Private parties cannot apportion Income Tax liability by private agreement as an individual party. This was held in the judgment passed by a two- judge bench comprising Hon’ble Mr. Justice Manmohan And Hon’ble Mr. Justice Navin Chawla, in the matter of Rajeev Behlv. Principal Commissioner Of Income Tax & Anr. [W.P.(C) 7869/2021 & Cm Appl. 24474-475/2021], dealt with an issue where the petitioner filed a petition challenging the 1 passed under Section 264 of the Income Tax Act, 1961 and under Section 179 of the Act by respondent No.1 and respondent No.2 respectively. Petitioner also seeked a direction to restrain the respondents from recovering the outstanding demand of Rs.5,89,68,019/- in the case of Realtech Group from the petitioner, pertaining to the Assessment Years 2006-07 to 2009-10.
The petitioners along with two other promoters, namely,Sh. Pankaj Dayal and Sh. Yogesh Gupta formed and promoted the Realtech group of companies in 2005. During the year 2010-11, allegedly disputes arose amongst the promoters and to settle the said inter se disputes a Memorandum of Understanding (MOU) was executed on 02n d June, 2011. In terms of the MOU, the petitioner allegedly resigned as Director from M/s Vivid Builders Pvt. Ltd., M/s Realtech Construction Pvt. Ltd. as well as some other group companies of Realtech group and stopped participating in the management of the Realtech group. It was also allegedly agreed in the MOU that all the income tax liabilities.
In order to implement the MOU, an arbitration proceeding was started under the aegis of Hon’ble Justice Sh. S.B. Sinha (Retired), who vide Arbitration Award dated 28th January, 2018 upheld the terms of the aforesaid MOU.In the meantime, the petitioner was called upon by the income tax authorities to provide details of arrangement for discharge of income tax liability of Realtech group of companies.
Counsel for the petitioner stated that no action to recover the demand from the Realtech Group of Companies had been taken by the Assessing Officer. He emphasised that the Respondent No. 1 had failed to appreciate that there are more than adequate assets available with Realtech group to pay the tax demand and in the absence of any steps taken to recover the demand from their assets, it could not be alleged much less validly held that demand could not be recovered from Realtech group.
Counsel for the respondents submitted that the present petition was an abuse of process of law as the petitioner was seeking to settle his private scores with different parties through the income tax department
After hearing both the parties The Hon’ble Delhi High Court dismissed the petition and held that the MOU, Settlement Deed and an Arbitral Award govern rights in personam and cannot bind a statutory authority like the respondent-Revenue. The court also held that this Court is of the opinion that the burden is on the individual Director to prove that the non-recovery was not due to his gross negligence, misfeasance or breach of duty on his part.
Judgement reviewed by – Vaishnavi Raman