9911796707
TMI Blog2014 (5) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... s (rounded off). The company filed appeal against the order of the assessment. Such appeal is pending before the CIT(Appeals). The said company also prayed for stay against the recovery of tax demand flowing from the order of assessment. CIT(Appeals) refused to grant stay. No further proceedings were carried by the company against such order of CIT(Appeals). As of now thus there is no stay against recovery of the tax. 4. The said company was unable to pay the taxes. The Tax Recovery Officer, Gandhidham, therefore, desired to invoke the provisions of section 179 of the Income Tax Act, 1961 ("the Act" for short). He therefore, issued a show cause notice dated 27.9.2013 calling upon the petitioner, as the director of the said company, why the tax demand of Rs.1.95 crores (rounded off) for the assessment year 20102011 due from the said company be not recovered from him in terms of section 179 of the Act by holding him jointly and severally liable for payment of tax, interest and penalty due from the company. 5. The petitioner replied to the show cause notice under a communication dated 5.10.2013 in which he pointed out inter-alia that provisions of section 179 of the Act can be invok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny were not allowable under the law. The company was not entitled to carry forward any losses not allowed under the law and to adjust the same against any subsequent gain. He further observed that the destruction of the building may be attributed to natural calamity, the director still had the responsibility to take proper measures to protect the interest of the company like insuring the property against the earthquake. As far as matter of taxation is concerned, the director showed gross negligence in following the applicable laws and thus tried to evade the due amount of taxes arising from the subsequent gains. Relevant portion of the impugned order which contains reasonings adopted by the Tax Recovery Officer reads as under : "The dues have become irrecoverable from the assessee company as no known assets are there to recover the same. Further no efforts have been made by the directors of the company to pay off the demands. While making the sale, no provisions were made to pay the due amount of income tax arising out of sale of land. It was the Directors of the company who were very well aware with the daily affairs of the company and they were also liable to obey the laws of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 450. Counsel further submitted that even otherwise the requirements of section 179 of the Act were not fulfilled. The petitioners had demonstrated before the respondent that there was no negligence, misfeasance or breach of duty on their part in relation to the affairs of the company. The constructed property of the company was destroyed in an earthquake. The company therefore, could not set up and start its five star hotel as per its project and ran into heavy losses. The properties were sold and dues of the creditors were paid off as per the restructured debts. 8. On the other hand, learned counsel Shri Pranav Desai opposed the petitions contending that the company had set up a false claim of set off of losses which were not allowable against the gains arising out of the sale of land. Sale proceeds were utilised for paying debts of other creditors without making provision for possible income tax liabilities. The directors had thus committed breach of duty in relation to the affairs of the company. 9. Few undisputed facts thus are : 1) The said company in order to set up a five star hotel at Gandhidham acquired a leasehold land and constructed a building thereon. Before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter, we see no mandate under sub-section(1) of section 179 that the income tax department must await the outcome of appeal or further appeals by the assessee against any order of assessment which gives rise to such tax dues of the company. If the stay pending such appeal is refused, the tax becomes recoverable from the company, ofcourse, subject to outcome of the pending appeal. If such tax is not paid by the company, it becomes its tax due. Under section 156 of the Act, when any tax, interest, penalty, fine or other sum is payable in consequence of any order passed under this Act, Assessing Officer would serve a notice of demand on the assessee. As per section 220(1), the assessee would have to pay the amount specified in the demand notice issued under section 156 within 30 days unless this period is curtailed under the proviso. Under section 220(3), the Assessing Officer has the power to extend the period. As per section 220(4), if the amount is not deposited within time allowed under sub-section(1) or extended under sub-section(3), the assessee shall be deemed to be in default. The decision of Kerala High Court in case of Khaders International Construction Ltd. (supra) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and come to a conclusion in this respect. Significantly, the question of lack of gross negligence, misfeasance or breach of duty on part of the director is to be viewed in the context of non recovery of the tax dues of the company. In other words, as long as the director establishes that the non recovery of the tax cannot be attributed to his gross neglect, etc., his liability under section 179(1) of the Act would not arise. Here again the legislature advisedly used the word gross neglect and not a mere neglect on his part. The entire focus and discussion of the Assistant Commissioner in the impugned order is with respect to the petitioner's neglect in functioning of the company when the company was functional. Nothing came to be stated by him regarding the gross negligence on part of the petitioner due to which the tax dues from the company could not be recovered. In absence of any such consideration, the Assistant Commissioner could not have ordered recovery of dues of the company from the director. We would clarify that in the present case the petitioner had putforth a strong representation to the proposal of recovery of tax from him under section 179 of the Act. In such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h facts and circumstances, the Tax Recovery Officer committed a serious error in applying section 179 of the Act against the directors. 15. We may recall that in order to come to conclusion that non recovery was due to gross negligence, misfeasance or breach of duty on part of the directors, he relied on the following factors : 1) While making the sale, no provisions were made for payment of income tax arising out of the sale of land. The company should have been aware of the tax liabilities. The director should have known that the company could not carry forward losses which were not eligible in law and to adjust the same against subsequent gains arising out of sale of land. 2) The building may have been destroyed due to natural calamity, the directors ought to have taken proper measures to protect the interest of the company by insuring the property against earthquake etc. 3) By not making any provisions for government dues, the directors acted deliberately in gross negligence and in breach of duty. 16. In our opinion, all the three grounds are not sustainable. Firstly, the dues were paid to the creditors at the time when assessment order was yet to be passed. The assessee m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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