INCOME TAX ACT, 1961

Section 179 Article 226

Liability in special case - Vicarious liability of assessee-director - Conditions precedent -

Subject-matter of challenge in this writ-application at the instance of the writ applicant was an order passed by the respondent under section 179, by this order director-assessee was held responsible severelly and Jointly of the company for the dues of company for relevant assessment years. A show-cause notice was also issued before the order under section 179 to directors. The assessee stated that revenue failed to recover dues from company itself before passing order under section 179, to assessee after the impugned order came to be passed under section 179 a notice was issued under section 226(3) to the Principal Officer of the HDFC Bank limited with whom the writ applicant had a bank account and the bank account had been accordingly freezed.Held: The first requirement, to attract liability of the director of a private limited company is that the tax cannot be recovered from the company itself. Such requirement is held to be a pre-requisite and necessary condition to be fulfilled before action under section 179 can be taken. In the context of section 179, the Court held that before recovery in respect of the dues from a private company can be initiated against the directors, to make them jointly and severally liable for such dues, it was necessary for the revenue to establish that such recovery cannot be made against the company and then alone it can reach to the directors who were responsible for the conduct of the business during the previous year in relation to which liability exists. There was no escape from the fact that the perusal of the Notice under section 179 reveals that the same was totally silent as regards the satisfaction of the condition precedent for taking action under section 179 viz. that the tax dues could not be recovered from the Company. In the show-cause notice, there was no whisper of any steps having been taken against the Company for recovery of the outstanding amount. Court would like to give one chance to the department to undertake a fresh exercise so far as section 179 is concerned. If the show-cause notice was silent including the impugned order, the void left behind in the two documents cannot be filled up by way of an affidavit-in-reply. Ultimately, it is the subjective satisfaction of the authority concerned that is important and it should be reflected from the order itself based on some cogent materials. However, with a view to protect the interest of both, the writ applicant as well as revenue, court was inclined to quash the impugned order and give one opportunity to the revenue. In view of the above, this writ-application was partly allowed. The impugned notice as well as the order was quashed and set aside.

Followed:Maganbhai Hanrajbhai Patel v. Asstt. CIT (2013) 353 ITR 567 (Guj) : 2013 TaxPub(DT) 274 (Guj-HC).

REFERRED :

FAVOUR : Matter remanded / In assessee's favour (Partly)

A.Y. : 2011-12 to 2014-15

SUBSCRIBE FOR FULL CONTENT