1997 (7) TMI 54 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 179 of the Income-tax Act, 1961, to directors of a company in liquidation.
2. Necessity of issuing a demand notice under Section 156 of the Act to directors.
3. Whether directors can be deemed as "assessees in default" under Section 220(4) of the Act without a demand notice.
4. Jurisdiction of the Tax Recovery Officer in attaching property exceeding the tax liability.

Detailed Analysis:

1. Applicability of Section 179 of the Income-tax Act, 1961, to Directors of a Company in Liquidation:
The court addressed whether Section 179 of the Income-tax Act, 1961, could be invoked against the directors of a company that went into voluntary liquidation before the Act came into force. The apex court had previously ruled that Section 179 could be applied if the liquidation proceedings were still pending as of April 1, 1962. This judgment was upheld, confirming that the directors were jointly and severally liable for the company's tax arrears.

2. Necessity of Issuing a Demand Notice Under Section 156 of the Act to Directors:
The appellants contended that the directors could not be considered "assessees in default" without a demand notice under Section 156. The court examined Sections 156 and 220(4) of the Act, which pertain to the issuance of a demand notice and the conditions under which an assessee is deemed in default. The court noted that the company had been served a demand notice, but the directors argued that this did not suffice for holding them liable.

3. Whether Directors Can Be Deemed as "Assessees in Default" Under Section 220(4) of the Act Without a Demand Notice:
The court held that once liability is fastened on the directors under Section 179, they are equated with the defaulting assessee. The learned single judge had previously ruled that no fresh demand notice under Section 156 was necessary for the directors once the company's tax liability was established and the directors were held liable under Section 179. The court affirmed that the directors would be deemed to be in default in terms of Section 220(4) without needing a new demand notice.

4. Jurisdiction of the Tax Recovery Officer in Attaching Property Exceeding the Tax Liability:
The appellants argued that the Tax Recovery Officer had attached property of a value exceeding the tax liability. The court declined to delve into this issue, noting it was within the jurisdiction of the Tax Recovery Officer and had not been raised before the learned single judge.

Conclusion:
The court dismissed both appeals, affirming that:
- Section 179 of the Income-tax Act, 1961, applies to directors of a company in liquidation, making them jointly and severally liable for the company's tax arrears.
- No fresh demand notice under Section 156 is required for directors once liability is established under Section 179.
- Directors are deemed "assessees in default" under Section 220(4) without the need for a new demand notice.
- The issue of property attachment exceeding tax liability falls within the jurisdiction of the Tax Recovery Officer and was not addressed in this judgment.