1971 (10) TMI 26 - HC - Income Tax

These two writ petitions are by the directors of Andhra Automobiles (Private) Ltd., Vijayawada, a company, registered under the Indian Companies Act - company goes into liquidation and was not wound up - whether the directors are personally liable for the outstanding tax demand

Summary

Issues:
1. Applicability of Section 179 of the Income-tax Act, 1961 to a company that has not been wound up.
2. Interpretation of the term "wound up" in Section 179 of the Income-tax Act, 1961.

Analysis:
The judgment by the Andhra Pradesh High Court involved two writ petitions filed by the directors of a company registered under the Indian Companies Act. The petitioners argued against the applicability of Section 179 of the Income-tax Act, 1961, which imposes personal liability on directors of a private company that has been wound up. They contended that since their company was struck off the register under the Companies Act and not wound up, Section 179 should not apply to them. The court considered the basic condition for the application of Section 179, which requires the company to be wound up after the commencement of the 1961 Act. The petitioners specifically stated that the company was not wound up, and the Income-tax Officer did not refute this claim. Therefore, the court proceeded on the basis that the company was not wound up after the commencement of the 1961 Act.

The key issue revolved around the interpretation of the term "wound up" in Section 179 of the 1961 Act. The petitioners argued that the term should be given the same meaning as in the Companies Act, limited to companies that have undergone formal winding-up procedures. On the other hand, the department contended for a broader interpretation, including companies that have become defunct or dissolved. The court emphasized that Section 179 creates a new liability contrary to the Companies Act and must be strictly interpreted unless a liberal interpretation is necessary. After a detailed analysis of the section's language and context, the court concluded that Section 179 applies only to companies that have been wound up under the Companies Act after the commencement of the 1961 Act. Since there was no evidence of the company being wound up, the court held that Section 179 was not applicable in this case.

Ultimately, the court allowed the writ petitions, quashing the notices issued to the directors under Section 179 of the Income-tax Act, 1961. The judgment highlighted the importance of interpreting tax statutes strictly and clarified that personal liability provisions apply only to companies that have undergone formal winding-up procedures as per the Companies Act.