1980 (7) TMI 60 - HC - Income Tax

Court rules in favor of petitioner, not liable for taxes under Income Tax Act.

The court ruled in favor of the petitioner, holding that they were not liable for income tax, surcharge, corporation tax, and interest for the assessment ... HUF, Res Judicata, Wealth Tax Issues involved: Interpretation of Section 179 of the Income Tax Act, 1961 regarding the liability of directors of a company for tax arrears, and the challenge of levy of interest on tax for a specific assessment year.Interpretation of Section 179: The court analyzed the provisions of Section 179 of the Income Tax Act, 1961, which imposes a vicarious liability on directors for tax arrears of companies. The section holds directors liable unless they can prove non-recovery was not due to their gross neglect, misfeasance, or breach of duty. The court noted that the liability under this section is linked to the income of the previous year assessed to tax. The judgment emphasized that Section 179 is prospective and does not apply to previous years before the Act's commencement on April 1, 1962. Therefore, the court held that the petitioner could not be held liable for tax arrears of the company for the years 1959-60 and 1960-61 under Section 179.Challenge of Levy of Interest: The court addressed the petitioner's challenge regarding the levy of interest on tax for the year 1963-64. The petitioner argued that the demand for interest was unsustainable as Section 179 does not mention interest. However, the court observed that the company had been served a notice demanding tax arrears as early as April 1, 1969, making it liable for interest under Section 220(2). As the petitioner's liability was co-extensive with that of the company, he was considered an assessee under the Act, and thus liable for interest despite the distinction between tax and interest. Consequently, the court dismissed the contention that the demand for interest was unsustainable.Decision: The court ruled in favor of the petitioner, holding that he was not liable for income tax, surcharge, corporation tax, and interest for the assessment years 1959-60 and 1960-61. The court quashed the orders and notices that made the petitioner liable for these amounts. The original petition was allowed to the extent mentioned and dismissed in other respects. The parties were directed to bear their own costs. Additionally, the court declined the prayers for a certificate to prefer appeals in the Supreme Court, as it did not find the case to involve any substantial question of law of general importance requiring Supreme Court intervention.