2018 (4) TMI 459 - HC - Income Tax

Jurisdiction to proceed against the Directors of a delinquent Private Limited Company under Section 179(1) - recover from the petitioners as Directors of a Private Limited Company, the tax dues of the Private Limited Company in respect of the Assessment Year 2008-09 which it failed to honour - Held that - It is an agreed position between the parties that the issue arising herein would stand concluded in favour of the petitioners by the decision of this Court in Madhavi Kerkar V/s. Assistant Commissioner of Income Tax (2018 (1) TMI 749 - BOMBAY HIGH COURT) as held that the jurisdiction to proceed against the Directors of a delinquent Private Limited Company under Section 179(1) of the Act will only arise when the Revenue is unable to recover the tax dues from the delinquent Private Limited Company. The show cause notice issued to the Directors of the Private Limited Company must indicate briefly the steps taken to recover the tax dues from the delinquent Private Limited Company and the failure to recover the same. In the above view, the impugned orders in respect of the two petitioners under Section 179(1) of the Act is quashed and set aside.

Summary

Issues:
Challenge to orders under Section 179 of the Income-Tax Act, 1961 regarding recovery of tax dues from Directors of a Private Limited Company for Assessment Year 2008-09.

Analysis:
The judgment involves two petitions challenging separate orders dated 28th September, 2017 under Article 226 of the Constitution of India related to the recovery of tax dues from the Directors of a Private Limited Company for the Assessment Year 2008-09 under Section 179 of the Income-Tax Act, 1961. The key contention was whether the Revenue could proceed against the Directors of a delinquent Private Limited Company under Section 179(1) of the Act when unable to recover tax dues from the company. The decision in Madhavi Kerkar case clarified that the jurisdiction to proceed against Directors arises only if the Revenue fails to recover tax dues from the company, and the show cause notice to Directors must outline efforts made to recover dues and the subsequent failure.

The High Court quashed and set aside the impugned orders dated 28th September, 2017 issued under Section 179(1) of the Act against the two petitioners. However, the judgment clarified that the Revenue can issue a new show cause notice in line with the Madhavi Kerkar decision and make appropriate orders following principles of natural justice. The attachment of the bank accounts of the delinquent Private Limited Company was allowed to continue. The petitioners' counsel confirmed their cooperation in the prompt resolution of the notices issued under Section 179(1) considering the tax dues pertain to the Assessment Year 2008-09.

In conclusion, the petitions were disposed of with no order as to costs. The judgment provided clarity on the conditions under which the Revenue can proceed against Directors of a delinquent Private Limited Company for tax dues, emphasizing the need for proper show cause notices and adherence to principles of natural justice in such proceedings.