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TMI Blog2022 (10) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... he arrears of tax from the company, the proceedings initiated under Section 179 of the Act was held to be without jurisdiction. In Mehul Jadavji Shah [ 2018 (4) TMI 646 - BOMBAY HIGH COURT] relying on MADHAVI KERKAR [ 2018 (1) TMI 749 - BOMBAY HIGH COURT] held that before the Assessing Officer assumes jurisdiction under section 179 requires to recover the tax due from the delinquent private limited company should have failed and if no steps were taken then the notice issued under section 179 is required to be quashed. Admittedly, in the year 1990 the appellant had retired from his directorship and the company had changed hands and fresh set of directors had taken over the company, necessary formalities under the Income tax Act, 1956 was complied with and fresh certificate of incorporation incorporating the new name of the company was issued. The new set of directors carried on business till the year 1997 when the company went under liquidation. From the records placed before the Court, it is clear that the department has not taken any steps to recover the dues from the defaulting private limited company. It is nearly after 25 years the present attempt had been made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of the private company of which the appellant was a former shareholder-director cannot be enforced. Further it was contended that in the implied terms of the provisions of Section 179 the respondent were in the statutory duty bound to take steps to recover the tax due from the continuing company instead of proceeding against the appellant merely because the appellant was a past director and letting of the company the real assessee in default. Further it was contended no notice of demand has been served on the appellant as required under Section 156 of the Act and in the absence of any such notice no coercive action could have been initiated against the appellant. With these grounds the appellant sought for issuance of Writ of Mandamus to forbear the respondent/department from initiating any recovery action against the appellant by invoking the power under Section 179 of the Act. The learned Single Bench by the impugned order had dismissed the writ petition observing that it is not inclined to go into the disputed questions of fact more particularly because the company in the year 1990 was taken over by a new set of directors and subsequently in the year 1997 went i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act for recovery of the tax arrears when the said tax arrears cannot be recovered then alone the liability can be transferred under section 179(1) of the Income-tax Act to the directors. Therefore, in order to activate this section and the action thereunder, a finding would have to be recorded to the effect that in spite of the efforts to recover the tax arrears the said tax arrears could not be recovered from the assessee company. The second part of the section comes into effect only thereafter. Firstly, once there is a finding that such tax arrears cannot be recovered then the liability could be transferred to every person who was a director and it would be then for such a person to show that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company and when he discharges this burden, he would no more be required to discharge the tax liability so transferred to him. However, that stage would come only later on, after it is found that the tax arrears cannot be recovered from the assessee-company. In Mehul Jadavji Shah vs. Deputy Commissioner of Income-tax-11(2)(1), (2018) 92 taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues, which were stated to be in arrears for the assessment years 1983-84, 1985-86 and 1986-87. Admittedly, in the year 1990 the appellant had retired from his directorship and the company had changed hands and fresh set of directors had taken over the company, necessary formalities under the Income tax Act, 1956 was complied with and fresh certificate of incorporation incorporating the new name of the company was issued. The new set of directors carried on business till the year 1997 when the company went under liquidation. From the records placed before the Court, it is clear that the department has not taken any steps to recover the dues from the defaulting private limited company. It is nearly after 25 years the present attempt had been made by issuing garnishee notice on the appellant who is no more the director of the company eversince 1990. After the company had gone into liquidation, the department could have lodged a claim before the Official Liquidator. However, there is nothing on record to show that such a claim was made by the department before the Official Liquidator. This aspect is very crucial aspect which the learned Writ Court ought to have considered and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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