2023 (6) TMI 887 - HC - Income Tax

Winding-up order places company with official liquidator; former directors bear no liability and proceedings against them must be quashed

HC held that a winding-up order dated 08.09.2015 places the company in the custody of the official liquidator, so erstwhile directors have no ongoing ... Complaint u/s 276C (2) r.w.s. 278B - Allegation of willful evasion of tax - Liability of Directors / ex-directors of company u/s 179 - Company is under liqudiation process - Vikash Metal and Power Limited (under liquidation) is a Public Limited Company - whether demand against a Public Limited Company shall not be recovered against its Directors. HELD THAT:- Hon’ble Court has directed the winding up of the company on 08.09.2015, everything related to the company is now in the custody of the official liquidator and as such the petitioners have no liability nor responsibility in respect of the affairs of the company. The proceedings against them should thus be quashed. The Income Tax Authorities admitted before this Court that they did not have knowledge of the winding up order dated 08.09.2015 and filed this case on 02.08.2019. Admittedly, considering the present situation, the official liquidator is a necessary party before the trial court. Though the official liquidator is now in-charge of the affairs of the company, the petitioners being the erstwhile directors are to assist the official liquidator in affairs of the company even after winding up. Petitioners’ relief on grounds stated thus lies in praying for discharge before the trial court, which the Court is to consider in accordance with law, on adding the official liquidator as a party to the case, first and then consider the prayer for discharge if any. Accused Kailash Chand Jain’s petition praying for discharge is still pending before the Metropolitan Magistrate, Calcutta. The revisional application is accordingly dismissed. Ld' Magistrate to proceed expeditiously with the case as per observation in the body of this judgment, but not being influenced by them. Issues Involved:1. Quashing of Complaint Case No. CS/36744/19 under Section 200 of the Code of Criminal Procedure.2. Charges under Section 276C(2) read with Section 278B of the Income Tax Act, 1961.3. Orders passed by the learned Chief Metropolitan Magistrate at Calcutta.4. Liability of Directors under Section 179 of the Income Tax Act, 1961.5. Role and authority of the Official Liquidator post winding up order.Summary:Issue 1: Quashing of Complaint Case No. CS/36744/19The petitioners sought to quash Complaint Case No. CS/36744/19 under Section 200 of the Code of Criminal Procedure, along with all orders passed therein, including the cognizance order dated 02.08.2019 and subsequent orders by the learned Chief Metropolitan Magistrate at Calcutta.Issue 2: Charges under Section 276C(2) read with Section 278B of the Income Tax Act, 1961The complaint was filed by the Income Tax Officer against Vikash Metal and Power Limited (under liquidation) and its directors, including the petitioners, alleging willful attempt to evade tax under Section 276C(2) read with Section 278B of the Income Tax Act, 1961. The assessment for the Assessment Year 2010-11 was re-opened and completed on September 14, 2017, raising a demand of Rs. 43,25,07,040/-.Issue 3: Orders passed by the learned Chief Metropolitan Magistrate at CalcuttaThe learned Chief Metropolitan Magistrate, Calcutta, took cognizance of the complaint on 02.08.2019 and transferred the case to the learned 16th Metropolitan Magistrate, Calcutta, who issued process against the petitioners and other ex-directors on 19.11.2019.Issue 4: Liability of Directors under Section 179 of the Income Tax Act, 1961The petitioners argued that as the company is a Public Limited Company, the directors are not liable for the tax demand under Section 179 of the Income Tax Act, 1961. The relevant portion of Section 179 states that directors of a private company are liable for tax dues unless they prove non-recovery is not due to their neglect, misfeasance, or breach of duty.Issue 5: Role and authority of the Official Liquidator post winding up orderPost the winding up order dated September 8, 2015, the Official Liquidator took possession of the company's assets and records. The petitioners contended that only the Official Liquidator is authorized to deal with the company's affairs, including receiving notices and appearing before authorities. The Income Tax Department did not obtain leave from the Tribunal as required under Section 279 of the Companies Act, 2013, to initiate proceedings against the company (under liquidation).Conclusion:The High Court dismissed the revisional application, directing the petitioners to seek discharge before the trial court, which should consider adding the Official Liquidator as a party. The learned Magistrate was instructed to proceed expeditiously with the case, ensuring the Official Liquidator's involvement. The court emphasized that the petitioners, as erstwhile directors, are still required to assist the Official Liquidator in the company's affairs. No costs were ordered, and all interim orders were vacated.