2021 (10) TMI 234 - HC - Income Tax

Recovery of tax dues of the Company from the directors - Applicability of section 179 to public limited company - liability of Directors qua Public Limited Company as in the case of private limited company - HELD THAT - This Court is informed without any disputation or disagreement that there is no other provision under IT Act akin to Section 179 of IT Act i.e., recovery tax arrears due to Company in the hands of Directors qua Public Limited Company. In the light of the language in which Section 179 of IT Act is couched, it follows as a indisputable sequitur that impugned proceedings are barred and they are liable to be set aside as the same has been made against Directors of a Public Limited Company, when Section 179 of IT Act applies only to Private Limited Companies and there is no other provision qua Public Limited Companies akin to Section 179 of IT Act. Section 179(1) of IT Act not being applicable to Public Limited Companies. There is a compromise decree in a suit filed against said Company by third parties and in this compromise decree, Income Tax Department is a party and it has been paid out certain sums of money - As no document has been placed before this Court as part of the case file to demonstrate any payment having been made to the Income Tax Department under the compromise decree and the decree also does not articulate anything directly in this regard. Therefore, second point urged by learned counsel for writ petitioner becomes a non-starter and that by itself draws the curtains on the second point.

Summary

Issues:
1. Applicability of Section 179(1) of the Income Tax Act to Public Limited Companies.
2. Validity of impugned proceedings against Directors of a Public Limited Company.
3. Interpretation of a compromise decree in relation to payment to the Income Tax Department.

Analysis:

Issue 1: Applicability of Section 179(1) of the Income Tax Act to Public Limited Companies
The court examined Section 179 of the Income Tax Act, which holds directors of private companies liable for tax dues. The court noted that there is no similar provision for public limited companies under the Act. Consequently, the court ruled that the impugned proceedings against the directors of a public limited company were not valid as Section 179 applies only to private limited companies.

Issue 2: Validity of impugned proceedings against Directors of a Public Limited Company
The court considered the argument that the impugned notices were invalid as they targeted a public limited company. The Revenue counsel asserted that the company had always been a public limited company. The court found in favor of the petitioners, ruling that Section 179 of the Income Tax Act does not apply to public limited companies, thereby invalidating the impugned proceedings.

Issue 3: Interpretation of a compromise decree in relation to payment to the Income Tax Department
Regarding the compromise decree in a civil suit, the court analyzed the contentions related to payment to the Income Tax Department. The court scrutinized the decree and found no evidence of direct payment to the Income Tax Department. Despite arguments presented, the court concluded that the decree did not support the claim of payment to the Income Tax Department, thus dismissing this argument.

In conclusion, the court allowed both writ petitions, setting aside the impugned proceedings against the directors of the public limited company. The court clarified that its decision does not prevent the Revenue from exploring other avenues for tax recovery. Additionally, the court left open the possibility for the issue of payment to the Income Tax Department under the compromise decree to be raised in future proceedings.