1990 (3) TMI 61 - HC - Income Tax

Summary

Issues:
Challenge to notice of demand under section 179 of the Income-tax Act, 1961.
Retrospective application of section 179 of the Act.
Validity of demand notice issued without opportunity of hearing.

Analysis:
The petitioner challenged a notice of demand issued by the Tax Recovery Officer under section 179 of the Income-tax Act, 1961. The petitioner became a director of a private limited company, and demands were raised for certain assessment years which were not paid. The Income-tax Officer required the petitioner to show cause why the arrears of demand of the company should not be recovered from him as a defaulter under section 179 of the Act. The petitioner contended that he had ceased to be a director of the company in 1967 and was not liable under section 179. Subsequently, the Tax Recovery Officer issued a demand notice and attached the petitioner's residential flat. The petitioner sought cancellation of the attachment and a personal hearing, leading to the filing of the petition challenging the demand notice.

The first contention raised was regarding the retrospective application of section 179 of the Act. The petitioner argued that liability could only be fastened on directors if the company was wound up for assessment years prior to 1975-76. However, the court relied on previous judgments holding that the amendment to section 179 was retrospective. Despite the issue being pending before the Supreme Court, the court upheld the retrospective operation of section 179 based on existing decisions.

On the merits, it was argued that the Income-tax Officer was not justified in issuing a demand notice without providing an opportunity of hearing or passing an order under section 179 after the petitioner's submission. The Department's affidavit-in-reply indicated that the petitioner was a director of the company until 1971, but there was no evidence of a hearing or order under section 179. Consequently, the court found that in the absence of a legally passed order under section 179, the demand notice issued by the Tax Recovery Officer was illegal and without jurisdiction. Therefore, the court quashed the demand notice, ruling in favor of the petitioner.

In conclusion, the court made the rule absolute in terms of the petitioner's prayer, quashing the demand notice. No costs were awarded in the judgment.