M. Katju, J. - (1.) -Heard learned counsel for the petitioner and learned standing counsel.
(2.) THE petitioner has challenged the impugned notice dated 5.6.2003/23.7.2003, Annexure-1 to the petition and prayed for a mandamus restraining the respondents from recovering the amount in question against the petitioner who is a Director of the Company against whom there are arrears of Trade Tax regarding which the impugned recovery has been issued. The petitioner is a Director of a Private Limited Company called M/s. R. G. Oil Private Limited which has its headquarters at Kanpur. There were tax dues against the company in respect of which a citation has been issued vide Annexure-1 to the petition. The petitioner has filed this petition alleging that the recovery cannot be pressed against the petitioner but can only be pressed against the assets of the company. He has relied on the decision of the House of Lords in Solomon v. Solomon and Co. Ltd., 1897 AC 12, in which it has been held that a Company is a distinct legal entity separate from its directors and shareholders. He has also relied on various decisions of this Court e.g., Shri Purshottamdas Beriwal v. Dy. Collector, 1989 UPTC 456 ; G. C. Mehrotra v. Dy. Collector, 1997 UPTC 1217, etc. Hence he prayed that the respondents be restrained from pressing the recovery against the petitioner and direct that the respondents press it only against the assets of the company.
(3.) WE do not agree. The legal principle that a company is a distinct legal entity separate from its directors and shareholders (vide Solomon v. Solomon and Co. Ltd., 1897 AC 12 (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 businesses, and it has played a historical role in helping industrialisation. 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., 1996 AWC (Suppl.) 1.20 (SC) (NOC) : 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." The Principle of lifting the veil of corporate personality has been discussed in Subhra Mukherjee v. Bharat Cooking Coal Ltd., 2000 (3) SCC 312 ; Calcutta Chromotype Ltd. v. Collector of Central Excise, AIR 1998 SC ; New Horizons Ltd. v. Union of India, 1995 (1) SCC 478 ; C.I.T. v. Meenakshi Mills, AIR 1967 SC 819 ; Telco v. State of Bihar, AIR 1965 SC 40 and Juggilal Kamlapat v. C.I.T., AIR 1969 SC 932.;