TMI Blog1995 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be responsible and he furnished the details of the managing director. The official liquidator filed an application before this court in Company Application No. 33 of 1973 for making the petitioner liable as a director of the company for default in filing the statement of affairs of the company. This court dismissed the application by order dated March 8, 1974, holding that the petitioner was not liable as he had already resigned in 1951. On June 12, 1975, the Income-tax Officer wrote to the petitioner that a sum of Rs. 14,523 due to the petitioner personally as refund of tax for the years 1973-74 and 1974-75 would be adjusted towards tax arrears of the company referred to earlier. The petitioner replied to the Income-tax Officer in July, 1977, that he was not responsible for payment of tax arrears of the company and if at all it was only the managing director who could be called upon to meet the liabilities. On July 27, 1977, the Income-tax Officer reiterated by a letter to the petitioner that he was liable to pay the tax payable by the company and called upon him to show that non-recovery of arrears of tax from the company was not attributable to any gross neglect, misfeasanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1949-50 amounting to Rs. 80,144.69, and quash the same and directing the Commissioner of Income-tax, Tamil Nadu IV (first respondent), not to hold the petitioner liable to pay the tax arrears for the company for the assessment years 1948-49 and 1949-50 under section 179 of the Income-tax Act of 1961. In paragraph 3 of the affidavit filed in support of the writ petition, it is stated that the alleged order of the Commissioner dated February 2, 1980, was not communicated to him and the reference thereof by the second respondent in his communication had resulted in considerable hardship and injury to him. The first contention of learned counsel for the petitioner is that the refund amount payable to him individually in his personal capacity cannot be appropriated towards the liability due from the company. If section 179 of the Income-tax Act, 1961, is applicable in this case, this contention has to fail, as the section makes him liable personally. The question, therefore, arises whether section 179 of the Income-tax Act is applicable or not. It is argued by learned counsel for the petitioner that in the prior Act of 1922, there was no provision similar to section 179 and as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not deal with the question which has arisen before me. It is only the opinion of the author that the section introduces a new provision in fiscal legislation which is very dangerous and disquieting. That will not help the petitioner in the present case. My attention is drawn to a judgment of the Kerala High Court in Ratanlall Murarka v. ITO [1981] 130 ITR 797. There was a company which was incorporated in 1945 and converted into a private company in 1959. Again it was reconverted into a public company in 1969. During the assessment years 1959-60 to 1963-64, of which the case was concerned, only with 1959-60, 1960-61 and 1963-64, the company's directors were the petitioner and two others. The other two directors resigned their offices in 1969. The company was assessed to income-tax, surcharge and corporation tax for the assessment years 1959-60 to 1963-64. By a resolution passed on June 9, 1975, by the members and the creditors, it was decided to wind up the company voluntarily. Steps in the winding up were in progress. The Income-tax Officer served a notice on June 14, 1976, upon the petitioner proposing to recover from him the arrears of tax shown therein which were due from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent of each other. The relevant assessment years were 1964-65 and 1965-66. The contention advanced before the court was that when section 179(1) was amended in 1975, the provisions of the Amendment Act were prospective in nature and the amended provisions cannot be invoked with reference to assessment years prior to the passing of the Amendment Act. That contention was rejected by the court holding that the amendment would take effect even from the initial incorporation of the section in the Act, viz, April 1, 1962. The court held that sub-sections (1) and (2) of section 179 must be read together. While doing so, the court made the following observations, on which reliance is placed by learned counsel for the petitioner (at page 9): "The Legislature, by adopting a negative phraseology, has prescribed that liability of a director of a private company, which is subsequently converted into a public company, is only in respect of tax due for the assessment year commencing subsequent to April 1, 1962. It is not in dispute and indeed cannot be disputed that the director of a private company was not liable for the tax dues of the company prior to the enactment of the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of or after its liquidation, in respect of any income of any previous year 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." The section was amended by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975. After the amendment, the section is in the following terms: "(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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. The submission, therefore, is that in such a case section 179 will not be attracted. We have no difficulty in rejecting this argument. In our opinion, the section will be attracted if any one or more of the three events occurred after the commencement of the Act even though the first or the first and second events had happened earlier. The section was meant also to net a case like the instant one where it was resolved that the private company should be sent to liquidation and nobody cared to pay the huge arrears of income-tax due from it. The directors were sought to be caught exactly for this purpose. When the company goes into liquidation, it becomes difficult for the Department to realise its dues from the assets of the company and more so when the company has been finally wound-up and dissolved. The directors, therefore, have been made liable to pay such dues. Section 179 is meant to squarely cover such a case also and the appellants cannot escape their liability for the dues." Though the question was not argued a Division Bench of this court expressed the view that the section would attract liabilities arising even prior to 1962 in N. Bella Gowder v. Thasildar, Coonoor [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently, the section would apply to such a case also. Reading that section along with section 297(2)(j), it follows that the liability of the company which was subsisting on April 1, 1962, was enforceable against the directors of the company jointly and severally by virtue of the provisions of section 179. There is no necessity whatever for introducing any fiction as contended by learned counsel for the petitioner. The Legislature has expressly declared under section 179 that the directors will be jointly and severally liable. That section itself is the charging section and there is no necessity for any other separate section to be a charging section. There is no merit in the contention that the director was not jointly and severally liable prior to April 1, 1962, and, therefore, he cannot be made liable for any tax liability of the company which had arisen prior to that date. The words of the section are quite clear and explicit and there is no escape from the rigour thereof. The next contention of learned counsel is that the last part of sub-section (1) of section 179 which provides that unless the director proves that the non-recovery cannot be attributed to any gross neglect, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Commissioner of Income-tax against the respondent, on this count. Apart from this consideration, it is clear that the non-recovery can well be attributed to the breach of duty on the part of the respondent. The respondent loved to continue as the director of a defunct private company and while holding the office of the director, it was the bounden duty of the respondent to ensure that the tax amount is paid. The respondent having failed in his duty, cannot escape the liability prescribed under section 179 of the Act. The contention that the company had no income and suffered losses does not impress us, as the assessments for the relevant years were complete and final and it is not open to the director to challenge those assessments in a proceeding under section 179 of the Act. In our judgment, the respondent was not entitled to any relief in the writ petition and the impugned judgment of the learned single judge cannot be sustained. " Similarly, in Union of India v. Praveen D. Desai [1988] 173 ITR 303, the same Bench said (at page 305): " Mr. Dwarkadas then submitted that the liability of the director of a private limited company under section 179(1) arises prov ..... 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