UNION OF INDIA Vs. MANIK DATTATREYA LOTLIKAR

JUDGEMENT

(1.) AN interesting question as to whether the directors of a private company are liable for payment of taxes due from the company from 1st April, 1962, onwards in accordance with the provisions of s. 179 of the IT Act, 1961 (hereinafter referred to as "the Act"), falls for determination in this appeal preferred by the Revenue against the judgment dt. 11th Jan., 1983, delivered by the learned Single Judge in Misc. Petition No. 1432 of 1978 See Manick Dattatreya Lotlikar vs. R.C. De Desouza, CIT (1983) 34 CTR (Bom) 17 : (1984) 145 ITR 433 (Bom) : TC24R.987. The learned Single Judge held that the liability of the directors is only in respect of taxes due from the private company after 1st Oct., 1975, and not in respect of the earlier period. The facts which gave rise to the filing of the writ petition before the learned single judge are not in dispute and are required to be briefly stated to appreciate the grievance of the appellants against the impugned judgment.

(2.) M /s Bhimjee and Co. (P) Ltd. was floated and incorporated under the Indian Companies Act, 1913, in the year 1947 and the company carried on business of import and export, mainly in hardware and spare parts of watches. The respondent is one of the directors of the company from the year 1958 onwards. The company was assessed to income tax and for the asst. yrs. 1964 65 and 1965 66, the company was assessed and the income assessed was Rs. 4,000 and Rs. 7,000, respectively. The income tax payable was Rs. 2,300 and Rs. 4,200, respectively. Subsequent to the asst. yrs. 1964 65 and 1965 66, the business almost came to an end and the company suffered losses and the company was either assessed to "nil" income or assessed to loss. The income tax liability of the company was not discharged and thereupon the TRO initiated proceedings for realisation of the tax dues. The tax could not be recovered and thereupon the ITO served notice on 5th July, 1976, calling upon the respondent to show cause why the directors should not be held personally liable under the provisions of S. 179 of the Act. The respondent filed a reply but the CIT rejected the same and held that the respondent was liable under the provisions of S. 179 of the Act. The respondent preferred a revision application, but the same ended in dismissal. The TRO thereupon attached the properties of the respondent and issued a proclamation of sale and thereupon the respondent filed Misc. Petition No. 1432 of 1978 on the Original Side of this Court under Art. 226 of the Constitution of India for setting aside the orders passed by the IT authorities holding the respondent liable for payment of arrears of tax due from the company.

(3.) SHRI Jetley, learned counsel appearing on behalf of the Revenue, submitted that the decision of the learned single judge that the provisions of S. 179 are merely prospective and cannot clothe the tax authorities with power for recovering arrears of taxes due from the company in respect of earlier assessment years by proceeding against the directors is not correct. Learned counsel urged that the legislature by substitution of S. 179(1) and (2) has specifically provided for retrospective operation of the provisions w.e.f. 1st April, 1962 onwards. It was also contended that the provisions of S. 179 are merely procedural in nature and deals with the machinery to recover the taxes due from the company. Shri Patil, learned counsel appearing on behalf of the respondent, on the other hand, urged that S. 179(1) is not retrospective in its operation and the directors cannot be made liable for tax arrears of the company in respect of the assessment years prior to 1st Oct., 1975. Shri Patil also urged that the directors cannot be made liable unless non recovery can be attributed to any gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the company and the director in the present case cannot be held liable in the absence of charge of gross neglect, misfeasance or breach of duty. Shri Patil submitted that in any view of the matter, the liability of the director is limited only to the taxes due and cannot include penalty, interest or recovery charges. In view of the rival submissions, the principal question which falls for determination is the true ambit and scope of the provisions of S. 179 of the Act.