2019 (3) TMI 1265 - HC - Income Tax

Order for recovery of tax u/s 179(1) - scope the the Word tax used in Section 179 - does it includes interest and penalty - explanation to Section 179 was added w.e.f. 01.06.2013 - Liability of directors of private company in liquidation - HELD THAT - If we have to go with the presumption that the Parliament had intended to provide that the liability of the Company and the directors would be joint and several to pay the tax and the Parliament also intended that the word Tax includes penalty and interest and as the burden of proof is shown on the directors to prove that they were not negligent etc., then it follows that the directors can be held responsible to pay penalty and interest when the company was liable to pay the penalty and interest. The non-obstante clause with which Section 179 starts shows that the provisions of Company Act 1956 will not come in the way of fastening the liability created by Section 179 on the directors and it also shows that right from the beginning, there was such intention of the Parliament. The Court is expected to keep in mind some principles of interpretation when such point comes for interpretation. The language of each provision may be restricted to its own object. Many a times when there are two provisions, both the provisions can be allowed to run in parallel lines though there may be conflict on the surface. The Court needs to interpret the statute in such a way that the provision is not rendered meaningless. If the Court gives only limited meaning to a provision it may result in non-compliance of the provisions in entirety and to that extent, the intention of the Legislature gets defeated. In the present matter, in view of the explanation given and also the intention, which can be gathered from Section 179 itself, it can be said that the word Tax used in Section 179 was to be used also for penalty and interest. If the word Tax is not read in that way, there will be loss of interest and penalty to the State Exchequer. The provision is made to see that the amount is recovered from the directors when the company is not able to make the payment of the amount of liability. The word used in enactment is important, but the context is no less important and the definition clause does not necessarily apply in the same context in all the provisions of the statute and it can be ascertained as to whether in particular provision, meaning to that word is in excess than given in the definition. In the present matter also, unless such interpretation is made, the provision of Section 179 will not become meaningful in entirety. Further, there is one more circumstance like, the same procedure is provided for recovery of tax, penalty and interest and it is up to the directors to show that they were not negligent and there are the grounds of defense for them as provided in Section 179. The aforesaid interpretation also allows to hold and interpret that the provisions of Sections 170, 177, 188A and 189 are only enabling provisions. They cover specific situations mentioned in those Sections and the Parliament had no other intention for making such specific provisions. Those provisions cannot be read to ascertain the scheme of the Act.

Issues Involved:
1. Interpretation of the term "tax" under Section 179(1) of the Income Tax Act, 1961.
2. Applicability of the explanation added to Section 179 w.e.f. 01.06.2013.
3. Liability of directors for penalty and interest under Section 179(1).
4. Retrospective application of clarificatory amendments.

Issue-Wise Detailed Analysis:

1. Interpretation of the term "tax" under Section 179(1) of the Income Tax Act, 1961:
The primary contention of the petitioners was that the term "tax" used in Section 179(1) does not include penalty and interest. The respondent-authority, however, held that the term 'tax' includes both penalty and interest, supported by the explanation added to Section 179. The Court referenced the case of Harshad Shantilal Mehta Vs. Custodian, where it was observed that tax, penalty, and interest are distinct concepts under the Act. However, the Court also noted that the explanation to Section 179 clarifies that "tax due" includes penalty, interest, or any other sum payable under the Act.

2. Applicability of the explanation added to Section 179 w.e.f. 01.06.2013:
The petitioners argued that the explanation added to Section 179 could not be applied to them retrospectively, as their assessment years were prior to the amendment. The Court, however, relied on the case of Commissioner of Income Tax-I, Ahmedabad Vs. Gold Coin Health Food Private Limited, where it was held that clarificatory amendments are applicable retrospectively. The Court concluded that the explanation added to Section 179 was intended to clarify the original intent of the legislature and thus applies retrospectively.

3. Liability of directors for penalty and interest under Section 179(1):
The Court held that the directors of a private company are jointly and severally liable for the payment of tax, including penalty and interest, unless they can prove that the non-recovery was not due to any gross neglect, misfeasance, or breach of duty on their part. The Court emphasized that the non-obstante clause in Section 179 indicates that the provisions of the Companies Act, 1956, do not prevent the imposition of such liability on directors.

4. Retrospective application of clarificatory amendments:
The Court extensively discussed the principles of statutory interpretation, particularly regarding the retrospective application of clarificatory amendments. Citing various precedents, including Zile Singh Vs. State of Haryana, the Court noted that declaratory statutes, which clarify existing law, are generally intended to have retrospective effect. The Court concluded that the explanation to Section 179 was clarificatory and thus applicable retrospectively, aligning with the legislative intent to hold directors liable for tax, penalty, and interest.

Conclusion:
The Court dismissed the petitions, upholding the order of the respondent authority. It affirmed that the term "tax" in Section 179 includes penalty and interest, and the explanation added to Section 179 applies retrospectively. The directors were held liable for the company's tax dues, including penalty and interest, unless they could prove non-recovery was not due to their neglect or breach of duty.

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