2013 (5) TMI 331 - HC - Income Tax

Liability of directors of private company in liquidation - Section 179 v/s 156 - Penalty u/s 271(1)(c) - whether in exercise of powers u/s 179 of the Act any recovery can be made from the petitioner towards interest and penalty with respect to the private limited company in which the petitioner was a Director? Held that - Issues are covered in the decision of the Court in case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income Tax 2012 (11) TMI 189 - GUJARAT HIGH COURT . Therefore it was not legally permissible for the respondent to recover from the petitioner, interest and penalty arising out of the assessment order passed against the company, in which the petitioner was a Director. Respondent shall not seek any recovery of the penalty and shall refund the interest and a portion of the penalty, which is already recovered so far. Since the petitioner had approached this Court after a considerable delay after the interest was recovered, we provide that such refund shall not carry interest, if made within a period of three months from today. Failing which, from the end of such period, the amount to be refunded shall carry simple interest @ 9% per annum till actual payment.

Summary

Issues involved:
1. Recovery of tax and interest from the petitioner under Section 179 of the Income Tax Act for the assessment year 1995-96.
2. Recovery of penalty imposed under Section 271(1)(c) from the petitioner in the name of the company.

Detailed Analysis:
Issue 1: The petitioner, a Director of a company, challenged the recovery of tax and interest amounting to Rs. 29,93,644/- under Section 179 of the Income Tax Act for the assessment year 1995-96. The respondent held the petitioner jointly and severally liable for the outstanding dues of the company. The petitioner did not respond to the show-cause notice, leading to the recovery of the said amount from the petitioner. The High Court analyzed the legal provisions and held that recovery of interest and penalty from the petitioner, arising from the assessment order against the company, was not legally permissible under Section 179. The Court referred to a previous decision to support this conclusion and set aside the recovery action, directing the respondent to refund the interest and a portion of the penalty already recovered.

Issue 2: Apart from tax and interest, penalty proceedings were initiated against the company under Section 271(1)(c) of the Act. The Assessing Officer imposed a penalty of Rs. 11,25,746/- on the company, against which an appeal was pending. Subsequently, the respondent sought to recover the penalty amount from the petitioner under Section 226(3) of the Act. The petitioner contended that since the tax and interest dues were already satisfied by him, no further recovery could be made. The High Court, after considering the legal provisions and precedents, reiterated that recovery of penalty from the petitioner was not permissible under Section 179 and directed the respondent to refund the penalty amount already recovered. The Court specified conditions for the refund process, including the applicability of interest if the refund was delayed beyond a stipulated period.

In conclusion, the High Court ruled in favor of the petitioner, setting aside the recovery actions for interest and penalty, and directing the respondent to refund the amounts already recovered. The judgment provided clarity on the legal provisions regarding the liability of a director for the dues of a company and emphasized the limitations on recovery under Section 179 of the Income Tax Act.