TMI Blog2021 (9) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year 2010-11, allegedly disputes arose amongst the promoters and to settle the said inter se disputes a Memorandum of Understanding (MOU) was executed on 02nd June, 2011. In terms of the MOU, the petitioner allegedly resigned as Director from M/s Vivid Builders Pvt. Ltd., M/s Realtech Construction Pvt. Ltd. as well as some other group companies of Realtech group and stopped participating in the management of the Realtech group. It was also allegedly agreed in the MOU that all the income tax liabilities in respect of Realtech Construction Pvt. Ltd, Realtech Projects Pvt. Ltd., Vivid Builders Pvt. Ltd. and Realtech Infrastructure will be borne and paid by Mr. Pankaj Dayal (one of the Directors). Mr. Pankaj Dayal was allegedly separately allocated 17000 sq. ft. in City Emporia Mall, Chandigarh to meet the tax liabilities of Realtech group of companies. 4. Subsequent to the MOU, an alleged Settlement Deed dated 16th December, 2015, was also entered into between Mr. Rajeev Behl and Mr. Pankaj Dayal, in which the MOU dated 02nd June, 2011 was given assent to and it was reiterated that Mr. Pankaj Dayal will bear the income tax liabilities of the Realtech group. 5. In order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup of companies had agreed amongst themselves that the tax liabilities of the Realtech Group would be borne by one of the directors, namely, Mr. Pankaj Dayal and therefore the recovery against the petitioner was bad in law. In support of his contention, learned senior counsel for the petitioner relied upon the MOU by which the tax liabilities of the Realtech Group of Companies were assumed by one of the Directors by way of a private arrangement between the Directors of the company of the various companies of Realtech Group and later affirmed by an Arbitral Award which was subsequently upheld by this Court. In support of his submission, learned senior counsel for petitioner relied upon the judgment of Gujarat High Court in Ram Prakash Singeshwar Rungta and Others Vs. Income-Tax Officer, (2015) 370 ITR 641 (Guj.), wherein it has been held as under:- 12.......However, such liability can be avoided if it proves that the non-recovery cannot be attributed to the three factors mentioned in the said order. Thus, the responsibility to establish such facts is on the director. However, once the director places before the authority his reasons why it should be held that nonrecovery c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner had not been given a fair and reasonable opportunity to present his case. ARGUMENTS ON BEHALF OF THE RESPONDENT-REVENUE 13. Per contra learned counsel for the respondents submitted that the present petition was an abuse of process of law as the petitioner was seeking to settle his private scores with different parties through the income tax department, which is evident from the fact that neither Mr. Pankaj Dayal nor the Realtech Group of companies had been impleaded as party-respondents to the writ petition. According to him, on this ground alone, the petition deserves to be dismissed with costs. 14. He further stated that petitioner s argument that no opportunity was granted to him of being heard before passing an order under Section 179(1) of the Act is not correct. Vide notice F.No. ACIT/CC- 14/Recovery/201718/1045 dated 19th September, 2017, the petitioner was given an opportunity to file his reply and was required to show cause as to why action against him should not be taken under Section 179(1) of the Act. By the said notice, it was categorically informed to the petitioner that in case of non-compliance, it would be construed that he has nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less 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. 18. In the opinion of this Court, 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 Assessing Officer has therefore to give a finding that the tax dues could not be recovered from the company before proceeding against the director. [See: Sampath Iyengar s Law of Income Tax, Vol.8, 12th Edition]. 19. Moreover, 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. DESPITE ISSUING NOTICES AND ATTACHMENT ORDERS THE ENTIRE OUTSTANDING TAX DUES COULD NOT BE RECOVERED FROM THE REALTECH GROUP OF COMPANIES LEAVING THE DEPARTMENT WIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof of payment made if already deposited. No reply in respect of the said notice was submitted by the companies. As the demand was not paid, therefore, the bank accounts of companies available in the records were attached. Till date, recovery of ₹ 10,38,373/- in the case of M/s Realtech Infrastructure Pvt. Ltd. and ₹ 62,00,000/- in the case of M/s Vivid Builders Pvt. Ltd. has been made through attachment of bank accounts. As per the provisions of section 179(1) of the Income Tax Act, 1961, if the tax due from a private company cannot be recovered, then every person who was director of such company at any time during the previous year shall be jointly and severally liable for the payment of such outstanding tax. As per information available with this office, you were a director in all three companies mentioned above. Notice u/s 179(1) dated was issued to you to show cause as to why proceedings of recovery of above demand should not be initiated against you. You were required to submit your reply by 25.09.2017. However, you have not submitted any reply to this office till date. Therefore, you are held liable for non payment of tax dues as discussed above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en entertained in writ petition filed under Article 226 of the Constitution of India when the finding was 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 a director of a defunct private company and while holding the office of 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 for 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. 10. Accordingly, appeal is allowed and the impugned judgment dated January 11, 1983 in Miscellaneous Petition No. 1432 of 1978 is set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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