1968 (2) TMI 17 - HC - Income Tax

Petitioner, an erstwhile director of a private limited company prays for a rule forbidding the respondents from attaching his personal properties for recovery of penalty levied on the company for non-payment of tax due

Summary

Issues:
1. Liability of a former director for penalty levied on a company for non-payment of tax.
2. Compliance with procedural requirements for recovery proceedings under the Income-tax Act.

Analysis:
1. The judgment addressed the issue of the liability of a former director of a private limited company for a penalty levied on the company for non-payment of tax. The petitioner argued that he should not be personally proceeded against for the penalty as he was not negligent or guilty of misfeasance. However, the court held that under section 179 of the Income-tax Act, every person who was a director of the company during the relevant years is jointly and severally liable for the tax, regardless of the Companies Act provisions. The petitioner failed to prove his lack of negligence or misfeasance, and his admission of joint liability further supported the court's decision. Therefore, the court concluded that the petitioner was liable for the penalty, and the recovery proceedings were justified.

2. The second issue involved the petitioner's argument regarding the procedural requirement under rule 2 of Part I in the Second Schedule to the Income-tax Act for recovery proceedings. The petitioner contended that the Recovery Officer did not issue a notice calling for payment within 15 days, which he claimed was mandatory and failure to comply would invalidate the recovery proceedings. However, the court found that the petitioner was aware of the recovery proceedings and even participated by requesting the Recovery Officer not to proceed with recovery. Drawing parallels with rule 22 of Order XXI of the Code of Civil Procedure, the court held that if the judgment debtor is aware of the proceedings and participates, the lack of formal notice does not invalidate the proceedings. The court applied this principle to the recovery proceedings under the Income-tax Act, emphasizing the joint and several liability of the petitioner under section 179. Therefore, the court dismissed the petition, ruling that the procedural requirement was not a ground to invalidate the recovery proceedings.

In conclusion, the judgment upheld the liability of the former director for the penalty levied on the company and justified the recovery proceedings despite the procedural argument raised by the petitioner.