Director liability under section 179 requires a recorded failure of company recovery before notice can be sustained.

Section 179 of the Income-tax Act fastens joint and several liability on directors of a private company only where the company's tax dues cannot be recovered from the company itself. Before issuing notice to directors, the authority must record a clear finding that recovery from the company has failed or is not possible. Here, the notice contained no such averment or finding, and that omission was treated as a material defect going to the root of the proceedings. On that basis, the notice was held unsustainable and was quashed.

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Issues: Whether a notice issued to directors under section 179 of the Income-tax Act, 1961, was sustainable in the absence of a recorded finding that the tax dues of the private company could not be recovered from the company.

Analysis: Section 179 fastens joint and several liability on directors of a private company only when tax due from the company cannot be recovered. For initiating action against directors, the authority must first show compliance with this statutory condition. The impugned notice did not contain any averment or finding that recovery from the company had failed or was able, and the writ court found this omission to be a material defect going to the root of the notice.

Conclusion: The notice under section 179 was unsustainable and was quashed. The decision is in favour of the petitioners.

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