Decided on October 29,1954

STATE Respondents


- (1.) THE petitioner is the managing director of a company called Messrs. Uplands Trading Company Ltd., Brodipet, Guntur. A complaint was filed before the Additional First Class Magistrate No. 1 of Guntur by the Assistant Commercial Tax Officer, Guntur, against the petitioner and other directors of the said company for failure to pay sales tax for the year 1948-49, an offence punishable under Section 15(b) of the Madras General Sales Tax Act. The case against them was that the company exported groundnut oil through Messrs. Raleigh Brothers and in respect of that transaction sales tax to the tune of Rs. 3,285-6-3 was payable, that notice in Form B demanding payment of the tax was served upon the petitioner, the managing director, on 16th March, 1950, and that in spite of it this amount was not paid within the time allowed.
(2.) ONE of the defences put forward on behalf of the petitioner was that the company was not liable to pay the tax demanded as it was already collected from their agents, Messrs. Raleigh Brothers. The pleas raised on behalf of other accused are not material in this enquiry, as they have all been acquitted. This defence was rejected as Section 16A of the Madras General Sales Tax Act precluded an assessee from questioning the validity of the assessment in any Criminal Court in any prosecution. In this view of the matter, he found the petitioner guilty of the offence charged and convicted and sentenced him to a fine of Rs. 100 with two months simple imprisonment in default. Besides, there was a direction that the arrears of tax of Rs. 3,285-6-3 should be recovered from him as if it were a fine. The other directors were acquired as no notice of demand was served on them. The petitioner has not questioned his conviction under Section 15(b) of the Madras General Sales Tax Act though the Andhra State Legislature while adopting this Act omitted Section 16A. But he challenges the validity of the direction as regards the recovery of arrears of tax, as if it were a fine from him personally. In support of the contention that a personal liability cannot be imposed upon a director of a company reliance is placed on two decisions of the Madras High Court, Public Prosecutor v. Jacob Nadar ([1951] 2 S.T.C. 53; (1951) 1 M.L.J. 511) and Behara Latchanna Patnaick v. State ([1952] 3 S.T.C. 222; (1952) 2 M.L.J. 174). In the first case, Subba Rao, J., (as he then was) held that under the Madras General Sales Tax Act, a firm is a person for purposes of assessment and prosecution, and in default of payment of tax, was liable to be prosecuted, and a partner who was not served with notice of demand of tax could not be prosecuted for default by the firm. That ruling is not apposite for the reason that in this case it is the company that is prosecuted and not particular individuals alone. Further, the learned Judge has not decided the question whether an individual partner is personally liable for payment of taxes.
(3.) TO the same effect is the ruling in Behara Latchanna Patnaick v. State ([1952] 3 S.T.C. 222; (1952) 2 M.L.J. 174). Somasundaram, J., relied on Public Prosecutor v. Jacob Nadar ([1951] 2 S.T.C. 53; (1951) 1 M.L.J. 511), in support of his conclusion that some of the partners alone cannot be prosecuted for failure to pay taxes assessed on a firm. So these rulings do not in any way held the petitioner. On the other hand, there is an incidental remark in the judgment of Mr. Justice Somasundaram that every partner is individually liable to pay the tax. But these observations cannot apply to the present case for the reason that the position of directors of a company with limited liability is different from the partner of a firm. It must be mentioned that the company in this case is one with limited liability. In the case of a partner of a firm, he is liable personally for the debts of the partnership. But different considerations arise, in the case of the members of a limited liability company which is a legal entity.;

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