1997 (5) TMI 42 - HC - Income Tax

Summary

Issues:
1. Quashing of impugned notices and assessment order.
2. Liability of a director for tax payment under Section 179 of the Income-tax Act, 1961.
3. Interpretation of Section 179(1) in the context of recovery from directors of a private company.
4. Nature of impugned notices and their validity.
5. Order of recovery against the company and directors.

Analysis:

The petitioner filed a writ petition seeking to quash notices and an assessment order. The petitioner, a former director of a company, argued that the respondent could not proceed against his assets as the company was a separate legal entity. However, Section 179 of the Income-tax Act, 1961, imposes joint and several liability on directors for tax payment, regardless of the company's status. The amendment in 1975 extended this liability to directors even if the company is not under liquidation. The court agreed with the interpretation of the Bombay High Court, rejecting the petitioner's argument against recovery from the director.

The petitioner contended that the impugned notices were orders rather than mere notices. However, the court found the notices to be valid, merely calling upon the petitioner to acknowledge the outstanding dues against the company. The court dismissed the petitioner's argument regarding the nature of the notices, emphasizing the director's liability for the company's debts.

Furthermore, the petitioner argued that the respondent should have first pursued recovery from the company before targeting the director. The court noted that all company assets had been disposed of, making it impractical to recover from the company. Therefore, the court held that the respondent was justified in proceeding directly against the director. Consequently, the court concluded that the petition did not warrant interference under article 226 of the Constitution and dismissed it, allowing the petitioner to present his case before the respondent.