2021 (7) TMI 1248 - HC - Income Tax

Violation of Section 179 - Liability of directors of private company in Liquidation - whether action is permissible only if the company is a Private Limited company and in respect of a Public limited company, Section 179 of the Income Tax Act is not applicable? - HELD THAT - The matter is to be remanded back for the purpose of fresh adjudication. In this regard, this Court has considered the scope of Section 179 of the Income Tax Act and its application 2021 (3) TMI 1232 - MADRAS HIGH COURT In view of the above facts and circumstances, the Show Cause Notice impugned passed by the 1st respondent in proceedings dated 28.02.2018 bearing reference no.AACCS9190G/Block Asst.92-93 is quashed and the matter is remanded back to the first respondent for fresh consideration.

Summary

Issues:
Jurisdiction under Section 179 of the Income Tax Act, 1961 for recovery of tax liability from directors of a public limited company.

Analysis:
The petition sought relief against a show cause notice issued under Section 179 of the Income Tax Act, 1961 to the ex-directors of a public limited company under liquidation. The Senior counsel argued that Section 179 does not apply to public limited companies. The court agreed that actions under Section 179 are permissible only for private limited companies. The petitioners, as ex-directors of a public limited company, were beyond the jurisdiction of the respondent under Section 179.

The court emphasized the need to establish factual aspects with documents and evidence. It was decided to remand the matter for fresh adjudication. Reference was made to a previous judgment highlighting the disputed facts regarding the nature of the company and the liability of directors under Section 179.

The court considered arguments on the Doctrine of Piercing the Corporate Veil and the application of Section 179 for tax recovery from ex-directors of public limited companies. It was noted that the impugned orders were passed under Section 179, which applies to directors of private companies, not public limited companies.

The court found that there was no evidence to conclude that the defaulting companies were private limited. The challenge to the invocation of Section 179 was deemed correct due to lack of records. The impugned orders were quashed, and the matter was remanded to the respondent for reevaluation based on the definition of 'Company' in relevant Acts.

The court directed the respondent to issue proper notices after examining company documents within three months. If evidence suggests the defaulting companies were private limited, appropriate orders under Section 179 could be passed. The writ petitions were disposed of with these observations, allowing the petitioners to submit documents within four weeks for reconsideration by the respondent.

In conclusion, the show cause notice was quashed, and the matter was remanded for fresh consideration by the respondent based on the company's nature and relevant documents. The petition was allowed with directions for further proceedings within specified timelines.