P L D 1979 Lahore 836 (PLP)

JLJDOMENT The petitioner was a share-holder of Lyallpur - Jhang Transport Company Limited. The company was assessed to income-tax in the sum of Rs. 1,15,440 for the assessment year 1962-63 and to Rs. 2,03,200 for the year 1966-67.

2. On 25th April, 1977, the Board of Revenue, on the initiation of the Income-tax Officer, accorded approval under section 43-B as amended, for an action for recovery of tax from the petitioner. This was done without providing any opportunity of being heard to the petitioner.

3. The Income-tax Officer served a demand notice for the recovery of the two amounts on the petitioner, in his personal capacity, under section 43-B of the Income-tax Act. On 30th November, 1977, the petitioner applied to the Income-tax Officer, for withdrawal of the notice, for the reason, that no liability was attracted to him under section 43-B. His application was, however, rejected on 3rd December, 1977, without hearing him. The petitioner has challenged both the orders through this petition.

4. It is contended by the learned counsel that according to section 43-B, as it existed uptil 1967, or even as amended by the Finance Act, 1973, the petitioner had a right to be heard. He further submitted that the petitioner was entitled to a hearing even under the rules of natural justice. Reliance was placed on C.

1. T. v. Fazalur Rehman (P L D 1964 S C 410). The learned counsel also cited Province of East Pakistan v. Noor Ahmad (P L D 1964 S C 451) in support.

5. The learned counsel for the respondents did not have much to say to contest this petition. Section 43-B as it existed at the relevant time reads as under: "Notwithstanding anything contained in the Companies Act, 1913, where any private company is wound up and any tax assessed on the company, whether before, or in the course of, or after its liquidation, in respect of any income of any previous year cannot be recovered, every person who was a Director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to tire affairs of the Company." (The underlining* is by me) The portion underlined* shows that the petitioner had a right to prove that the non-recovery of the tax from the assesses-Company could not be attributed to any gross neglect, misfeasance or breach of duty on his part, in relation to affairs of the company.

6. The above provision clearly makes a Director liable to pay, but provides him with an opportunity to shake off the liability. It is a statutory right and, therefore, could not be taken away in view of the rule laid down in the case of Atta Mohammad Qureshi (PLD 1971 SC61). The impugned order is thus void A on that short score. Even otherwise, the petitioner had a right to be heard under the rules of natural justice as he was to be burdened with the liability, particularly of another legal entity. The cases referred to by the learned counsel, therefore, apply fully to get quashed the impugned order.

7. The other submission made was that as the unamended provision embodied a protection and a safety device favourable to the petitioner the amended Act could not have been applied retrospectively against him B unless so expressly provided. It will be noted that the right of the petitioner to prove lack of gross-neglect etc. on his part in relation to the affairs of the company has been omitted in the new provision. The liability of a Director has been made now absolute. The contention of the petitioner, therefore, is fully supported by State v. Muhammad Jamil (P L D 1965 S C 681) and Pakistan Gum & Chemicals Ltd. v. Chairman, Karachi Municipal Corporation (P L D 1975 Kar. 495).

8. It is also to be noted that the Supreme Court in Adnan Afzal v. Captain Sher Afzal (P L D 1969 S C 187) denied the applicability of a statute retrospectively if it would result in inconvenience or injustice to the petitioner. Undoubtedly the case of the petitioner would be fully covered if he is in a position to prove that no neglect, misfeasance or breach of duty in relation to the affairs of the company could be attributed to him. This objection assumes higher importance, as the case of the petitioner is that he kept on informing the Income-tax Officer that some other Directors were evaporating or wasting assets of the Company.

9. The learned counsel for the petitioner, in the alternative, also relied on the amended section 43-B and submitted that as the recovery of the tax can only be made if it is not recoverable from the assets of the company, the petitioner ought to have been heard and allowed to prove that there are still some assets of the company available to meet the entire or part demand. He submitted that some of the assets are available even now though most of the other had been wasted or misappropriated by other Directors to the knowledge of the Income-tax Officer due to the communication made to him by the petitioner. The learned counsel for the respondents did not have any effective reply to this contention also.

10. In view of the above, it is quite clear that the petitioner had a right to be heard under the unamended provision of law to show that no neglect, etc. could be attributed to him for non-recovery of the amount. He could also show that the company still had some assets which could be utilised to meet the demand. The impugned order of recovery is, therefore, declared to be without lawful authority and of no legal effect.

11. The Income-tax Officer shall hear the petitioner in accordance with the unamended law and shall also allow the petitioner to prove, if there are any assets of the assessee-Company which could be utilized for meeting the demand. The respondents shall pay the costs of this petition. ' M. A. K.