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TMI Blog2021 (9) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed and promoted the Realtech group of companies in 2005 comprising M/s Realtech Projects Pvt. Ltd., M/s Real Infrastructure Pvt. Ltd., M/s Vivid Builders Pvt. Ltd. and M/s Realtech Constructions Pvt. Ltd. 3. During 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. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him this was an essential pre-requisite before any recovery under Section 179 could be effected against the petitioner Director. 11. He also stated that the three Directors of Realtech group 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act itself against the directors is not satisfied in the present case." 12. Learned senior counsel for petitioner lastly stated that the impugned orders were bad in law as the 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 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 WITH NO OTHER OPTION, BUT TO RECOVER THE SAME FROM TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 10,38,373/- in the case of M/s Realtech Infrastructure Pvt. Ltd. and Rs. 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 in the case of the said companies for the period during which you were director o ..... 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 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 aside and the petition is dismissed. The respondent shall pay costs of the Revenue throughout." (emphasis s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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