Case Note & Summary
The petitioner, Rajendra R. Singh, Chairman and Managing Director of Crest Paper Mills Limited (CPML), challenged an order dated 13 February 2018 passed under Section 179 of the Income Tax Act, 1961, by the Assistant Commissioner of Income Tax, holding him personally liable for tax dues of Rs.3,98,19,430/- along with interest under Section 220(2) of the Act, which were outstanding against CPML for the assessment year 2010-11. The petitioner had received a show cause notice dated 24 January 2018 asking why proceedings under Section 179 should not be initiated against him. He filed a reply contending that the company had ceased operations, that he had taken reasonable steps to recover the dues, and that the non-recovery was not due to any gross neglect or misfeasance on his part. The Assessing Officer, however, passed the impugned order without considering the petitioner's explanation and without recording any finding that the non-recovery was attributable to the petitioner's willful default or neglect. The High Court held that Section 179 imposes vicarious liability on directors only if the non-recovery is due to gross neglect, misfeasance, or breach of duty. The order must be a speaking order containing such a finding. Since the impugned order lacked any such finding and did not consider the petitioner's reply, it was quashed. The court allowed the writ petition and set aside the order, remanding the matter for fresh consideration in accordance with law.
Headnote
A) Income Tax - Liability of Director under Section 179 - Requirement of Finding of Willful Default - The order under Section 179 of the Income Tax Act, 1961, must contain a specific finding that the non-recovery of tax dues from the company was due to gross neglect, misfeasance, or breach of duty on the part of the director. In the absence of such a finding, the order is unsustainable. (Paras 6-8) B) Income Tax - Natural Justice - Speaking Order - The Assessing Officer must consider the director's explanation and pass a speaking order. Failure to do so violates principles of natural justice and renders the order liable to be quashed. (Paras 6-8) C) Income Tax - Section 179 - Burden of Proof - The burden is on the Revenue to establish that the director was in charge of and responsible for the conduct of the business and that the non-recovery was due to the director's neglect or default. (Paras 6-8)
Issue of Consideration
Whether the order passed under Section 179 of the Income Tax Act, 1961, holding the petitioner liable for the tax dues of the company, Crest Paper Mills Limited, was valid in the absence of a finding that the non-recovery was due to any gross neglect, misfeasance, or breach of duty on the part of the petitioner.
Final Decision
The High Court allowed the writ petition, quashed the order dated 13 February 2018 passed under Section 179 of the Income Tax Act, 1961, and remanded the matter to the Assessing Officer for fresh consideration in accordance with law, after giving the petitioner an opportunity of being heard.
Law Points
- Section 179 of Income Tax Act
- 1961
- liability of director for company tax dues
- requirement of finding of willful default or non-recovery despite reasonable steps
- natural justice
- speaking order
