TMI Blog2001 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1978-79 came to Rs.3,58,174. A notice came to be served to the directors of the company, the petitioners in the writ petition, under section 179(1) of the Income-tax Act, 1961. By that notice, it was informed to the company that the company was in tax arrears for the aforementioned two assessment years in the sum of Rs.27,347 and Rs.3,25,976, respectively. In addition to these amounts, the company was also liable to pay interest under section 220(2) of the Income-tax Act as also penalty under section 221. It was then pointed out that the tax arrears could not be collected from the company and the non-recovery of the tax was attributable to the gross negligence on the part of the directors, i.e., the noticees and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 179(1) of the Income-tax Act. The learned single judge seems to have relied upon the judgment of Srinivasan J. (as his Lordship then was) in M. R. Sundararaman v. CIT [1995] 215 ITR 9 (Mad). That is by far the only ground on which the writ petition was rejected. Learned counsel for the appellant draws our attention to the order passed by the learned single judge and points out that the aforementioned judgment in Sundararaman's case [1995] 215 ITR 9 (Mad) pertained only to the aspect of retrospectivity of section 179(1) of the Income-tax Act. Learned counsel says that it is not his argument that the tax arrears for the past assessment years could not be recovered with the aid of the concerned provision. He points out that the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime 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." This section has been amended and it is the amended version which is reproduced above. The language of the section is very clear to suggest that the action under the section can be activated only when the tax due from a private limited company pertaining to the previous year cannot be recovered. The words "cannot be recovered" are most important. The phraseology suggests essentially that in spite of the efforts made as per the procedure followed in the Income-tax Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax arrears are always recoverable and ultimately if it is found that the tax arrears cannot be recovered, section 179 could always be activated. In fact, this argument was made before the learned single judge also and, in our opinion, the learned judge has correctly observed that the recoveries could be made only to the extent of the tax arrears or the tax liability found finally in the appeal or revision, as the case may be. However, learned counsel for the appellant then points out that there was no effort to recover the tax arrears and the finding given by the concerned authority is not based on sound material. Our attention is invited to paragraph 4 of the order where there is a mention to the show-cause notice under section 221 havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definite finding has to be given to the effect that the tax arrears cannot be recovered from the company. On seeing the orders, we do not see any such effort having been made by the concerned officer. All that the concerned officer has mentioned is that there have been some notices under sections 221 and 222 of the Income-tax Act. That, according to us, would not be sufficient to write a finding regarding the tax arrears not being recoverable from the company. Our attention was drawn by learned counsel for the appellant to the Division Bench judgment in K. V. Reddy v. Assistant CIT [1998] 232 ITR 306 (AP). The Division Bench has taken a similar view therein. The Division Bench observes: "The language used in the section is clear. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Bench of the Andhra Pradesh High Court. On this backdrop when we see the impugned order, it is obvious that there have been no efforts made to recover the tax arrears from the assessee-company and the finding has also not been properly recorded. It was tried to be argued by learned standing counsel for the Revenue that this company is in deep financial troubles and at any rate, the tax arrears would not be recoverable from the said company. We do not want to venture into that enquiry. It would not be our task. It would be for the Department to prove the impossibility of the recovery of the tax arrears from the assessee-company before the concerned officer by putting relevant material and not merely relying upon the notices issued und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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