Vanraj v. Shah

R.M. AMBERKAR (Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J.WRIT PETITION NO. 1083 OF 2019 Vanraj V. Shah ..Petitioner Versus Dy. Commissioner of Income Tax - 10(1)(1) & Anr...Respondents ................... Mr. Devendra H. Jain for the Petitioner Mr. Akhileshkumar Sharma for Respondent No. 1 ................... CORAM : AKIL KURESHI & S.J. KATHAWALLA, JJ. DATE : JUNE 24, 2019. P.C.: 1.The petitioner has challenged an order dated 18.9.2018passed by respondent No. 1 - Dy. Commissioner of IncomeTax under Section 179 of the Income Tax Act, 1961 ("theAct" for short). 2.Brief facts are as under:- 2.1.The petitioner is an individual. He is a director ofone M/s. Hridaynath Consultancy Pvt Ltd, a Private LimitedCompany (hereinafter referred to as the "said Company").For the assessment year 2015-16, the said company had filed its return of income. The Assessing Officer passed theorder of assessment on said return on 30.12.2017 whichgave rise to a tax demand of Rs. 36.99 Crores (rounded off).The company filed an appeal before the AppellateCommissioner. When such appeal was pending, respondentNo. 1 issued a notice dated 26.6.2018 calling upon thepetitioner why an order under Section 179 of the Act shouldnot be passed treating the petitioner jointly and severallyliable for payment of tax dues of the said Company. Thepetitioner replied to the show cause notice under acommunication dated 14.7.2018 and raised severalcontentions. The principal contentions of the petitioner werethat there is nothing on record to suggest that the tax duescould not be recovered from the said company and the samecan be attributed to any gross neglect, misfeasance orbreach of duty on the part of the petitioner in relation to theaffairs of the company. 2.2Ignoring such pleas of the petitioner, theAssessing Officer passed the impugned order under Section179 of the Act holding the petitioner liable to pay the outstanding dues of the said Company. 2.3It appears that the said order was passed withouttaking into consideration the detailed representation of thepetitioner under the communication dated 14.7.2018. Whenthis was pointed out to the Assessing Officer, he passedanother order dated 8.3.2019 titled it as 'Corrigendum' andreiterated his stand that the petitioner is liable to pay dues ofthe Company after dealing with the petitioner's contentionsin the original representation. 3.Having heard the learned counsel for the parties andhaving perused the documents on record, we find that theaction of respondent No. 1 cannot be sustained. Section 179of the Act undoubtedly authorizes the Department to recoverunpaid tax dues of a private company from its directors,however, this is subject to certain legal requirementscontained in the said provision. Section 179 reads as under:- "179. (1) Notwithstanding anything contained in the Companies Act,1956 (1 of 1956), where any tax due from a private company inrespect of any income of any previous year or from any othercompany in respect of any income of any previous year during whichsuch other company was a private company cannot be recovered,1956 (1 of 1956), where any tax due from a private company inrespect of any income of any previous year or from any othercompany in respect of any income of any previous year during whichsuch other company was a private company cannot be recovered, then, every person who was a director of the private company at anytime during the relevant previous year shall be jointly and severallyliable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance orbreach of duty on his part in relation to the affairs of the company. then, every person who was a director of the private company at anytime during the relevant previous year shall be jointly and severallyliable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance orbreach of duty on his part in relation to the affairs of the company. (2) Where a private company is converted into a public company andthe tax assessed in respect of any income of any previous yearduring which such company was a private company cannot berecovered, then, nothing contained in sub-section (1) shall apply toany person who was a director of such private company in relation toany tax due in respect of any income of such private companyassessable for any assessment year commencing before the 1st dayof April, 1962. [Explanation.—For the purposes of this section, the expression "taxdue" includes penalty, interest or any other sum payable under theAct.] 4.In terms of sub-section (1) of Section 179, from everyperson who was a director of a private company during thetime when the tax dues arose, such tax could be recoveredfrom such director holding him jointly and severally liable forpayment of such tax. However, the same cannot berecovered from him unless he proves that non-recoverycannot be attributed to any gross negligence, misfeasance orbreach of duty on his part in relation to the affairs of theCompany. First requirement for application of sub-section(1) of Section 176, therefore, is that the tax dues in question could not be recovered from private company. Even if thisrequirement is satisfied, it is open for the concerned directorto prove that such non-recovery cannot be attributed to anygross negligence, misfeasance or breach of duty on his partin relation to the affairs of the company. On all these counts,therefore, the petitioner had a right to oppose and resist theproposal of the Assessing Officer. 5.In the show-case notice, it is not even averred that thedues of the company should not be recovered form the saidCompany and that therefore, the onus would be on thedirector to prove that the same could not be attributed to hisgross neglect, misfeasance or breach of duty. The action ofthe Assessing Officer to order recovery of the unpaid taxdues of the company from the petitioner, thus, was withoutthe foundation of the necessary facts in show-cause notice. 6.Further, in the context of establishing that suchrecovery cannot be attributed to his gross neglect,misfeasance or breach of duty, the petitioner had made adetailed representation. The Assessing Officer passed the order without considering such representation. When thiswas pointed out to him, he passed a further order describingit as one of the 'Corrigendum'. This was also impermissible.Without recalling the earlier order, his action to dispose ofthe petitioner's objections would amount to nothing morethan post-decisional consideration. 7.Under these circumstances, both the orders dated18.9.2018 and Corrigendum dated 8.3.2019 are set aside.The order of attaching the petitioner's bank accounts forsuch recoveries is also set aside. 8.We have not entered into the merits of the case andtherefore, nothing stated in this order would prevent theDepartment from passing fresh order in accordance with lawafter issuing fresh show-cause notice to the petitioner. TheWrit Petition is disposed of accordingly. [ S.J. KATHAWALLA, J. ] [ AKIL KURESHI, J ]