2015 (4) TMI 325 - HC - Income Tax

Recovery of tax due from the directors - no finding that the tax due cannot be recovered from the company - Held that - S. 179 of the Act imposes a personal liability on the Directors of a Private Company in respect of the Tax due from the company in the circumstances referred to therein. As could be seen from the impugned orders, nowhere respondent No.3 has referred to any of the proceedings initiated against the company to show that it is not possible to recover the tax due from the company. In the absence of such a finding, no liability could be fixed on the Directors under S. 179 of the Act to pay the tax due. Hence, the impugned orders and the consequent demand notices are liable to be set aside and are accordingly set aside. The matter is remitted to respondent No.3 for reconsideration in accordance with law after affording an opportunity of hearing to the petitioners. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 179 of the Income Tax Act, 1961 regarding personal liability of Directors of a Private Company for tax due.
2. Validity of orders passed by respondent No.3 directing directors of a Private Company to pay tax due.

Analysis:
1. The judgment deals with the interpretation of Section 179 of the Income Tax Act, 1961, which imposes personal liability on Directors of a Private Company for tax due from the company. The petitioners, who are directors of a Private Company, challenged the orders passed by respondent No.3 directing them to pay the tax due. The contention raised was that the impugned orders did not fulfill the requirement of S.179 as there was no finding that the tax due could not be recovered from the company.

2. The court examined the provisions of S.179, which state that directors can be held liable for tax due only if it cannot be recovered from the company. The court noted that the impugned orders did not mention any proceedings initiated against the company to demonstrate the impossibility of recovering the tax due from the company. Without such a finding, the liability of the directors under S.179 cannot be established. Therefore, the court held that the impugned orders and demand notices were not valid and set them aside.

3. The court remitted the matter back to respondent No.3 for reconsideration in accordance with the law, emphasizing the need to provide an opportunity for the petitioners to be heard. The court kept all contentions of both parties open, ensuring a fair and thorough reconsideration of the issue. Ultimately, the petitions were disposed of, and the directors were relieved of the immediate obligation to pay the tax due until a proper assessment was conducted by respondent No.3 in compliance with the law.