2022 (4) TMI 1458 - HC - Income Tax

Garnishee notices for recovery of the income tax demand - Liability of directors of private company - Notice against the petitioners who were the directors of one M/s. Basant Udyog (P) Ltd. - Petitioner has challenged the impugned garnishee notices on the ground that at the time of initiation of impugned recovery proceeding and the issuance of garnishee notices they were no more attached to the company and had retired in 1990 and in view of Section 179 respondent Income Tax Authority should have taken steps only if they could not recover from the company - HELD THAT - It is an admitted position that the petitioners were directors of the company during the period relating to which demand in question arises and garnishee notices were issued. In view of the report of the Official Liquidator which has been filed in Court it appears that the company has already gone into liquidation on 11th August, 1997 and further on perusal of the aforesaid report of the Official Liquidator it appears that he has got no fund in his hand. Since it is a Government revenue arises out of a valid assessment order which was never challenged before any authority, it is the bounden duty of the Income Tax Authority concerned to take steps for recovery of the demand arises from such assessment order and law empowers them to take recovery steps against the persons who were directors at the relevant point of time. This Court cannot shut its eyes towards ground reality that department is not in a position to recover this genuine and valid Government revenue from the company since the same is no more in existence. Though learned advocate appearing for the petitioner contends that no claim was lodged before the Official Liquidator in accordance with law though learned advocate appearing for the respondent submits that claim was lodged before the Official Liquidator on the basis of instruction from the respondent Authority concerned. Without going into these disputed facts that whether claim was lodged before the Official Liquidator, admitted position today which exists on the basis of report of the Official Liquidator is that even if the respondent Income Tax Authority wants to recover the demand from the said company, it is not in existence and has already been dissolved in March 2013 upon formal advertisement in the newspaper as stated in the report of the Official Liquidator and no fund is lying with it. This Court cannot interfere with the impugned recovery proceeding and garnishee notices in this writ petition and stop the respondent from realising valid Government revenue from the petitioners since at present there is no option before them to recover this demand except from the petitioners.

Summary

Issues:
Challenge to garnishee notices for income tax demand recovery against retired directors of a dissolved company.

Analysis:
The writ petition was filed against two garnishee notices issued in 2009 for recovery of income tax demand against the petitioners, who were directors of a company during the relevant assessment years. The petitioners argued that they had retired in 1990 and should not be held liable under Section 179 of the Income Tax Act, as the tax authority should have pursued recovery from the company first. However, it was established that the company had gone into liquidation in 1997 and had no funds available, as confirmed by the report of the Official Liquidator. The Court acknowledged the government revenue owed from a valid assessment order and the authority's duty to recover it. Despite disputes over whether a claim was lodged before the Official Liquidator, the fact remained that the company was dissolved in 2013 and had no assets for recovery.

The Court emphasized that the current reality was that the tax authority had no means to recover the outstanding demand from the dissolved company, making the directors the only viable option for recovery. The judgment highlighted the legal empowerment of the tax authority to pursue recovery from individuals who were directors at the relevant time. The Court declined to interfere with the recovery proceedings and garnishee notices, emphasizing the necessity of realizing valid government revenue from the petitioners due to the lack of alternative avenues for recovery. Ultimately, the writ petition was dismissed considering the circumstances of the case, with no costs imposed on either party.