2016 (12) TMI 1007 - HC - Income Tax

Proceedings for recovery under Section 179 - Held that - We are of the view that before the issue of interpretation of the word Tax due can be decided the factual aspect of the amount due on account of tax and interest from the defaulting company has to be ascertained. This is more so in view of the fact that the demand under Section 156 of the Act along with computation of tax which is shown to us is dated 28th December 2004 i.e. much before the petition was filed. However no reference was made to it in the petition nor any amendments moved to the petition over the last 10 years when the petition was pending. Therefore it would be appropriate to restore the issue before the Assessing Officer at the stage of the notice dated 29th January 2003 to determine the factual amount due from the defaulting company and consequently the petitioner. Thereafter the Assessing Officer will rule on the meaning of the words tax due under Section 179 of the Act

Summary

Issues: Challenge to orders under Section 179 and Section 264 of the Income Tax Act, 1961 regarding recovery proceedings against a defaulting company's Director.

Analysis:
1. Background: The petitioner challenged orders dated 24th March, 2003, and 31st July, 2003, passed under Section 179 and Section 264 of the Income Tax Act, 1961, respectively. These orders were related to unpaid tax demands of a defaulting company for Assessment Year 1997-98, amounting to approximately ?69.89 lakhs.

2. Contention of the Petitioner: The petitioner, as a Director of the defaulting company, contended that under Section 179 of the Act, they were only liable to pay the 'tax due' from the company to the Revenue. The petitioner cited legal precedents to support this argument and emphasized that interest and penalties imposed on the company were beyond the scope of recovery from the Director.

3. Revenue's Argument: The Revenue opposed the petition, citing a delay in filing and arguing that the petitioner should pay interest along with the pending tax dues. They highlighted the clarificatory nature of the Explanation to Section 179 of the Act.

4. Court's Decision: The Court addressed the delay issue, noting that it was adequately explained by the petitioner due to awaiting the result of an appeal to the Income Tax Appellate Tribunal by the defaulting company. The Court found the delay justified and proceeded to evaluate the factual amount due from the defaulting company.

5. Restoration of Proceedings: The Court set aside the impugned orders and restored the matter to the Assessing Officer to determine the actual amount due from the defaulting company and the petitioner. The Assessing Officer was directed to consider the meaning of 'tax due' under Section 179, the retrospective or prospective nature of the Explanation, and the impact on pending tax dues.

6. Direction to Petitioner: The petitioner was directed to pay the admitted tax due of ?5 lakhs by a specified date and provide evidence of payment to the Assessing Officer. Failure to comply would result in dismissal of the petition without further reference to the Court.

7. Conclusion: The petition was disposed of with no orders as to costs, subject to the petitioner's compliance with the payment directive. The Court emphasized adherence to principles of natural justice in further proceedings.