No Satisfaction recorded that Tax cannot be recovered from Company: Bombay HC quashes Recovery Procedure u/s 179 against Director [Read Order]

The Bombay High Court has held that no satisfaction recorded that tax cannot be recovered from Company and quashes recovery procedure u/s 179 against the director.

The petitioner, Rajendra R. Singh, is the Chairman and Managing Director of Crest Paper Mills Limited (CPML). The respondent department passed an order under section 179 of the Income Tax Act, 1961 holding that the petitioner was liable to pay the demand of Rs.3,98,19,430/- along with interest under section 220(2) of the Act which was otherwise due and payable by the company, CPML.

The department by relying on the decision of the Pravinbhai M. Kheni Vs. Assistant observed that even the directors of public companies could be brought within the purview of section 179, especially where the affairs of the company were not conducted as a public limited company in its true sense. The aggrieved petitioner filed a Writ petition for issuance of a Writ of Certiorari for quashing the order passed under section 179 of the Income Tax Act, 1961 holding that the petitioner is liable to pay the demand of Rs.3,98,19,430/- along with interest.

The Division bench has observed that the procedure adopted by the department was violative of the principles of natural justice and without affording the petitioner, an opportunity of being heard on the question, as to why the principle of ‘lifting the corporate veil’ was not applied in the case of CMPL to justify the recovery of the tax dues from the directors. The department also fails to record the satisfaction that the tax cannot be recoveredfrom the company before initiating proceedings under section 179.

The Coram of Mr. Justice Dhiraj Singh Thakur and Mr. Justice Abhay Ahuja has quashed the order passed against the director for recovery of tax dues of the company and held that “recovery procedure under section 179 of the Act against the directors is not to be resorted to casually and only because it is convenient to do so for affecting recovery of the tax dues”.

Mr. Madhur Agrawal appeared on behalf of the petitioner and Mr. Suresh Kumar and Mr. Akhileshwar Sharma appeared on behalf of the respondent.

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