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HIGH COURT OF CALCUTTA
Deb
GADADHAR DEY - Appellant
Versus
TAX RECOVERY OFFICER - Respondent
Matter 123 Of 1973
Decided On : MARCH 13, 1974
INCOME TAX - Section 179 - Scope and applicability - Not applicable to dissolved private limited companies - Directors of such companies have no personal liability to pay tax.
Fact of the Case:
The petitioners, a former director and shareholder of a dissolved private limited company, challenged the jurisdiction of the revenue authorities to issue notices and proceed against them for recovery of assessed taxes owed by the company.
Finding of the Court:
The court held that Section 179 of the Income-tax Act, 1961, which imposes personal liability on directors of private limited companies for unpaid taxes, does not apply to dissolved companies. The court reasoned that the legal entity of a company is extinguished upon dissolution, and that the directors have no personal liability to pay the company's taxes under the Companies Act, 1956.
Issues: Whether Section 179 of the Income-tax Act, 1961, applies to dissolved private limited companies.
Ratio Decidendi: The court interpreted Section 179 of the Income-tax Act, 1961, strictly and held that its plain and clear language does not extend to dissolved companies. The court also noted that the non-obstante clause in Section 179 cannot be used to enlarge its scope and ambit.
Final Decision: The court quashed the notices issued to the petitioners and prohibited the revenue authorities from proceeding against them for recovery of the assessed taxes. However, the court clarified that its order would not affect the rights of the revenue authority to proceed against the assessee-company.
( 1 ) IN this writ application, the petitioners have challenged the jurisdiction of the respondents to issue two notices both dated July 31, 1967, and to proceed against them under two notices both dated May 3, 1973, in the following circumstances : G. Dey and Company (Contractors) Private Ltd. , hereinafter stated as the company, is the assessee under the Income-tax Act. The company is liable to pay the assessed tax of Rs. 690'82 and Rs. 5,212. 88, respectively, for the assessment years 1952-53 and 1953-54. The petitioner No. 1 was a director and the petitioner No. 2 was a shareholder of the company for the above period. They have sold their shares in 1962 and the petitioner No. 1 has ceased to be a director of the company since then.
( 2 ) THE impugned notices of July, 1967, were served on the petitioner No. 1 in the tax recovery proceedings started against the company. Thereafter, the impugned notices of February, 1973, were served on the company and the premises No. 3, Robinson Street, Calcutta, and 120/6, Masjid Bari Street, Calcutta, were attached for recovery of those taxes.
( 3 ) THE petitioners' case is this : The company was dissolved on April 3, 1967, under the provisions of Sub-sections (1), (2), (3) and (5) of Section 560 of the Companies Act, 1956. The premises No. 3, Robinson Street, is a trust property of which the petitioner No. 2 is the sole trustee. The other property is in the possession of a receiver appointed by this court in Suit No. 4719 of 1952. These two properties are not liable to be attached and the petitioners have no liability to pay those taxes.
( 4 ) IT is an admitted fact that the petitioners are not the assessees. It is also an admitted fact that no notices under Section 156 of the Income-tax Act, 1961, were served on them. Therefore, the petitioners are not the defaulter within the meaning of the Income-tax Act under Sections 220 and 222 of the Act which have no application so far as the petitioners are concerned.
( 5 ) IN these circumstances, the question is whether the impugned notices of July, 1967, could be issued against the petitioner No. 1 by the respondent, Tax Recovery Officer, and, if so, whether the said respondent could proceed against the petitioners under the impugned notices of February, 1973, served on the company.
( 6 ) MR. Ajit Kumar Sen Gupta, the learned counsel for the revenue authorities, has placed reliance on Section 179 of the Income-tax Act, 1961, which is as follows :" Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), when any private company is wound up after the commencement of this Act, and any tax assessed on the company, whether before or in the course of or after its liquidation, in respect of any income of any previous year cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. "
( 7 ) IT has been contended by Mr. Sen Gupta that the Tax Recovery Officer is entitled to proceed against the petitioner No. 1 under this section. His contention is that, though this section speaks of winding up and liquidation of a private limited company, yet it includes a dissolved company. But I am not impressed by his contention. Section 560 of the Companies Act, 1956, empowers the Registrar of Joint Stock Companies to strike out the name of a defunct private limited company from the register mainly under two circumstances: (1) where the company has ceased to carry on any business, and (2) where nothing has been done in the course of the winding up of the company or the affairs of the company has been completely wound up in liquidation proceedings by the court.
( 8 ) A company may be wound up either voluntarily or by the court. Sub-section
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