Before notice to director for recovery u/s 179, Revenue must establish recovery cannot be made from Private Company – SC dismisses SLP
ABCAUS Case Law Citation:
ABCAUS 3785 (2023) (07) SC
Important Case Laws relied upon:
Vanraj V. Shah vrs. Dy. Commissioner of Income Tax and another
Union of India Vrs. Manik Dattatreya Lotlikar
Sonal Nimish Patel Vs. Assistant Commissioner of Income Tax
Rajendra R. Singh Vs. Assistant Commissioner of Income Tax and others
In the instant case, the Revenue had challenged the order passed by Hon’ble High Court in quashing and setting aside of show cause notices under Section 179 of the Income Tax Act,1961, (‘the Act’).
The Income Tax Department had issued notice u/s 179 to the assessee towards tax liability of a private company and subsequently passed the order against the assessee.
The case of the assessee was that he was not a Director of the Company concerned much prior to the issuance of the impugned show cause notices and the impugned order, by virtue of the fact that he had not attended a single Board meeting of the company.
It was the contention that in terms of the provisions of Section 283 of the Companies Act, 1956 (old Act) and in terms of the provisions of Section 167 of the Companies Act, 2013 (new Act), the petitioner was deemed to have vacated the Office of the Director since he was absent for all the meetings of the Board of Directors during any period prior to the issuance of the show cause notices. As such, he not being a Director of the Company, was not liable for any notice from the respondents under Section 179 of the Act.
Before the Hon’ble High Court, the assessee also contended that in terms of the requirement of under Section 179 of the Act, the revenue can assume jurisdiction to proceed only if it has initiated action against the company to recover its tax dues, and on its failure to recover such dues from the private company, it can initiate action against the Directors
The Hon’ble High Court observed that as per the provisions of Section 179, Assessing Officer is vested with jurisdiction to recover the tax from a Director of a Private Company only when the officer is unable to recover such dues from that Company. It is also clear from this provision that the Assessing Officer assumes jurisdiction under Section 179 of the Act only when there is failure to recover dues from the Private Company after efforts have been made by the Revenue to recover such dues.
The Hon’ble High Court observed that applying the ratio of the various Judgments to the facts of the present case, the impugned show cause notices disclosed no facts regarding the steps taken by the Revenue to recover tax dues from the delinquent Company.
The Hon’ble High Court also observed that in an affidavit filed before the bench, the Assessing Officer attempted to list out various steps taken by the Revenue to recover tax dues from the Company, however, giving particulars of steps taken against the delinquent Company in an affidavit-in-reply or even in the impugned orders does not meet the requirements of a proper notice to the Director.
The Hon’ble High Court observed that the impugned order does not record any of the material which formed the basis for the Assessing Officer to conclude that all steps have been taken to recover the tax dues from the Company.
Further, the impugned order did not refer to the Assessing Officer’s subjective satisfaction based upon material before it, to conclude that all steps had been taken to proceed against the delinquent Company and such steps had failed.
The Hon’ble High Court opined that being lacking the above said sine qua non for proceeding further, and for assuming jurisdiction under Section 179 of the Act, failure to disclose this material and to record the satisfaction of the Assessing Officer in the manner required by the provisions of Section 179 of the Act rendered the impugned show cause notices and the impugned order unsustainable at law.
Therefore, the Hon’ble High Court had quashed and set aside all the show cause notices and the order passed by the Revenue.
Not satisfied by the order of the Hon’ble High Court, the Department challenged it before Hon’ble Supreme Court by filing a Special Leave Petition.
However, their Lordships dismissed the SLP by observing that they do not find any merit in the Special Leave Petition.
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