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2021 (9) TMI 1238 - HC - Income TaxRecovery of outstanding tax demands from the director of a private company in liquidation - Joint or severe liability - As per the MOU / Settlement agreement, all the income tax liabilities will be borne and paid by one of the Directors (Not the present petitioner) - HELD THAT:- Section 179 of the Act imposes a vicarious responsibility on the Directors for the dues of the company. It has, therefore, to be interpreted rigidly, subject to conditions, for application under Section 179. The primary condition is that the tax dues could not be recovered from the company before Section 179 could be invoked. The director of the private company can avoid his joint and several liability for payment of taxes if he proves that the non-recovery cannot be attributed to his gross neglect, misfeasance or breach of any duty on his part in relation to the affairs of a company. The contention of the petitioner that no action to recover the demand from the Realtech Group of Companies was taken by the Assessing Officer is not correct - as mentioned in the impugned order dated 29th January, 2018 under Section 179(1) that the demand notices were served upon the said companies on 29th March, 2014. Thereafter, notices under Section 221(1) of the Act were issued to the companies on 14th November, 2014. It was only when the demand was not paid, bank accounts of the companies were attached and partial recovery was made through the said attachments. In fact, the impugned order passed under Section 179(1) of the Act dated 29th January, 2018, as well as the Order passed under Section 264 dated 01st April, 2021 clearly demonstrate that only a small part of the demand was recovered despite all possible efforts by the Department including action of attachment of bank accounts of the Realtech Group of companies. Tax dues against Realtech Construction Pvt. Ltd. which was developing The City Emporio Mall was only ₹ 12.17 lakhs. The tax demand against the other companies could not be recovered from the assets of that company. Section 179 only permits recovery against a director and not against other group companies which are distinct legal entities. In the impugned order dated 01st April, 2021 there is a specific finding that despite issuing notices and attachment orders the entire outstanding tax dues could not be recovered from the Realtech Group of companies leaving the Department with no other option, but to recover the same from the Directors including the petitioner. The submission of petitioner that it is for the respondent-Revenue to demonstrate that the petitioner Director was guilty of gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company is contrary to the explicit language used in Section 179. The burden is on the individual Director to prove that the non-recovery was not due to his gross negligence, misfeasance or breach of duty on his part. MOU, Settlement Deed and an Arbitral Award govern rights in personam and cannot bind a statutory authority like the respondent-Revenue. It is a settled law that while rights in personam are arbitrable, rights in rem are unsuited for private arbitration and can only be adjudicated by the Courts or Tribunals - private parties cannot apportion Income Tax liability by private agreement as the petitioner has sought to do in the present case. WP dismissed.
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