H EBRAHIM Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The petitioners are before this Court for the second time. The genesis of the petitioners' case can be summarized as follows: The first petitioner is the Managing Director and petitioners 2 to 4 are the Directors of a Private Limited Company under the name and style of H.E. Distilleries Private Limited. The company was incorporated in the year 1990 and commenced its operation from the year 1991. It appears, the Company, right from day one has been incurring loss and never really took off. The officers of the respondents on 18.01.2001 armed with a warrant of authorization, conducted a search in the premises of the Company. During the course of the said search operation several documents were seized by the department. It appears, a statement of the fourth petitioner was also recorded who is a Director of the Company during the course of the said search proceedings. Pursuant to the said search, an order of assessment was passed by the Assessing Officer determining a total amount of Rs.2,42,47,658/- as undisclosed income and the net tax payable on it to be Rs. 1,70,21,856/-. The assessment order was passed on 31.01.2003, copy of which is produced along with papers. The case of the petitioners is that the company, as on the date of the assessment had paid tax to the tune of Rs.39,24,185/- and in addition, it had paid a sum of Rs.24,22,078/-. On the score of computation of income tax, the petitioner was before Commissioner of Income-Tax (Appeals) in ITA No. 415/ DCIT-CC 2(2)/ CIT(A)-Vl/2003-04, dated 30.10.2004. The said reference is still pending adjudication. However, we are not really concerned with the assessment of tax or the computation thereof. In the present proceedings, we are not concerned about the proceedings initiated against the petitioners under Section 179 of the Income-Tax Act (for short, 'the Act'). Indeed, all the petitioners are the Directors of the Company. If the Company is not in a position to meet the demands of payment of income tax, the Directors are personally liable to satisfy the said claim. Hence proceedings were initiated against the petitioners who are the Directors of the Company. In the first instance, the reply given by the petitioners was not accepted and an order was passed on 17.11.2005 by the Assistant Commissioner of Income-Tax. The said order was questioned by the petitioners before this Court in W.P.No.1559/06. This Court allowed the writ petition and remitted the matter to the original authority for fresh adjudication, inasmuch as, the impugned order disclosed that the tax cannot be recovered from the Company. After remand, fresh notices were issued to the petitioners and reply was filed. It appears, additional replies were also filed. The said replies did not find favour with the respondents. Hence, the impugned order is passed on 05.10.2006 which is questioned in this writ petition.

(2.) Mr. Shankar, learned Counsel appearing for the petitioners was at great pains to convince the Court on two counts; one is that the Directors of the Company can be saddled with payment of tax only if it is found that the company is not in a position to meet the demand. He further submits that a reading of Section 179 of the Act does not indicate that the amount recoverable will include the tax, interest and also penalty, inasmuch as, what is sought to be recovered under the provisions is only the tax. He further submits that Section 179 of the Act is not at all applicable, inasmuch as, unless it is proved, non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of the Directors in relation to the affairs of the Company. According to him, none of the three ingredients are satisfied before proceeding under Section 179 of the Act. In support of his contention he has relied on a few decisions of this Court as well as the Apex Court. Another contention of Mr. Shankar is that none of the objections are considered. Hence, there is non-application of mind by the respondents. He further submits that the petitioners 2 and 3 are not whole-time Directors and they are liable to be absolved of the proceedings under Section 179 of the Act.

(3.) Mr. Aravind, learned Counsel appearing for the revenue submits that after remand, the matter was reconsidered and several objections have been raised by the petitioner and answered by the authority. He further submits that right from the day the Company was incorporated i.e., in the year 1991 and thereafter till the search was made in the year 2001, the petitioners had not chosen to file returns at all. Thus, one part of Section 179 of the Act regarding gross neglicence and misfeasance is proved. Insofar as the word 'tax' does not include penalty and interest, he would rely on a ruling of the Bombay High Court to indicate that the tax as contemplated under Section 179 of the Act would include the penalty as well as interest. Hence, he submits that the impugned order at Annexure- A does not warrant interference.