Company – Recovery of tax from director – Notice to directors – Condition precedent – Furnishing of particulars to directors of steps taken to recover dues from company and failure thereof – Condition not satisfied – Order u/s. 179(1) set aside

21.  Madhavi Ketkar vs. ACIT; 403 ITR 157 (Bom);
Date of Order:  5^th January,
2018

A. Ys.: 2006-07 to 2011-12

Section 179(1) of ITA 1961;
Art. 226 of Constitution of India

Company – Recovery of tax from
director – Notice to directors – Condition precedent – Furnishing of
particulars to directors of steps taken to recover dues from company and
failure thereof – Condition not satisfied – Order u/s. 179(1) set aside

The   petitioner  
was   a   director  
of   a   company.  
For A. Ys. 2006-07 to 2011-12, the
Assessing Officer of the company passed an order u/s. 179(1) of the Income-tax
Act, 1961 against the petitioner for recovery of the tax dues of the company.
The petitioner filed a writ petition in the High Court and challenged the
order. The petitioner contended that section 179(1) conferred jurisdiction on
the authority to proceed against the directors of a private limited company to
recover the tax dues from the directors only where the tax dues could not be
recovered from the company and that no effort was made by the authorities to
recover the tax dues from the defaulting company.

The Bombay High Court allowed
the writ petition, quashed the order passed u/s. 179(1) of the Act, and held as
under:

“i)  The notice issued u/s. 179(1) to the directors of a private limited
company must indicate, albeit briefly, the steps taken by the Department to
recover the tax dues from the company and failure thereof. Where the notice
does not indicate this and the directors raise objections of jurisdiction on
the above account, they must be informed of the basis of the Assessing Officer
exercising the jurisdiction and the directors response, if any, should be
considered in the order passed u/s. 179(1).

ii)   The Department acquired or got jurisdiction to proceed against the
directors of a private limited company, only after it had failed to recover the
dues from the company. It was a condition precedent for the Assessing Officer
to exercise jurisdiction u/s. 179(1) against the director of the company. The
jurisdictional requirement was not satisfied by a mere statement in the order
that recovery proceedings had been conducted against the defaulting company but
it had failed to recover its dues. Such a statement should be supported by
mentioning briefly the types of efforts made and the results.

iii)  The notice u/s. 179(1) did not indicate or give any particulars in
respect of the steps taken by the Department to recover the tax dues of the
defaulting company and failure thereof. In the letter sent in response to the
notice, questioning the jurisdiction of the Department, the petitioner had
sought details of the steps taken by the Department and had pointed out that
the defaulting company had assets of over Rs. 100 crores.

iv)  Admittedly, no particulars of steps taken to recover the dues from
the defaulting company were communicated to the petitioner nor indicated in the
order. At no time had the petitioner been given a chance to meet the
Department’s case that it had taken steps to recover the amount from the
defaulting company so as to meet the jurisdictional condition precedent before
passing an order u/s. 179(1).

v)   The order was set aside since the condition precedent was not
satisfied. However, the attachment order would be continued till the passing of
a final order by the Assessing Officer u/s. 179(1)”