Taxpublishers.in - Monday Corner Answer to the Quiz for the week (29 Jan 2024)

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Quiz for the week (29 Jan 2024): Ethics (P) Ltd is engaged in manufacture of silver utensils. It has a tax arrears of Rs.12,30,000 relating to assessment year 2018-19. The company has working capital crunch and hence could not pay the amount. Presently, there are 3 directors in the company of whom 2 are engaged in day-to-day management of the company. There were 4 directors who have resigned from the directorship in April, 2022 and were managing the company till then. Can the Assessing Officer proceed against the directors / ex-directors for recovery of tax due from the company? Answer : Section 179 has the title "liability of directors of private company". The Finance Act, 2022 omitted the words "in liquidation" in the title w.e.f. 01.04.2022. Taking note of this, section 179 has to be analysed. Section 179(1) says where any tax due from a private company is pending and cannot be recovered then every person who was a director at any time during the relevant previous year shall be jointly and severally liable for the payment unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. The present directors have assumed office only from April, 2022 and therefore the present 3 directors which includes 2 directors engaged in day to day management of the company shall not be liable for the recovery of tax. The other 4 directors who exited the Board in April, 2022 are liable jointly and severally for the payment of tax. However, before proceeding against those directors for recovery of tax, the Assessing Officer must take efforts for recovery of tax from the company. It has to be recorded that the amount due from the company could not be recovered from the company and thereafter the directors are to be proceeded against. The Supreme Court in ITO v. Jagesh Savjani (2023) 459 ITR 210 took note of the Bombay High Court decision 459 ITR 194 and dismissed the SLP of the Revenue. The Bombay High Court had held that the Assessing Officer ought to have recorded to form a basis that recovery of tax from the company could not be made and the steps in this regard had failed. Thus, the findings of the Bombay High Court would prevail. Therefore, unless the Assessing Officer records satisfaction that the recovery could not be made from the company, he could not proceed against the directors for recovery of tax arrears of the company.

Quiz for the week (29 Jan 2024):

Ethics (P) Ltd is engaged in manufacture of silver utensils. It has a tax arrears of Rs.12,30,000 relating to assessment year 2018-19. The company has working capital crunch and hence could not pay the amount. Presently, there are 3 directors in the company of whom 2 are engaged in day-to-day management of the company. There were 4 directors who have resigned from the directorship in April, 2022 and were managing the company till then. Can the Assessing Officer proceed against the directors / ex-directors for recovery of tax due from the company?

Answer :

Section 179 has the title "liability of directors of private company". The Finance Act, 2022 omitted the words "in liquidation" in the title w.e.f. 01.04.2022. Taking note of this, section 179 has to be analysed.

Section 179(1) says where any tax due from a private company is pending and cannot be recovered then every person who was a director at any time during the relevant previous year shall be jointly and severally liable for the payment unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.

The present directors have assumed office only from April, 2022 and therefore the present 3 directors which includes 2 directors engaged in day to day management of the company shall not be liable for the recovery of tax. The other 4 directors who exited the Board in April, 2022 are liable jointly and severally for the payment of tax.

However, before proceeding against those directors for recovery of tax, the Assessing Officer must take efforts for recovery of tax from the company. It has to be recorded that the amount due from the company could not be recovered from the company and thereafter the directors are to be proceeded against.

The Supreme Court in ITO v. Jagesh Savjani (2023) 459 ITR 210 took note of the Bombay High Court decision 459 ITR 194 and dismissed the SLP of the Revenue. The Bombay High Court had held that the Assessing Officer ought to have recorded to form a basis that recovery of tax from the company could not be made and the steps in this regard had failed. Thus, the findings of the Bombay High Court would prevail. Therefore, unless the Assessing Officer records satisfaction that the recovery could not be made from the company, he could not proceed against the directors for recovery of tax arrears of the company.