2014 (4) TMI 1010 - HC - Income Tax

Liability to pay tax dues u/s 179 of the Act - Whether the Directors of the company mainly incorporated in the year 1994 are liable for payment of tax dues from the company for the assessment year 1996 - 1997 in accordance with the provisions of Section 179 of the Act Held that - Assessee rightly contended that the provision of Section 179 of the Act not being applicable for M/s Asian Finstock Limited not being a private company, but, a public limited company from 05.12.1994 - the revenue neither in show cause notice u/s 179 of the Act nor in the order passed under the provisions has laid any factual foundation thereby disputing the status of such company of that a public limited company - Relying upon Pravinbhai M. Kheni v. Asstt.CIT Assistant Commissioner of Incometax, Central Circle 2 and others 2012 (12) TMI 494 - GUJARAT HIGH COURT - In absence of any foundational facts and in wake of clear and eloquent evidences reflecting the status of company as that of a public limited company, the contention of the assessee shall need to be regarded that in a case of Director of a public limited company, the provisions of Section 179 cannot be made applicable thus, the issuance of show cause notice and the consequently proceedings u/s 179 is not valid - Decided in favour of Assessee.

Summary

Issues Involved:
1. Applicability of Section 179 of the Income Tax Act, 1961 to a public limited company.
2. Efforts made by the Revenue to recover tax dues from the company.
3. Allegation of gross negligence, misfeasance, or breach of duty by the Director.

Detailed Analysis:

1. Applicability of Section 179 of the Income Tax Act, 1961 to a Public Limited Company:
The petitioner contended that Section 179 of the Income Tax Act, 1961, which holds directors of private companies liable for unpaid tax dues, does not apply to public limited companies. The company in question, M/s Asian Finstock Limited, was incorporated as a public limited company on 05.12.1994. The petitioner argued that since the company was a public limited company, Section 179 could not be invoked against her. The court noted that the Revenue failed to dispute the company's status as a public limited company in the show-cause notice or the subsequent order. Consequently, the court upheld the petitioner's contention that Section 179 was inapplicable, leading to the quashing of the show-cause notice and related proceedings.

2. Efforts Made by the Revenue to Recover Tax Dues from the Company:
The petitioner argued that the Revenue did not make sufficient attempts to recover the tax dues from the company before invoking Section 179 against her. However, the court did not delve into this issue in detail, as it had already upheld the petitioner's challenge on the first ground regarding the applicability of Section 179 to a public limited company.

3. Allegation of Gross Negligence, Misfeasance, or Breach of Duty by the Director:
The petitioner contended that she was merely a salaried employee and had no role in the financial transactions of the company. She also claimed that her signatures were fraudulently obtained on certain documents. The court observed that the petitioner consistently maintained that she had resigned from the company and was not involved in its affairs. The court noted that the Revenue did not provide any evidence to prove gross negligence, misfeasance, or breach of duty by the petitioner. Therefore, the court found no basis to hold the petitioner liable under Section 179.

Conclusion:
The court concluded that the provisions of Section 179 of the Income Tax Act, 1961, could not be applied to the petitioner as the company was a public limited company. Consequently, all three petitions were allowed, and the impugned show-cause notice and orders passed under Section 179, along with all consequent orders, were quashed and set aside. The court did not impose any costs.