Full Judgment Text
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PETITIONER:
HARDIP SINGH & ANR.
Vs.
RESPONDENT:
THE INCOME TAX OFFICER, AMRITSAR & ORS.
DATE OF JUDGMENT26/04/1979
BENCH:
UNTWALIA, N.L.
BENCH:
UNTWALIA, N.L.
PATHAK, R.S.
VENKATARAMIAH, E.S. (J)
CITATION:
1979 AIR 1453 1979 SCR (3) 781
1979 SCC (3) 345
ACT:
Income Tax Act 1961-S. 179-Scope of-Resolution for
winding up of company passed before the coming into force of
the Act-I.T.O. issued notices to Managing Director &
Director to pay large tax arrears due from the company -
Notice if valid.
Section 179 of the Income-tax Act, 1961 (before it was
amended in 1975) provided that when any private company is
wound up after the commencement of the 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.
HEADNOTE:
The appellants were the managing director and director
of a private limited company. On November 13, 1961 a
resolution for voluntary liquidation of the private company
was passed. In February and November, 1970 the Income Tax
Officer issued notices to the appellants calling upon them
to pay income tax which remained unpaid from the company to
the tune of Rs. 1.34 lakhs.
The contention of the appellants that the company had
gone into liquidation before the Act came into force on 1st
April, 1962 and, therefore, s. 179 had no application to
this case was rejected by the Income-tax Officer. The
appellants’ revision petition was rejected by the
Commissioner; the High Court dismissed their writ petition
in limine.
Dismissing the appeal,
^
HELD : The appellants could not escape from their
liability to pay the tax dues. Section 179 was meant to
cover cases of this nature also. [784A]
There are three stages when a company goes into
liquidation, namely : (1) the commencement of the winding up
of the company; (2) continuation of the proceedings or the
steps for winding up and (3) final winding up and
dissolution of the company. Section 179 will be attracted if
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any one or more of the three stages occurred after the
commencement of the Act even though the first or the first
and second events had happened earlier. The directors were
made liable to pay the tax dues because on its liquidation
it becomes difficult for the department to realise the tax
dues from the assets of the company.
[783D-E]
In the instant case, although the commencement of the
winding up of the company had begun on a date prior to the
date of commencement of the Act, at the time when the
Income-tax officer issued notice, proceedings for its
winding up were pending.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2390 of
1972. From the Judgment and Order dated 7-3-72 of the Punjab
and
782
Haryana High Court in Civil Writ No. 773/72.
Bhagirath Das, B. P. Maheshwari and Suresh Sethi for
the Appellants.
P. A. Francis and Miss A. Subhashini for the
Respondents.
The Judgment of the Court was delivered by
UNTWALIA, J. This is an appeal by certificate from the
order of the High Court of Punjab and Haryana dismissing the
appellants writ application in limine. Sandhu Transport
Company (Private) Limited is a private limited company. The
two appellants were its directors. One of them was a
Managing Director. A resolution was passed on the 13th
November, 1961 for a voluntary liquidation of the company at
the instance of its creditors. In respect of some years
ending with the assessment year 1964-65 a huge amount of
income tax to the tune of Rs. 1,34,319/- remained due from
the company. The Income Tax officer issued a notice on 7th
of February, 1970 against appellant No. 2 under Section 179
of the Income Tax Act 1961, hereinafter called the Act, to
show cause why action should not be taken against the
directors of the company for realisation of the arrears of
income-tax due from the company. A similar notice was issued
to appellant No. 1 on the 11th of November, 1970. Both the
appellants filed their show cause before the Income Tax
Officer mainly taking the stand that since the company had
gone into liquidation before the Act had come into force,
action under Section 179 could not be taken against them.
Some other points were also taken in the show cause filed by
the appellants but it is not necessary to state them as the
only point pressed in this Court is in relation to the
jurisdiction of the Income Tax Officer under Section 179 of
the Act.
The Income Tax Officer rejected the appellants’ pleas
by his order dated the 31st December, 1970. The appellants
went in revision before the Commissioner of Income Tax. It
was rejected on 31st January, 1972. Thereafter, when
proceedings were taken for realisation of the income-tax
arrears aforesaid against the appellants they moved the High
Court for the quashing of the proceedings and the orders
under Section 179 of the Act. As already stated the High
Court rejected their application in limine, but certificate
to appeal to this Court was granted only because of the rule
of valuation then prevalent.
Section 179 of the Act as it stood at the relevant time
read as follows :-
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179. Liability of directors of private company in
liquidation-Notwithstanding anything contained in the Com-
783
panies 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".
The Section was amended in 1975 making it more
stringent against the directors of a private company, but we
are not concerned with the said amendment in this case.
There are three stages when a company goes into
liquidation, namely :-(1) the commencement of the winding up
of the company, (2) the continuation of the proceeding or
the steps for winding up and (3) the final winding up and
dissolution of the company. If all the three stages were
complete before the Act came into force on and from the 1st
April, 1962, obviously Section 179 will not be attracted. If
all of the three stages happened after the commencement of
the Act, it is manifest that Section 179 would undoubtedly
be attracted. But the difficulty presented before us by
learned counsel for the appellants was because of some
speciality of the facts of this case, the commencement of
the winding up of the company began on a date which was
prior to the date of commencement of the Act. As it appears
from the orders of the Income Tax Officer and the
Commissioner the company had not even till then been finally
wound up and dissolved. The proceedings for its winding up
were pending. The submission, therefore, is that in such a
case Section 179 will not be attracted. We have no
difficulty in rejecting this argument. In our opinion the
Section will be attracted if any one or more of the three
events occurred after the commencement of the Act even
though the first or the first and second events had happened
earlier. The Section was meant also to net a case like the
instant one where it was resolved that the private company
should be sent to liquidation and nobody cared to pay the
huge arrears of income-tax due from it. The Directors were
sought to be caught exactly for this purpose. When the
company goes into liquidation it becomes difficult for the
department to realise its dues from the assets of the
company and more so when the company has been finally would
up and dissolved. The directors, therefore, have been made
liable to
784
pay such dues. Section 179 is meant to squarely cover such a
case also and the appellants cannot escape their liability
for the dues. The proceedings were rightly initiated against
them for realisation of the dues. The High Court was
perfectly justified in dismissing the appellants’ writ
petition in limine.
We find no merit in this appeal and it is accordingly
dismissed with costs.
P.B.R. Appeal dismissed.
785