Law:

Section:

Section 179 of the Income-tax Act, 1961 - Company in liquidation - Liabilities of directors - Assessment year 2001-02 - Whether before action under section 179 can be initiated against director or directors of a private company, revenue has to first of all show that such a director or directors were responsible for conduct of business during previous year in relation to which liability exists and further, it has to establish that it has taken effective steps to recover outstanding dues from company and has not been able to recover entire outstanding liability - Held, yes - Whether where except for calling upon company and/or its directors to discharge liability, revenue had taken no effective steps to effect recovery of outstanding dues from company, order made under section 179 was to be set aside - Held, yes FACTS Each of the petitioners was a director of a company against which demand had been raised by the revenue. The appeal filed by the company before the Commissioner (Appeals) came to be dismissed and thereafter, the company had preferred second appeal before the Tribunal which was pending. The revenue had called upon the company to make payment of a part of demand during pendency of first appeal. The company had paid a part of the said amount and was also making payment of Rs. 1 lakh every month. Ultimately, the company requested for stay against recovery of demand till disposal of the appeal pending before the Tribunal. The request for stay was rejected and, in the meantime, the respondent-authority passed an order under section 179 against the petitioners. The revenue's case was that the company having expressed its inability to discharge the liability, it was justified in acting under section 179. On appeal to the High Court : HELD The controversy raised in the instant petitions stood concluded by the in the case ofIndubhai T. Vasa (HUF) v. ITO [2006] 282 ITR 170/[2005] 146 Taxman 163 (Guj.). The record revealed that except for accepting the amount paid by the company from time-to-time, the respondent-authority had not taken any steps to effect recovery from the company. The High Court in the aforesaid case had stated that the phrase 'cannot be…

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