Law:

Section:

Section 179 of the Income-tax Act, 1961 - Company in liquidation - Liabilities of directors - Whether a proceeding under section 179 can be initiated against directors of company provided there is a finding that tax for relevant period cannot be recovered from company - Held, yes FACTS Notices under section 179 were issued to the petitioners to show cause as to why the taxes due from the company should not be realised personally from them. On writ petitions, it was contended that the petitioners were a non-executive directors of the respondent No. 4-company inducted in the capacity of Chartered Accountants; that in early 1993, the Board of Directors was reconstituted in view of change of management of company and the petitioners resigned from the directorship; that the impugned notices under section 179 were received by them thereafter requiring their attendance; that they could not reply in short period of time and that the liability of the directors was not a liability co-extensive with the liability of the company unlike a principal debtor and surety. HELD For the purpose of invocation of writ jurisdiction there should be some materials from which it will appear that a judicial review is necessary, being that the action is bad from the face of it. In the instant case, a notice had been issued to the petitioners under section 179(1) only to meet the show-cause notice. Therefore, the Court have to come to a definite finding whether there is any illegality or material irregularity in respect of service of such notice. Section 179 shows that when a tax due from a private company cannot be recovered, then, every person who was a director of a private company at the time during the relevant previous year shall be jointly and severally liable for payment of such tax. Therefore, the joint or several liability will arise provided tax cannot be recovered from company. Thus, a proceeding can be initiated as against the directors of the company provided that there is a finding that the tax for the relevant period cannot be recovered from the company. In the impugned notice, there was no averment about due compliance of the show-cause notice under section179 to the…

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