2023 (9) TMI 1228 - HC - Income Tax

Recovery of tax from the Director of the company - Demand u/s 179 - director has resigned and more than nine years after his resignation, respondent no. 2 passed an order holding the petitioner/director responsible and liable for payment of outstanding demand in respect of the company concerned - HELD THAT - As nothing had come on record and it is undisputed that the show-cause notice issued to the petitioner was bereft of material particulars as regards the steps said to have been taken by the department for the purpose of recovering the tax from the company. Only on the ground of the show-cause notice being defective as the same is totally silent as regards the satisfaction of the condition precedent for taking action under Section 179 of the Act, the order passed by the respondent no. 1 is quashed and set aside. It shall be open for the respondent to issue fresh show cause notice for the purpose of proceeding against the petitioner u/s 179 of the Act, if thought fit. All the contentions of the respective parties, as raised in this petition are kept open. Petition is accordingly allowed.

Summary

Issues Involved:
The legal judgment involves a challenge to an order under Section 179 of the Income Tax Act, 1961, holding a petitioner responsible for outstanding demands against a company. The issues include the liability of a director for tax dues, the validity of the show-cause notice, and the necessity of specific details in the notice.

Issue 1: Director's Liability for Outstanding Tax Dues
The petitioner, a former director of a company, challenged an order holding him liable for outstanding demands under Section 179 of the Income Tax Act, 1961. The petitioner resigned from directorship due to ill-health, but was held responsible for tax, interest, and penalties for specific assessment years. The petitioner argued that he had fulfilled legal obligations upon resignation and that no gross neglect or breach of duty was proven on his part.

Issue 2: Validity of Show-Cause Notice
The petitioner contended that the show-cause notice lacked essential details regarding the measures taken by the Assessing Officer to recover dues from the company. Citing a previous case, it was argued that the notice was defective as it did not demonstrate the department's efforts to recover taxes. The respondent, however, argued that the company's closure led to non-recovery, justifying the petitioner's liability under Section 179.

Judicial Decision and Rationale
The High Court, considering the arguments presented, found merit in the petitioner's challenge based on the inadequacy of the show-cause notice. Referring to a previous case, the Court emphasized the necessity of establishing that tax recovery from the company was not possible before holding directors liable. As the notice lacked crucial information on recovery efforts, the Court quashed the order and allowed the respondent to issue a fresh notice if deemed appropriate. The decision highlighted the importance of specific details in such notices to ensure procedural fairness and legal compliance.

Separate Judgment Delivered:
No separate judgment was delivered by the judges in this case.