1985 SC 330 (vide para 7).

'No government business or for that
matter no business of any kind can be run
on mere bank guarantees. Liquid cash is
necessary
for
the
running
of
a
Government
or
indeed
any
other
enterprise."

Thus the petitioners are not entitled
to the protection of the principle laid by
the decision in Salomon vs. Salomon and
Co. Ltd. (supra).

19. This Court has taken the same
view in Sri Ram Gupta vs. The Assistant
Collector (Collection) Trade Tax. Writ
Petition No. 1039 of 2003, decided on
5.9.2003 and in Naresh Chandra Gupta
vs. The District Magistrate, Writ Petition
No. 382 of 2003, decided on 13.3.2003.

20. Following the aforesaid decisions
this petition is dismissed.
---------
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 INDIAN LAW REPORTS ALLAHABAD SERIES [2004
540
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 30.04.2004

BEFORE
THE HON'BLE ANJANI KUMAR, J.

Second Appeal No. 935 of 1980

Riyasat Khan

...Plaintiff
Versus
Union of India and others ...Respondents

Counsel for the Appellant:
Sri Radhey Shyam
Sri R. Dwivedi

Counsel for the Respondents:
Sri A.K. Sinha
S.C.

Public
Premises
(Eviction
of
Unauthorised Occupants) Act, 19971S.15-Suit for eviction-Expiry of leaseunauthorised
occupation
of
landJurisdiction of Civil Court barred-

A bare perusal of Section 15 quoted
above clearly oust jurisdiction of the civil
court in this view of the matter the
finding of the trial court affirmed by the
lower appellate court that a suit is
barred by the provision of Section 15 of
the
Public
Premises
(Eviction
of
Unauthorised Occupants) Act, 1971 does
not require any interference by this
Court.

 Para 6
Case law discussed:
2003 (51) ALR 700 (Pr. 37)

(Delivered by Hon'ble Anjani Kuamr, J.)

1. Heard learned counsel for the
parties.

2. The plaintiff-appellant filed a suit
before the trial court injunction to the
effect that defendants may be restrained
from evicting the plaintiff from plot no.
61/1 measuring 811 acres situate in
cantonment area Shahjahanpur. It is
admitted case of the parties that the
property belongs to respondent no 1 i.e.
Union of India. The plaintiff has set up
his case that since the land was leased out
by the defendant for a period of five years
up to 31st May, 1974 and since the
plaintiff has not vacated the land a notice
was served upon him dated 29th April
1977 directing the plaintiff to remove his
effects from the land in dispute and hand
over vacant possession by 16th May, 1977
because the plaintiff's lease has not been
renewed from 16th May 1977. The
plaintiff's case in short is that after expiry
of the lease period since the defendants
have accepted rent they cannot evict him.
As already stated the trial court dismissed
the holding that in view of provisions of
Section 15 of the Public Premises
(Eviction of Unauthorised Occupants)
Act, 1971 the suit itself is barred as the
trail court has no jurisdiction to try the
suit. On merits also the trial Court has
recorded a finding that no lease is
subsisting in favour of the plaintiff and
after expiry of lease period his occupation
over the land is that of an unauthorized
occupant for which a notice was also
issued on 29th April, 1977 directing the
plaintiff to vacate the land by 16th May
1977. Having not being done so the
plaintiff cannot now be granted injunction
prayed for. The suit was therefore,
dismissed.

3. Aggrieved thereby the plaintiff
preferred an appeal before the lower
appellate court. The lower appellate court
maintained the findings recorded by the
trial court and dismissed the appeal.

4. Before this Court the learned
counsel for the appellant has reiterated the