2019 (8) TMI 1207 - HC - Income Tax

Proceedings u/s 179 against director in respect of demand of company - vide impugned order, AO held that the writ petitioner, a natural person, is jointly and severally liable towards the tax liability and penalty imposed on company - alternate remedy - revision u/s 264 - HELD THAT - A perusal of provision i.e., Section 264 reveals that said Revisional Authority has powers to enquire into the correctness or otherwise of the impugned order and said Revisional Authority has powers which includes powers to make orders which are not prejudicial to the assessee. Therefore, it is clear that u/s 264 writ petitioner has an alternate remedy by way of a statutory revision u/s 264 to said Revisional Authority. The rule of alternate remedy no doubt is a self imposed restraint by Courts exercising writ jurisdiction. In other words, rule of alternate remedy is not a rule of compulsion, but it is a rule of discretion. This Court has no hesitation in holding that alternate remedy though a rule of discretion and not a rule of compulsion, has to be applied with utmost rigour when it comes to fiscal law statutes and in the instant case it applies with all force for two reasons. First reason is, though it is a rule of discretion, Court would interfere on the teeth of alternate remedy only when it falls within the exceptions set out in the long line of authorities. Those exceptions are, (a) lack of jurisdiction on the part of the Authority passing the order, (b) violation of principles of natural justice, (c) a well settled position of law being disregarded and (d) alternative remedy being ineffectual or not efficacious. To be noted, this adumbration of exceptions is not exhaustive, but is only a broad outline which is imperative for appreciating the instant order. The instant case does not fall under any of the exceptions. The other reason is, a perusal of SCN, reply and impugned order reveals that the matter turns heavily on factual disputations. As already alluded a perusal of Section 264 makes it clear that writ petitioner has an effective and efficacious alternate remedy as the said Revisional Authority has powers to pass orders which are not prejudicial to the assessee by revising the impugned order. This position is reiterated by learned Revenue counsel. Time frame prescribed u/s 264 - As per time frame prescribed u/s 264(3), the writ petitioner has to file revision within one year from the date on which the impugned order was communicated to the writ petitioner. From the narrative thus far, it comes to light that the impugned order is dated 24.01.2019 and learned counsel for writ petitioner submits, on instructions, that it has been served on/communicated to the writ petitioner on 31.01.2019. Therefore, it is clear that the writ petitioner is well within the time to file a revision u/s 264 before said Revisional Authority. This writ petition is disposed of preserving the rights of the writ petitioner to avail alternate remedy by way of a statutory revision u/s 26. Though obvious, it is made clear that all contentions raised by the writ petitioner are left open and can be raised before the statutory Appellate Authority. It is also made clear that such a course is being adopted as perusal of the impugned order and reply to the SCN reveals that it turns heavily on facts as already alluded to supra. There shall be no order as to costs. Consequently, connected miscellaneous petition is closed.

Issues Involved:
1. Liability of directors under Section 179 of the Income Tax Act, 1961.
2. Validity of proceedings against a director who resigned before the relevant assessment years.
3. Availability and applicability of alternate remedy under Section 264 of the Income Tax Act, 1961.
4. Judicial discretion in exercising writ jurisdiction in the presence of alternate remedies.

Detailed Analysis:

1. Liability of Directors under Section 179 of the Income Tax Act, 1961:
The primary issue revolves around the liability of the writ petitioner, a former director of a company, under Section 179 of the Income Tax Act, 1961. The section stipulates that directors of a private company can be held jointly and severally liable for tax dues if the company fails to pay, unless the director can prove that the non-recovery was not due to any gross neglect, misfeasance, or breach of duty on their part. The court extracted the relevant text of Section 179 to emphasize the statutory provision under which the proceedings were initiated.

2. Validity of Proceedings Against a Director Who Resigned Before the Relevant Assessment Years:
The petitioner argued that he had resigned from the company on 05.01.1995, and his resignation was accepted and recorded before the commencement of the relevant assessment years (1999-2000 to 2006-07). The petitioner contended that the tax liability and penalty imposed on him were invalid since he was not a director during the relevant period. Despite raising this point in his reply to the show cause notice, the first respondent rejected the plea, relying on certain transactions to conclude the petitioner’s liability under Section 179.

3. Availability and Applicability of Alternate Remedy under Section 264 of the Income Tax Act, 1961:
The court noted that the petitioner has an alternate remedy available under Section 264 of the Income Tax Act, which allows for revision of the impugned order by the jurisdictional Principal Commissioner of Income Tax. The court highlighted that Section 264 provides the revisional authority with the power to inquire into the correctness of the impugned order and make orders that are not prejudicial to the assessee. The petitioner was within the time frame to file a revision as the impugned order was communicated to him on 31.01.2019, and the revision could be filed within one year from that date.

4. Judicial Discretion in Exercising Writ Jurisdiction in the Presence of Alternate Remedies:
The court emphasized the principle of alternate remedy, stating that it is a rule of discretion, not compulsion. The court referred to the Dunlop India case and subsequent Supreme Court judgments, including the Satyawati Tandon and K.C. Mathew cases, to underline that the rule of alternate remedy should be applied with utmost rigor in matters involving fiscal statutes. The court held that the present case did not fall within the exceptions to the rule of alternate remedy, such as lack of jurisdiction, violation of natural justice, disregard of settled law, or ineffectual alternate remedy. The court observed that the matter heavily relied on factual disputes, making the statutory revision under Section 264 an effective and efficacious remedy.

Conclusion:
The court disposed of the writ petition, preserving the petitioner’s right to avail the alternate remedy under Section 264 of the Income Tax Act. The court directed the petitioner to file a statutory revision before the Principal Commissioner of Income Tax-1, Chennai, who was not arrayed as a respondent in the writ petition. The court also directed the registry to return the original impugned order to the petitioner’s counsel to facilitate the filing of the revision. The court refrained from expressing any opinion on the merits of the petitioner’s plea and left all contentions open for consideration by the revisional authority. There was no order as to costs, and the connected miscellaneous petition was closed.

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