2000 (6) TMI 20 - HC - Income Tax

Issues Involved:
1. Applicability of the amendment in Section 179 of the Income-tax Act, 1961, to a director who resigned before the amendment.
2. Legitimacy of the orders passed by the Commissioner of Income-tax and the Assistant Commissioner.
3. Whether the company had gone into liquidation.
4. Whether the petitioner's husband was liable for the tax liabilities of the company.

Issue-wise Detailed Analysis:

1. Applicability of the amendment in Section 179 of the Income-tax Act, 1961:
The main grievance of the appellant was that the amendment in Section 179, effective from October 1, 1975, should not apply to a director who resigned in 1974. The court noted that prior to the amendment, Section 179 held directors liable for tax arrears only if the company was wound up. Post-amendment, directors were liable regardless of liquidation status. The court emphasized that the amendment did not have retrospective effect, as established in its previous order dated February 17, 1986, which stated, "The amendment that came into force with effect from October 1, 1975, cannot be invoked to make the petitioner liable for the income-tax dues of the company for the financial year 1974-75 or any earlier year."

2. Legitimacy of the orders passed by the Commissioner of Income-tax and the Assistant Commissioner:
The appellant challenged the orders of the Commissioner dated March 30, 1989, and the Assistant Commissioner dated September 12, 1991, on grounds of lack of opportunity and lack of justification. The court found that the Income-tax Officer's order dated March 4, 1987, was in compliance with a previous court direction and was neither erroneous nor prejudicial to the interests of the Revenue. Therefore, the Commissioner should not have set aside this order under Section 263. The court concluded, "The Commissioner has wrongly invoked the provision of section 263 of the Act of 1961."

3. Whether the company had gone into liquidation:
The court examined whether the company had gone into liquidation, as this was a crucial factor for determining the applicability of Section 179 pre-amendment. The Income-tax Officer's order dated March 4, 1987, categorically stated, "there is no material to come to the conclusion that the company has gone into liquidation." The court found no sufficient evidence to contradict this finding, thus supporting the conclusion that the company had not gone into liquidation.

4. Whether the petitioner's husband was liable for the tax liabilities of the company:
Given that the company had not gone into liquidation and the amendment to Section 179 did not have retrospective effect, the court ruled that the petitioner's husband was not liable for the tax dues of the company for the assessment years 1968-69 to 1974-75. The court stated, "When the company has not gone into liquidation, the petitioner's husband is not liable to pay the tax liability of the company for the assessment years 1968-69 to 1974-75."

Conclusion:
The court quashed the order of the Commissioner of Income-tax under Section 263 and all subsequent orders passed in consequence of it. The appeal was allowed, and it was concluded that the petitioner's husband was not liable for the company's tax liabilities due to the non-retrospective nature of the 1975 amendment to Section 179 and the fact that the company had not gone into liquidation.

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