TMI Blog2010 (4) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions which have been urged by the petitioner. This issue would raise a mixed question of law and fact, upon which an adequate determination cannot be found in the order passed by the Assessing Officer. – matter remanded back to AO for fresh determination - 641 OF 2010 - - - Dated:- 27-4-2010 - Mr.B.V. Jhaveri with Ms.Preeti Shukla for the petitioner. Mr.Vimal Gupta for the respondents. CORAM: Dr.D.Y. Chandrachud J.P. Devadhar, JJ. ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.) 1. Rule. With the consent of the learned counsel appearing on behalf of the petitioner and the learned counsel appearing on behalf of the Revenue, the petition is taken up for hearing and final disposal. Counsel for the respondents waives service. 2. The petitioner was appointed as an Additional director of a company by the name of Yazad Investment Finance Private Limited on 2 January 1987. During the period when he was a director, the petitioner signed audited accounts of the company on 30 June 1987 and 30 June 1988. The petitioner resigned as a director of the company on 14 October 1989. Form 32 was filed with the Registrar of Companies notifying that the petitioner ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1991. The petitioner was held responsible to the extent of the outstanding demand for assessment year 1990-1991 which was quantified at Rs.12.74 lakhs. According to the Assessing Officer, the petitioner has signed the audited accounts for the year ending on 30 June 1987 and 30 June 1988, which brings forth his association with the financial affairs of the company of which he was a director. The petitioner is stated to have not furnished any additional evidence in support of his request for not being held liable under Section 179. The petitioner has been held to be liable under Section 179 to meet the liability of the company in respect of the penalty imposed under Section 271(1) (c) which, the Assessing Officer has held has a direct linkage with the addition made under Section 143(3), for assessment year 1990-1991. 5. Counsel appearing on behalf of the assessee has assailed the order passed by the Assessing Officer, principally on two grounds: firstly it has been submitted that on a plain reading of Section 179, the petitioner cannot be held liable in respect of the penalty that was imposed on the company under Section 271(1) (c). Reliance is placed on the provisions of subsectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (1) of Section 179, every person who is a director of a private company at any time during the relevant previous year is jointly and severally liable for the payment of tax due from the company, if such tax cannot be recovered. Though the liability of the directors of a private company for the payment of tax due from the company is made joint and several, the provision is attracted only where tax cannot be recovered from the company. It is only if the tax cannot be recovered from the company that every person who was a director of the company at any time during the relevant previous year becomes jointly and severally liable. The provision however enables a director to establish 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 a company. The burden to establish this must necessarily rest on the director concerned and it is only if the burden is discharged that he / she can be exempted from the liability that is imposed by the provision. 7. The first submission which has been urged on behalf of the petitioner is that as a director of the company until 14 October 1989, he cannot be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor. In subsection (3) of Section 170, Parliament has used the expression "any sum payable". Section 177 deals with an association of persons where the business or profession carried on has been discontinued or where an association is dissolved. In such a case, the Assessing Officer has to make an assessment of the total income, as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions with respect to levy of a penalty or any other sum chargeable under the Act are to apply. Subsection (3) stipulates that every person who was, at the time of such discontinuance or dissolution, a member of an association of persons and a legal representative of any such person who is deceased shall be jointly and severally liable for the amount of tax, penalty or other sum payable. This is a clear indicator of the circumstance that where Parliament intends to impose a liability for the payment of tax, penalty or any other sum payable, specific words to that effect have been used. In Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the judgment of the Supreme Court in Harshad Shantilal Mehta V/s. Custodian {(1998) 231 ITR 871 (S.C.)}. The Supreme Court considered the provisions of Section 11(2)(a) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, under which inter alia all revenues taxes, cesses and rates due from persons notified by the Custodian under subsection (2) of Section 3 to the Central Government or to any State Government or Local Authority have to be paid or discharged in full. The Supreme Court considered as to whether the expression "tax" under Section 11(2)(a) would include interest or penalty under the Income Tax Act, 1961. This question was answered in the negative. The Supreme Court observed as follows: "33. ....... Tax, penalty and interest are different concepts under the Act. The definition of 'tax' under section 2(43) does not include penalty or interest. Similarly, under section 157, it is provided that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed Provisions for imposition of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the generally accepted practise for investment companies. The second issue on which an addition was made by the Assessing Officer was in respect of a write back of interest in the amount of Rs.8,69,594/. Here, the contention of the petitioner is that he was not responsible for the decisions of the Board which led the Assessing Officer to make a write back. The Assessing Officer noted that the assessee company had claimed this as an expenditure which had already been allowed in respect of an earlier previous year. 14. In the present case, we are of the view that the question as to whether the non-recovery of tax from the assessee company was or was not a result of a gross neglect, misfeasance or breach of duty on the part of the petitioner in relation to the affairs of the company ought to have been considered by the Assessing Officer having regard to the submissions which have been urged by the petitioner. This issue would raise a mixed question of law and fact, upon which an adequate determination cannot be found in the order passed by the Assessing Officer. 15. In the circumstances, we are of the view that it would be appropriate and proper for this Court to direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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