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TMI Blog2014 (3) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company being a public limited company, proceedings against the directors for recovery of the tax due from the company cannot be taken, and certainly not proceeded with, under Section 179 of the Income Tax Act, 1961. - Decided in favour of Assessee. - Special Civil Application No. 18008 of 2005 - - - Dated:- 19-2-2014 - Akil Kureshi And Sonia Gokani,JJ. For the Appellant : Mr. Manish J. Shah, Adv. For the Respondent : Mr. KM Parikh, Adv. JUDGMENT (Per : Honourable Mr. Justice Akil Kureshi) 1. The petitioner had challenged an order dated 3.1.2005 passed by the Income Tax officer under section 179 of the Income Tax Act, 1961 ( the said Act for short). 2. Brief facts are as under: 2.1) The petitioner was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was never engaged in the day to day business of the company. In yet another reply dated 13.10.2004, he contended that he had already resigned from the company on 25.2.1996. He also contended that by virtue of section 43A of the Companies Act, 1956, since the company s turn over had crossed the threshold limit, the company would be a deemed public company. In his further reply dated 26.10.2004, he reiterated this aspect and stated thus : Further by the virtue of the provisions of section 43A of the company s act Sirs Engineering Pvt. Ltd. has became a public company by crossing the turnover criterion and the same has also been certified by the assessment order passed for the AY 199697. 2.4) In his further reply which is produced at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed appeals before the Commissioner(Appeals) for the assessment year 19961997 to 20012002 which prove that he continued to be the director of the company even after submission of his resignation. 3.1) With respect to his involvement in the company, the Income Tax officer held that he failed to prove that nonrecovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to affairs of the company. His contention that he was only a technical director was negated observing that section 179 includes every person who is a director of a private company and the onus is on such director to prove nonnegligence, nonmisfeasance or nonbreach of duty on his part. In the present case, the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any tax due from a private company cannot be recovered from such company. When obviously thus Assessing Officer had and could not have made any efforts for recovery of such tax dues, question of inquiring with the petitioner as a director of the company to pay up the same amount or else be held liable under section 179 of the Act, would not arise. In case of Bhagwandas J. Patel v. Deputy Commissioner of Incometax reported in (1999) 238 ITR 127, the Court had held that before recovery in respect of dues from the private company can be initiated against the directors, it is necessary for the Revenue to establish that such recovery cannot be made against the company and then and then alone it can reach the directors who were responsible for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the facts as asserted by the petitioner were established, the legal implications flowing thereof must follow. The Assessing Officer however, brushed aside this contention and held that whatever be the status of the company for the purpose of the Companies Act, section 179 of the Income Tax Act would continue to apply. It was not a case of the Assessing Officer that the facts asserted by the petitioner were not correct or that for any other reason, the company had not become a deemed public company under section 46A of the Companies Act, 1956. This being the position, the decision of the Supreme Court in case of M. Rajamoni Amma and another v. Deputy Commissioner of Incometax (Assessment) and others reported in (1992) 195 ITR 873, would ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not answer such a question in this petition. 9. Under the circumstances on this count, the petition is required to be allowed. We may briefly state that we are not influenced by the petitioner s contention that merely being a technical director, section 179 of the Act would not apply to him. We are also broadly in agreement with the view of the Assessing Officer that duty is cast on the directors to establish that nonrecovery was not due to any gross neglect, misfeasance or breach of duty on his part and in the present case, he produced no material to establish such facts. Nevertheless, when section 179 of the Act itself does not apply, question of seeking any recovery personally from the director would not arise. 10. In the res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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