Directors' liability under Section 179 requires a finding of non-recoverability from the company before proceeding against directors, order set aside

Liability of directors under Section 179 is contingent on a prior finding that tax dues cannot be recovered from the company; absent any finding of non-recoverability against the company, proceedings against directors are impermissible, and the impugned order was set aside on that sole ground. If, during recovery from the company, it is established that dues cannot be recovered, the pre-condition for invoking personal liability of directors under the provision will be satisfied and such powers may be exercised strictly in accordance with law.

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Issues: Whether proceedings under Section 179 of the Income-tax Act, 1961 can be initiated against a director of a private company without an affirmative finding that the tax dues cannot be recovered from the company.

Analysis: Section 179 imposes personal liability on directors of a private company only upon satisfaction of the statutory contingency that tax due from the company "cannot be recovered". The impugned order initiating proceedings under Section 179 against the petitioner records no finding that recovery from the company was not possible. The Court relied on the requirement that the pre-condition of non-recoverability must be established before making a director liable and noted authority to similar effect. The matter was therefore examined only on whether the requisite finding of inability to recover was recorded prior to invoking Section 179.

Conclusion: The impugned order is set aside for want of any finding that the tax dues could not be recovered from the company. The petitioner (director) succeeds on this issue and the petition is disposed of accordingly.

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