Calcutta High Court
Smt. Bidya Devi vs Commissioner Of Income-Tax And Ors. on 12 June, 2000
Equivalent citations: [2000]245ITR196(CAL)
JUDGMENT Y.R. Meena, J.
1. This appeal is directed against the judgment of a learned single judge dated September 2, 1992. The main grievance of the appellant/petitioner in this appeal is that the learned single judge should have quashed the order of the Commissioner of Income-tax dated March 30, 1989, and the order of the Assistant Commissioner dated September 12, 1991, and ought to have held that the amendment in Section 179 of the Income-tax Act, 1961, which was amended in October, 1975, is not applicable in the case of the director of a company who resigned in 1974 when the company has not gone into liquidation. Consequently, the petitioner as well as the petitioner's husband who was one of the directors, before the amendment in Section 179 is not liable for any tax of the company in question under Section 179 of the Income-tax Act, 1961 (hereinafter referred to as "the Act of 1961").
2. The petitioner's husband expired on May 22, 1988, at Calcutta. The petitioner's husband was one of the directors in Friends United Investors (P.) Ltd. (hereinafter referred to as "the company"). The husband of the petitioner was the director of the company and resigned from the directorship on April 4, 1974, and that resignation was accepted and communicated by the Assistant Registrar of Companies vide his letter dated May 23, 1974. Thereafter, the petitioner's husband has nothing to do with the company.
3. In 1985, the husband of the petitioner, Shri D.M. Gupta, was served with a notice under Section 226(3) of the Act of 1961 for recovery of the tax liabilities of the company for the assessment years 1968-69 to 1974-75. The petitioner's husband, Shri D.M. Gupta, challenged that notice of recovery proceedings on the ground, inter alia, that the amendment made in 1975 in Section 179 has no application in the assessment years prior to 1975 and no opportunity was given to the appellant/petitioner's husband for hearing before the order under Section 179 was passed. Though the petition was dismissed a direction was given that the Income-tax Officer should give the opportunity and pass a fresh order under Section 179 in accordance with law.
4. In compliance with the direction of this court, the Income-tax Officer has passed a fresh order after hearing the petitioner's husband under Section 179 of the Act of 1961, and concluded that the petitioner's husband is not liable for payment of tax due against the company under Section 179 of the Act vide order dated March 4, 1987. In 1988, the petitioner's husband expired.
5. In the revisional power under Section 263, the Commissioner of Income-tax (hereinafter referred to as "the CIT") has set aside the order of the Income-tax Officer, which was passed under Section 179, dated March 4, 1987. After that a fresh order was passed by the Assistant Commissioner under Section 179 on September 12, 1991, holding that Shri D.M. Gupta was liable for payment of arrears of tax due against the company.
6. In the petition before this court, the order of the Commissioner under Section 263 dated March 30, 1989, and the order of the Assistant Commissioner dated September 12, 1991, were challenged on the ground that no opportunity has been given nor was there any justification to set aside the order of the Income-tax Officer which was passed under Section 179 dated March 4, 1987.
7. Learned counsel for the petitioner submits that when the Income-tax Officer has passed the order under Section 179 on March 4, 1987, in compliance with the direction of this court in accordance with law that order should not be set aside by the Commissioner of Income-tax, under Section 263 of the Act of 1961. The order of the Income-tax Officer was neither erroneous nor prejudicial to the interests of the Revenue. When the order was not erroneous and was strictly in compliance with the direction of this court, the Commissioner of Income-tax should not set aside that order and any further orders passed by the income-tax authorities in consequence of the order under Section 263, those orders should also be quashed. He further submits that the Income-tax Officer in giving effect to the order of this court dated February 17, 1986, has also placed reliance on the decision of the Kerala High Court in the case of Ratanlall Murarka v. ITO and the decision of the Bombay High Court in the case of M.D. Lotlikar v. R.C. De Desouza, CIT [1984] 145 ITR 433. He further submits that the special leave petition that was filed against the decision of the Kerala High Court has been dismissed by the apex court. He further submits that even this court in the case of the petitioner's husband, in the order dated February 17, 1986, has taken the view that the amendment that came into force on October 1, 1975, cannot be invoked to make the petitioner liable for tax liability against the company uptill assessment year 1974-75.
8. Learned counsel for the Revenue submits that the decision of the Bombay High Court has been set aside by the Division Bench of the Bombay High Court in the case of Union of India v. Manik Dattatreya Lotlihar [1988] 172 ITR 1 and the decision of the Kerala High Court was not on the amendment made in Section 179, in the year 1975 but when the section itself was introduced. Therefore, that has no application on the facts of this case.
9. Heard learned counsel for the parties. The facts are not in dispute that . the petitioner's husband, Shri D.M. Gupta, was one of the directors of the company. He resigned from the directorship of the company in the year 1974. A demand notice of the tax liability for recovery was served on the husband of the petitioner for the outstanding tax liability of the company. That demand notice, under Section 226(3) of the Act, was challenged in this court. This High Court has directed that the petitioner's husband should be heard before any order under Section 179. After hearing a fresh order under Section 179 was passed by the Income-tax Officer on March 4, 1987, and in that order the Income-tax Officer has taken the view that the petitioner's husband, Shri D. M. Gupta, ex-director of the company was not liable for payment of tax due against the company. That order under Section 179 was set aside by the Commissioner of Income-tax in exercising of the powers under Section 263 of the Act of 1961 and a fresh order was passed by the Assistant Commissioner under Section 179 on September 12, 1991.
10. Before we proceed to consider the impugned judgment of the learned single judge, we prefer to consider the basic issue whether the order of the Income-tax Officer dated March 4, 1987, was erroneous and prejudicial to the interests of the Revenue, whether the petitioner's husband was at all liable for the tax liability due against the company though he resigned from the directorship in the year 1974 and Section 179 was amended in 1975.
11. Before this amendment, Section 179 stood as under :
"179. Liability of directors of private company in liquidation.--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."
12. Section 179(1) after the amendment made with effect from October 1, 1975, stands as under :
"179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company 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."
13. Prior to the amendment in 1975, the director was liable under Section 179 jointly and severally for the payment of his company's tax arrears only if the company had been wound up, but after the amendment in Section 179 in the year 1975, Section 179 provides that where any tax was due from a private company which could not be recovered from the company every person who was a director of the company is jointly and severally liable for the payment of such tax unless he proves that the non-recovery could not be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company meaning thereby if the company has gone into liquidation or not the ex-director is also liable to pay the tax arrears due against the company. The case of the petitioner is that her husband was a director before this amendment and when the amendment has no application, the director who resigned from the directorship prior to the amendment in 1975, is not liable for any tax liability of the company.
14. The perusal of the order of the Income-tax Officer under Section 179 shows that while the opportunity of hearing was given by the Income-tax Officer for fresh order under Section 179 of the Act of 1961, the petitioner's husband has taken the ground that the company has not gone into liquidation. Therefore, the amended Section 179 is not applicable to him. The section was amended on October 1, 1975, and the petitioner's husband resigned from the directorship with effect from April 4, 1974, and also have taken the ground that non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company and he also placed reliance on the decisions of the Bombay and the Kerala High Court.
15. It is true that while setting aside the order of the Income-tax Officer dated March 4, 1987, invoking the jurisdiction under Section 263 of the Act, the Commissioner has noticed that the Division Bench of the Bombay High Court has set aside the decision of the learned single judge of the Bombay High Court in M.D. Lotlikar v. R.C. De Desouza, CIT [1984] 145 ITR 433. The retrospective effect of Section 179 of the Act has also been considered by the Kerala High Court, the view has been taken that it has no retrospective effect and the special leave petition has been rejected which was filed against the decision of the Kerala High Court, but in that case the Kerala High Court has considered the provision of Section 179 which was in the Act itself in the year 1961. Therefore, no doubt, the Kerala High Court has considered the issue of retrospective effect of the provisions of Section 179, but has not considered the issue of retrospective effect of the amendment.
16. But at the same time we cannot ignore the fact that the order under Section 179 has been passed by the Income-tax Officer on March 4, 1987, in compliance with the direction of this court in a petition filed by the husband of the petitioner and this court has also considered in that order whether the amendment under Section 179 has retrospective effect. This court has considered the amendment in Section 179 made in the year 1975, whether that has retrospective effect and in its order dated February 17, 1986, at pages 12 and 13, while dealing with the issue this court has observed as under :
"It is not necessary to refer to these judgments because no effective answer to this argument could be advanced on behalf of the respondents. It is well settled that any amendment which is in force at the beginning of the relevant assessment year must govern the case though the amendment is made after the income under assessment is earned. The company's previous year was the financial year. The petitioner ceased to be a director of the company after the financial year 1974-75 for which the relevant assessment year is 1975-76. The law applicable to the assessment of the income of the company for the financial year 1974-75 will be the Income-tax Act as it stood on April 1, 1975. The amendment that came into force with effect from October 1, 1975, cannot be invoked to make the petitioner liable for the income-tax dues of the company for the financial year 1974-75 or any earlier year."
17. When this court in the case of the appellant's husband has taken the view that the amendment in Section 179 of the Act has no retrospective effect, how that can be ignored by the Income-tax Officer in giving effect to the order of the High Court dated February 17, 1986. Therefore, there is no need to go to any other High Court such as the Bombay or the Kerala High Court to consider the error in the order of the Income-tax Officer. Therefore, we are not concerned with the view expressed by other High Courts, when this very court in the case of this very assessee has taken the view that the amendment in Section 179 with effect from October 1, 1975, has no retrospective effect and the petitioner was not liable for income-tax dues of the company for the financial year 1974-75 or any earlier year, specially when no decision of the apex court has been brought to our notice which is contrary to the view expressed by this court on the retrospective effect of the amendment in Section 179 in the year 1975.
18. It is pertinent to note that here we are mainly concerned with the order of the Income-tax Officer under Section 179 of the Act on March 4, 1987, which is in compliance with the direction of this court in an order dated February 17, 1986. The Income-tax Officer cannot go beyond or ignore the direction of this court while giving effect to the order of this court. Therefore, though some judgments of the Bombay High Court and the Kerala High Court was referred to in support of the claim of the petitioner's husband but when even otherwise this court has taken the view that the amendment in Section 179 has no retrospective effect, the Income-tax Officer cannot ignore that fact. Therefore, when the company is not in liquidation, the petitioner's husband is not liable to pay the tax liability of the company for the assessment years 1968-69 to 1974-75, if the company has not gone into liquidation.
19. Now, we come to the question whether the company has gone into liquidation. The categorical finding has been given by the Income-tax Officer in his order dated March 4, 1987, that there is no material to come to the conclusion that company has gone into liquidation. When the company has not gone into liquidation there is no question of recovery of tax dues against the company from the director who resigned in 1974. I also perused the order of the Commissioner under Section 263 dated March 30, 1989. No sufficient material has been brought on record which reveals that the company has gone into liquidation. The Income-tax Officer, in his order dated March 4, 1987, has categorically said and found that there is no material to come to the conclusion that the company has gone into liquidation.
20. When the company has not gone into liquidation, whether non-recovery of tax is on account of negligence of any director or not is irrelevant in cases of assessments prior to the assessment year 1974-75. When the Commissioner of Income-tax has not brought any material on record to hold that the company has gone into liquidation, he has no justification to set aside the order of the Income-tax Officer under Section 263 of the Act.
21. When the company has not gone into liquidation nor, the amendment in Section 179 made in 1975, has retrospective effect, we found no error in the order of the Income-tax Officer dated March 4, 1987, passed under Section 179 of the Act. When the order of the Income-tax Officer dated March 4, 1987, is not erroneous and is passed in compliance with the direction of this court dated February 17, 1986, there is no error in that order that the petitioner's husband is not liable for the tax dues against the company when the order is not erroneous. The Commissioner has wrongly invoked the provision of Section 263 of the Act of 1961.
22. In the result, the order of the Commissioner of Income-tax cannot be sustained hence quashed, we also quash all the orders passed in consequence of the order of the Commissioner of Income-tax under Section 203 of the Act of 1961.
23. The appeal is allowed accordingly.
Ranjan Kumar Mazumdar, J.
24. I agree.