TaxTMI 
TaxTMI 
2009 (6) TMI 628
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.... a director of the company during the course of the said search proceedings. Pursuant to the said search, an order of assessment was passed by the Assessing Officer determining a total amount of Rs. 2,42,47,658 as undisclosed income and the net tax payable on it to be Rs. 1,70,21,856. The assessment order was passed on January 31, 2003, copy of which is produced along with papers. The case of the petitioners is that the company, as on the date of the assessment had paid tax to the tune of Rs. 39,24,185 and in addition, it had paid a sum of Rs.24,22,078. On the score of computation of income-tax, the petitioner was before the Commissioner of Income-tax (Appeals) in I. T. A. No. 415/DCIT-CC-2(2)/CIT(A)-VI/ 2003-04 dated October 30, 2004. The said reference is still pending adjudication. However, we are not really concerned with the assessment of tax or the computation thereof. In the present proceedings, we are concerned about the proceedings initiated against the petitioners under section 179 of the Income-tax Act, 1961, (for short, "the Act"). Indeed, all the petitioners are the directors of the company. If the company is not in a position to meet the demands of payment of income-t....
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....ity. He further submits that right from the day the company was incorporated, i.e., in the year 1991 and thereafter till the search was made in the year 2001, the petitioners had not chosen to file returns at all. Thus, one part of section 179 of the Act regarding gross negligence and misfeasance is proved. In so far as the word "tax" does not include penalty and interest, he would rely on a ruling of the Bombay High Court to indicate that the tax as contemplated under section 179 of the Act would include the penalty as well as interest. Hence, he submits that the impugned order at annexure A does not warrant interference. 5. To appreciate the rival contentions of the petitioners as well as the respondents, it is necessary to look into the provisions of section 179 of the Act. It is useful to extract the provisions of section 179 of the Act : "179. Liability of directors of private company in liquidation.-(1)Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a priv....
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.... liable to satisfy the claim in their capacity as directors. Indeed, it is to be noticed that in the case on hand, there are as many as three claimants for the amount due to the statutory authority. Indeed, the bank has advanced credit facility and the same is not discharged. Thus, in this background, one will have to see whether gross neglect, misfeasance or breach of duty can be attributed to the petitioners. In this regard, the reply filed by the petitioners has been considered by the respondents. It is not in dispute that the company was incorporated in the year 1990 and started production in the year 1991. It is trite that the company has not filed returns of income from the inception of the company till the date of search under section 132 of the Act conducted on January 18, 2001. This would be 10 years. Indeed, in the present circumstances and having regard to the large sums of money due to the statutory authorities, the petitioners cannot be heard to say that there is no gross negligence, misfeasance or breach of duty on their part. In this regard, it is to be noticed that in the first instance, sub-section (1) of section 179 of the Act casts a burden upon the director to p....
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....untry is required to file his tax returns whether taxable or not. It is no doubt true that a contention is sought to be urged by Mr. Shankar, learned counsel for the petitioner that if an assessee does not have taxable income he is not required to file his income. However, the said contention cannot be accepted, inasmuch as, the company has slept over for almost more than a decade and they cannot be heard to say that since the company did not make any profits they are not obliged to file returns. This itself is sufficient to hold that there is a gross neglect on the part of the directors of the company. Hence, I am of the view that all the ingredients of section 179 of the Act are satisfied. 12. Re-whether the tax includes penalty and interest : 13. To appreciate, it is necessary for us to look into the definition of tax under section 2(43) which would read as under : "(43) `tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the afo....
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....be only to the directors of the company. With reference to section 222 of the Act the assessee undoubtedly is liable to pay the tax, interest and penalty. However, the same cannot be said about the directors of the company. Indeed whether tax would include penalty and interest fell for consideration before the apex court in the case of Pratibha Processors v. Union of India [1996] 11 SCC 101, 109. Indeed the said decision was rendered under the Customs Act but the words and phrases "interest", "tax" and "penalty" fell for consideration and the apex court has observed thus : "In fiscal statutes, the import of the words-'tax', `interest', `penalty', etc., are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interes....