2022 (6) TMI 153 - HC - Income Tax

Proceedings u/s 179 - Recovery of arrears of tax of the company from the Directors - It is contended that as per the order of ITAT, the very basis of tax liability imposed against the Company has eroded and therefore no tax liability remains - proceedings u/s 230 were initiated and an order was issued as Ext.P20 by the 2nd respondent, directing the petitioner not to leave the territory of India by land, sea or air, unless he furnishes a tax clearance certificate issued by the second respondent - HELD THAT - As already found that the basis tax liability due from the Company had been wiped off by the order of the Appellate Tribunal and the said proceedings are now to be considered afresh by the assessing officer. As of now the Company cannot be stated to be liable to pay any amount of tax, warranting imposition of any order, either u/s 179 or to be imposed with a restrictive order against the Directors of the Company or any other person under Section 230 of the Act. Therefore, the latter liability, referred to in Ext.P20, is no longer in existence. As far as, the individual liability made mention in Ext.P20 is concerned, both Counsel pointed out and rightly too, that, petitioner had cleared that liability on the basis of the modified orders issued. Thus, it is explicit that both liabilities made mention in Ext.P20 is no longer in force, warranting the issuance of an order under Section 230 of the Act or its continuance for the time being. Ext.P20 is liable to be set aside. Therefore the order dated 19.07.2018 issued under Section 230 of the Act is quashed.

Summary

Issues:
Proceedings under Section 179 of the Income Tax Act, 1961 for income tax dues of a Company and personal tax liability imposed on the petitioner. Impugned order issued under Section 230 of the Income Tax Act, 1961 restricting petitioner's movement. Change in circumstances during the pendency of the writ petition affecting the basis of the impugned order.

Analysis:
The petitioner was facing proceedings under Section 179 of the Income Tax Act, 1961 for the income tax dues of a company along with a personal tax liability. An order was issued under Section 230 of the Act, restricting the petitioner from leaving India without a tax clearance certificate. However, during the pendency of the writ petition, significant events occurred that altered the basis of the impugned order. The learned Senior Counsel argued that due to certain appellate tribunal orders, the tax liability against the company was eradicated, and the individual tax liability of the petitioner was reduced substantially. Consequently, the liabilities forming the basis of the impugned order under Section 230 of the Act were no longer valid.

The learned Senior Counsel contended that since the liabilities mentioned in the impugned order had been resolved, the petitioner should not be subjected to any restrictive order under Section 230 of the Act. The Standing Counsel for the Income Tax Department acknowledged that the company's liability was no longer applicable, and the individual liability had been cleared by the petitioner. The court considered these arguments and noted that the tax liability of the company had been nullified by the appellate tribunal's order. As a result, there was no basis for imposing a restrictive order under Section 230 of the Act on the company or its directors. Additionally, the individual liability of the petitioner, which was the basis of the impugned order, had been settled. Therefore, the impugned order under Section 230 of the Act was deemed invalid and was set aside by the court.

In conclusion, the court quashed the impugned order dated 19.07.2018 issued under Section 230 of the Income Tax Act, as the liabilities on which it was based no longer existed. The writ petition was allowed in favor of the petitioner, confirming that the impugned order was no longer valid given the changed circumstances and resolution of the tax liabilities involved.