Khaders International Construction Ltd. and Others vs Commissioner of Income Tax and Others

S. Sankarasubban, J.—The original petition has been filed to quash exhibits P-20, P-21 and P-22. For the year 1983-84, the petitioner-company filed a return showing loss of Rs. 66,03,647. By exhibit P-2 assessment order, the assessing authority found a net income of Rs. 23,265,565 and an amount of Rs. 20,39,680 was demanded as tax, interest, etc. The petitioners agitated against the assessment before various authorities and now it is admitted that the assessable income of the company for the above year has been determined at Rs. 3,21,210 and the tax payable has been reduced to Rs. 2,53,776. After the assessment order was issued notices were issued u/s 179 of the Income Tax Act to the directors. This is evidenced by exhibit P-12 and similar notices. Petitioners Nos. 2 to 5 are the directors of the company who received notices u/s 179. The Inspecting Assistant Commissioner of Income-lax by exhibit P-15 order rejected the objections of petitioners Nos. 2 to 5 against the notices u/s 179. Exhibit P-20 is the order passed by the Commissioner in revision u/s 264 of the Income Tax Act. Exhibit P-21) rejected the revision, exhibit P-21 is a notice demanding the directors to pay the amount.

Learned counsel for the petitioners submitted that the order passed u/s 179 is illegal. According to him, the company in question is not a private company, it is a public company. Further, counsel submitted that it cannot be said that there was gross negligence, misfeasance or breach of duty on the part of the directors.

Learned counsel for the Revenue opposed and submitted that there is nothing to show that the first petitioner is a public company. He further contended that even now the directors have not paid the tax.

Since I am allowing this petition on the second point 1 am not deciding the question whether the petitioner-company is a public company or a private company. According to Section 179 of the Income Tax Act, if it is found that any tax due from a private company cannot be recovered, every person who was a director of the private company during the relevant 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. Here it is seen that the petitioners have been contending that the assessment order passed by the assessing authority was without taking into consideration certain deductions which were available to the petitioners. Originally, a lax at Rs. 21,67,400 was imposed. Since the company directors challenged the assessment order before various authorities, the tax has now been reduced to Rs. 2 lakhs odd. In the circumstances, it cannot be said that the non-recovery of tax was due to the negligence of the directors. In Praveen D. Desai Vs. Income Tax Officer, Companies Circle-V(6), Bombay and others., , the Bombay High Court had considered a similar question. It was held that "the company was disputing its liability to tax and this was enough proof that the non-recovery of taxes could not be attributed to neglect or breach of duty on the part of the petitioner", which the company was agitating against the assessment order and disputing the liability to pay the amount assessed. In such circumstances, it cannot be held that the non-recovery of tax was due to negligence or breach of duty on the part of the petitioners.

In the result, I quash exhibits P-20, P-21 and P-22. The original petition is allowed.