Case Note & Summary
The petitioner, Geeta P. Kamat, challenged an order dated 22 December 2017 passed by the Income Tax Officer under Section 179 of the Income Tax Act, 1961, treating her as liable for taxes allegedly due from M/s. Kaizen Automation Pvt. Ltd. (KAPL) for the assessment years 2008-09 and 2009-10. The petitioner was a director of KAPL but resigned on 31 March 2008, before the relevant assessment years. The revenue sought to recover tax arrears from her personally. The court examined the scope of Section 179, which imposes vicarious liability on directors for tax dues of a private company if the tax cannot be recovered from the company. The court noted that the liability under Section 179(1) arises only if the person was in charge of and responsible for the conduct of the business of the company during the relevant period. The revenue must establish that the director was in charge at the time when the tax became due. In this case, the petitioner was not a director during the relevant assessment years, and the order under Section 179 was passed without proper application of mind. The court also noted that the revenue did not provide any evidence to show that the petitioner was in charge during the relevant period. The court quashed the order dated 22 December 2017 and the consequential order dated 18 March 2019, and allowed the writ petition with no order as to costs.
Headnote
A) Income Tax - Vicarious Liability of Director - Section 179 of Income Tax Act, 1961 - The court considered whether a director can be made liable for tax dues of a company under Section 179. The court held that the liability under Section 179(1) arises only if the person was in charge of and responsible for the conduct of the business of the company during the relevant period. The revenue must establish that the director was in charge at the time when the tax became due. In this case, the petitioner was not a director during the relevant assessment years, and the order under Section 179 was passed without proper application of mind. (Paras 1-10) B) Income Tax - Burden of Proof - Section 179 of Income Tax Act, 1961 - The court held that the burden is on the revenue to show that the director was in charge of and responsible for the conduct of the business of the company during the relevant period. The mere fact that the petitioner was a director at some point is not sufficient. The revenue failed to discharge this burden. (Paras 11-15) C) Income Tax - Natural Justice - Section 179 of Income Tax Act, 1961 - The court observed that the order under Section 179 was passed without giving the petitioner a proper opportunity to be heard, violating principles of natural justice. The petitioner was not given a chance to show that she was not in charge during the relevant period. (Paras 16-18)
Issue of Consideration
Whether the petitioner, a director of a company, can be held liable under Section 179 of the Income Tax Act, 1961 for taxes due from the company for assessment years 2008-09 and 2009-10, when she was not in charge of and responsible for the conduct of the business of the company during those years.
Final Decision
The court quashed the order dated 22 December 2017 passed under Section 179 of the Income Tax Act, 1961 and the consequential order dated 18 March 2019. The writ petition was allowed with no order as to costs.
Law Points
- Section 179 of Income Tax Act
- 1961
- vicarious liability of director
- burden of proof on revenue
- director not in charge during relevant period
- recovery of tax from director
