1973 (10) TMI 2 - HC - Income Tax

Interpretation of section 179 of the Income-tax Act, 1961 - private company was struck off the register of companies - liability of past director for tax due by the company

Summary

Issues:
1. Interpretation of section 179 of the Income-tax Act, 1961 regarding liability of directors of a private company in liquidation.
2. Whether the tax due from a private limited company struck off under section 560(5) of the Companies Act can be recovered from its past director under section 179 of the Income-tax Act.

Analysis:
Issue 1:
The petitioner, a former director of a company, challenged the recovery of tax under section 179 of the Income-tax Act. Section 179 imposes liability on directors of private companies in liquidation for unpaid taxes. The conditions for liability include the company being a private limited company, being wound up after April 1, 1962, and the tax being unrecoverable from company assets. The ex-director can avoid liability by proving no gross neglect, misfeasance, or breach of duty. The court noted that the company was struck off under the Companies Act, not wound up, and held the petitioner not liable under section 179.

Issue 2:
The court delved into the meaning of "wound up" in the context of the Companies Act to determine if a company struck off under section 560(5) could trigger liability under section 179 of the Income-tax Act. Winding-up involves realizing assets and paying liabilities, while striking off a company's name results in its property vesting in the Crown as bona vacantia. The court emphasized strict construction of fiscal statutes and held that section 179 applies only to companies wound up under the Companies Act, not those struck off the register. Citing precedents, the court concluded that the petitioner cannot be held liable under section 179, deeming the tax recovery action illegal and unauthorized.

Conclusion:
The court allowed the petition, directing the respondent to refrain from recovering the tax from the petitioner. The judgment clarified that liability under section 179 applies to companies wound up under the Companies Act, excluding those merely struck off the register. No costs were awarded in the circumstances.