TMI Blog2014 (5) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... to take measures for protecting the property or interest of the company as suggested by the Tax Recovery Officer - by itself it didn’t mean that the directors were negligent in performing their duties or they committed breach of duty in affairs of the company. The ground being deliberately false claim raised by the company is not borne out from any material on record - if the company raises a completely bogus and mala fide claim of tax deduction, with the sole purpose of defrauding the Revenue, it may still be open for the Revenue to argue that provisions of section 179 of the Act would be applicable – thus, the order of the Tribunal is set aside – Decided in favour of Assessee. - Special Civil Application No. 2257 of 2014, Special Civil Application No. 2258 of 2014, Special Civil Application No. 2259 of 2014 - - - Dated:- 29-4-2014 - Akil Kureshi And Sonia Gokani,JJ. For the Petitioner : Mr. R. K. Patel For the Respondent : Mr. Pranav G. Desai ORDER (Per : Honourable Mr. Justice Akil Kureshi) 1. Leave to amend. 2. These petitions are taken up for final disposal. The petitions involve identical questions of law and facts. We may record facts as ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite best efforts, the director could not even secure the insurance claim for the building for one reason or the other. The company has already filed suit against the insurance company which is still pending before the Civil Court at Gandhidham. The financial institutions however, gave one time settlement relief to enable the company to sell the property which was disposed of in the year 2009-2010. There is no tax demand outstanding against the company as per the return filed. However, demand arose on account of the assessment order. The income-tax department has raised an issue with respect to sale transaction of the property sold by the company. The company has already carried the matter in appeal. It was further pointed out that the company is not having any property to pay the dues of the department, due to which the taxes cannot be recovered from the company. However, such non recovery from the company cannot be attributed to any gross negligence. misfeasance or breach of duty on part of the directors. 6. Ignoring such pleas of the petitioner, the respondent passed the impugned order on 5.12.2013 declaring the petitioner jointly and severally liable for payment of the tax, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules in the matter. As far as taxation matter is concerned, the directors of the company have shown a gross negligence in following the applicable laws and thus has tried to evade the due amount of taxes arising out of from any subsequent gains. Thus, the directors have remained negligent in discharging their duties in a proper manner. Further no provision was made by the company or any of its Directors to ensure payment of Government dues which were bound to arise on account of deliberate and known acts of gross neglect and breach of duty by all directors of the company. The condition laid inn section 179 of IT Act for initiating proceedings against the Directors is therefore satisfied. In view of the above findings and detailed discussion every possible requirement of passing an order u/s179 has been met with and consequently, the above named person is hereby held jointly and severally responsible and liable u/s179 for payment of demand of all income-tax, interest, penalty etc. pertaining to AY 2010-11 which have been raised so far and may be further raised in future. 7. It is this order which the petitioners has challenged in the petition. The facts in other petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made, the assessment was not yet framed by the Assessing Officer which was done only on 28.3.2013. The tax dues of the company arise out of order of assessment. Against such assessment order, the company has preferred appeal but stay pending appeal is refused. 10. Section 179 of the Act pertains to the liability of the directors of private company in liquidation. Sub-section(1) thereof which is relevant for our purpose reads as under : (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves 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. 11. In terms of sub-section (1) of section 179, thus when any tax dues from a private compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Recovery Officer. In context of such contention, we have to ascertain whether the respondent was correct in coming to the conclusion that non recovery of the tax from the company could be attributed to any gross negligence, misfeasance or breach of duty on part of the directors. Taking note of the provisions of section 179 of the Act, in case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income-tax and another reported in (2013) 353 ITR 567(Guj.), Division Bench of this Court observed as under : 21. To our mind, the authority completely failed to appreciate in proper perspective the requirement of section 179(1) of the Act. We may recall that said provision provides for a vicarious liability of the director of a public company for payment of tax dues which cannot be recovered from the company. However, such liability could be avoided if the director proves that the non recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company. It is ofcourse true that the responsibility of establishing such facts is cast upon the director. Therefore, once it is shown that there is a private company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dues of the department could not be recovered. To suggest that the petitioner did not oppose the GSFC's auction sale is begging the question. GSFC had sold the property after several attempts through auction. It is not the case of the department that proper price was not fetched. 14. It can thus be seen that once it is established that the taxes of a private company cannot be recovered from the said company, the directors of the company at the relevant time would be jointly and severally liable for payment of such taxes, unless, it is proved that non recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on their part in relation to the affairs of the company. The burden cast by statute is thus in the negative and is on the director concerned as is observed in case of Maganbhai Hansrajbhai Patel(supra). However, once in defence, the director places necessary facts before the Tax Recovery Officer to establish that non recovery cannot be attributed to gross negligence, misfeasance or breach of duty on his part, the Tax Recovery Officer is required to apply his mind and come to definite findings. In the present case, the directors pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the directors should have taken appropriate measures to protect the property of the company is neither maintainable in law nor in fact. The company had insured its property. However, the insurance claim ran into disputes. It was therefore, not a case where the directors failed to take measures for protecting the property or interest of the company as suggested by the Tax Recovery Officer. Even otherwise, whether to insure a property against any loss and if done against which risks, would be a purely commercial decision of a company. Depending on the threat perception in the area and insurance premium, the company would be taking appropriate decision. Such decision may turn out to be wise or in some case unwise. That by itself would not mean that the directors were negligent in performing their duties or they committed breach of duty in affairs of the company. 18. The last ground being deliberately false claim raised by the company is not borne out from any material on record. In a given case, if the company raises a completely bogus and mala fide claim of tax deduction, with the sole purpose of defrauding the Revenue, it may still be open for the Revenue to argue that provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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