2024 (11) TMI 1324 - HC - Income Tax

Section 179 Income Tax Act cannot be used for recovery from public limited company directors

Akhilesh Kumar Bhatra Son Of Shri Ram Gopal Bhatra, Vikram Kumar Gupta Son Of Shri Prahlad Gupta, Santosh Kumar Sharma Son Of Shri Bijay Kumar Sharma, Sandeep Maloo Son Of Shri Labh Chand Maloo Versus Income Tax Officer, Ward 64, Jaipur

The Rajasthan HC allowed a writ petition challenging recovery proceedings under Section 179 of the Income Tax Act. The Revenue sought to recover ... Recovery of the outstanding dues of Public Limited Company from the Director by invoking Section 179 - Liability of directors of private company - HELD THAT:- Section 179 of the Act empowers the Income Tax Authorities to recover dues of a private company from the person who was Director during the relevant previous year. Latter part of Section 179(1) casts a negative onus on the Director to prove that non-recovery was not attributable to gross neglect, misfeasance or breach of duty on part of Director in relation to the affairs of the Company. In response to the show cause notice, it was specifically pleaded that since 1997 the Company was incorporated as Public Limited Company and is registered with the Registrar of Companies, Rajasthan. While passing the order under Section 179 of the Act, the fact that Company is a Public Limited Company was not refuted. Similar is position in the reply filed to the writ petition. There is no dispute that Company was not a private company. Revenue Authorities failed to lay down the factual foundation in the notice and order passed under Section 179 of the Act to dispute the status of the Company being the public limited company. The contention of counsel for the petitioner that no proceedings can be initiated under Section 179 of the Act against the petitioner being a Director of Public Limited Company, deserves acceptance. The Section does not apply to the public limited company. WP allowed. Issues:1. Interpretation of Section 179 of the Income Tax Act, 1961 regarding recovery of outstanding dues from a Director of a Public Limited Company.Detailed Analysis:The judgment dealt with the issue of whether the recovery of outstanding dues under the Income Tax Act, 1961 from a Director of a Public Limited Company can be enforced under Section 179 of the Act. The petitioner, a Non-Executive Director of a company, received a notice under Section 179 for the outstanding demand after the company failed to clear the dues. The petitioner contended that Section 179 only applies to Private Limited Companies, not Public Limited Companies. The respondent argued that the petitioner, as a Director, is liable for the dues. The court examined Section 179, which holds Directors of private companies responsible for tax dues unless they prove non-recovery was not due to neglect, misfeasance, or breach of duty. The court noted that the company in question was a Public Limited Company, not a private one.The court observed that the Revenue Authorities did not dispute the Public Limited Company status of the company in question during the proceedings under Section 179. The court emphasized that Section 179 specifically targets Directors of private companies and does not extend to Directors of public limited companies. Citing precedents, the court referred to the Supreme Court and High Court decisions that clarified the inapplicability of Section 179 to Directors of Public Limited Companies. The judgments highlighted that the provisions of Section 179 are limited to private companies, and there is no equivalent provision for recovery from Directors of Public Limited Companies under the Income Tax Act.In conclusion, the court allowed the writ petitions, quashing the impugned notices and orders issued under Section 179 against the Director of the Public Limited Company. The court directed the Revenue Authorities to pursue recovery from the company itself, as the provisions of Section 179 do not apply to Directors of Public Limited Companies. The judgment reiterated that the liability under Section 179 is specific to Directors of private companies and cannot be extended to Directors of public limited companies.