Law:

Section:

Section 179 of the Income-tax Act, 1961 - Tax liability of directors - On liquidation of private company - Whether provisions of section 179 would operate with retrospective effect from 1-4-1962 - Held, yes - Whether director of a private limited company, business of which was almost nil, could be held liable for tax arrears due for assessment years commencing from 1-4-1962 - Held, yes FACTS The respondent was one of the directors of a private limited company. The company was assessed for the assessment years 1964-65 and 1965-66. Subsequent to these assessment years the business almost came to an end and the company suffered losses and the company was either assessed to 'nil'income or assessed to loss. The tax liability of the company was not discharged and thereupon the Tax Recovery Officer (TRO) initiated proceedings against the respondent for realisation of the tax dues. Subsequently, the TRO attached properties of the respondent and issued proclamation of sale. On petition under article 226 of the Constitution the Court set aside the orders passed by the revenue and held that section 179 was only prospective and that the respondent was not liable for payment of tax arrears of the company under section 179 in respect of the assessment years prior to 1-10-1975. On writ, the revenue contended, inter alia, (i) that the provisions of section 179 which came into operation on 1-10-1975 had specifically provided for retrospective operation of the provisions with effect from 1-4-1962 onwards, and (ii) that this provision was merely procedural in nature as it dealt with machinery to recover the taxes due from the company. HELD It is now well settled that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. If the enactment is expressly in language which is fairly capable of either interpretation, it ought to be construed as prospective only. Bearing this principle in mind and examining the provisions of section 179(1) and (2), the…

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