2004 (9) TMI 59

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.... writ, order or direction in the nature of certiorari quashing the order dated May 29, 2003, passed by the Assistant Commissioner, Income-tax, Circle Noida, respondent No. 1, filed as annexure No. 1 to the writ petition and other consequential reliefs. Briefly stated the facts giving rise to the present writ petitions are as follows: According to the petitioner, after doing post graduation in Commerce from Gorakhpur University he got a job on February 12,1979, in M/s. Prestige Engineering India Pvt. Ltd., at is factory at Noida. It is a sister concern of M/s. Shashank Polyplast Limited, respondent No. 3. He worked there up to March 31, 1992. Thereafter he was transferred to another sister concern of respondent No. 3, namely, M/s. Prestige H. M. Polycontainers Limited where he served till June 30,1997. He left the company on June 30, 1997. The managing director of Prestige H. M. Polycontainers Limited issued a certificate on June 30, 1997, stating therein that there was no financial liability against the petitioner. Thereafter he started his own business at Noida. According to the petitioner, all the three companies, namely, Prestige Engineering India Private Limited, Prestige....

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....time on April 3, 1993, when he became a director from February 9, 1992, respondent No. 3 had already become a public limited company under section 43A of the Companies Act, 1956. He further stated that he was a director for namesake only and had signed the relevant forms regarding his appointment as director on the dictates of the owners. The recovery proceedings should have been initiated against Sri P.K. Gupta, who was a de facto director of the company during all the relevant previous years. According to the petitioner, he was not aware about the steps taken by the Department for recovery of the alleged dues from the company and how the Department has failed to recover the said dues. Moreover, he had never signed or filed income-tax return for respondent No. 3 nor had ever attended any assessment proceedings. The Tax Recovery Officer appeared to be not satisfied with the explanation given by the petitioner. He did not furnish requisite documents/information sought by the petitioner and issued an order of attachment on April 5, 2002, under rule 48 of the Second Schedule to the Income-tax Act attaching the residential house No. A-71, Sector 30, Noida, which is owned by the petitio....

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....e became a director on April 3, 1993, when the said respondent No. 3 had already become a public limited company by virtue of the provisions of section 43A of the Companies Act, 1956, with effect from February 9, 1992. He, thus, submitted that the notice to show cause dated March 26, 2002, as to why warrant of arrest should not be issued, the attachment order dated April 5, 2002, attaching the house No. A-71, Sector 30, Noida district Guatum Budh Nagar, owned by the petitioner's wife as also the order passed by the Assistant Commissioner of Income-tax, Circle Noida, dated May 29, 2003, holding the petitioner liable for the dues of respondent No. 3 under section 179 of the Act cannot be sustained and are liable to be quashed. He submitted that from a perusal of the order dated May 29, 2003, passed under section 179 of the Act it has nowhere been recorded nor any finding has been given that the tax due from a private limited company cannot be recovered and, therefore, in its absence the recovery of tax dues under section 179 of the Act from the petitioner is not permissible under law. He referred to the following decisions: (1) Jagdish Jagmohandas Kapadia v. CIT [1990] 183 ITR 143....

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....ntained in paragraphs 8 and 10 of the counter affidavit, which are reproduced below: "8. That the content of para. 7 of the writ petition are matters of record, and require no specific response at this stage. 10. That the contents of para. 9 of the writ petition are denied. The petitioner cannot absolve or exclude himself for the liability of the company up to the period ending March 31, 1997 (April 1997, to March 1998) by disassociating himself from the company after September 30, 1997, which fact is also not supported by any evidence or documentary proof at all." Thus, the fact that respondent No. 3 became a public company on 9th 12 February, 1992, is not being disputed by the respondents. The present outstanding dues of respondent No. 3 which are sought to be recovered from the petitioner under section 179 of the Act relate to the assessment years 1983-84 to 1990-91 and 1992-93. It is for the period prior to induction of the petitioner as director in respondent No. 3-company, i.e., prior to April 3, 1993. Section 179 of the Act under which the petitioner has been saddled with the liability of the outstanding dues of respondent No. 3 reads as follows:- "S. 179. Lia....

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.... the director is liable only in respect of arrears of tax for the assessment year when he was functioning as a director. For invoking the provisions of section 179(1) of the Act for thrusting upon the director the vicarious liability, it is a sine qua non that the Assessing Officer must record a finding that the tax due from the company cannot be recovered from the company. In the absence of such a finding, the Assessing officer has no jurisdiction to invoke section 179(1) of the Act as held by the Andhra Pradesh High Court in the case of K.V. Reddy [1998] 232 ITR 306, the Gujarat High Court in the case of Bhagwandas J. Patel [1999] 238 ITR 127 and the Madras High Court in the case of C. Rajendran v. ITO [2002] 253 ITR 139. In the case of M. Rajamoni Amma [1992] 195 ITR 873, the apex court has held that where the company has become a deemed public company by virtue of section 43A of the Companies Act, 1956, with effect from October 1, 1975, and the arrears sought to be recovered relate to the assessment years 1977-78 to 1982-83 obviously, the company being a public company, the proceedings against the directors for recovery of the tax due from the company cannot be taken, and....