- Bookmark
- Share
- CaseIQ
M.D Lotlikar v. R.C De Desouza, Commissioner Of Income-Tax, Bombay City-V.
Factual and Procedural Background
The petitioner, a director of Bhimjee & Company Pvt. Ltd., was assessed for tax on a best judgment basis under section 144 of the Income Tax Act, 1961 for the years 1964-65 and 1965-66. The tax and interest amounts determined were Rs. 2,300 and Rs. 1,169 for 1964-65, and Rs. 4,200 and Rs. 2,045 for 1965-66, respectively. The company failed to pay these dues. Subsequently, on 17th September 1977, following a show-cause notice under section 179 of the Act, the Income Tax Officer (ITO) held the petitioner jointly and severally liable for the arrears. The petitioner challenged this liability through a revision application, which was dismissed on 2nd August 1978. The petitioner then filed the present petition contesting the application of the amended section 179 to tax arrears assessed before the amendment.
Legal Issues Presented
- Whether the amended section 179 of the Income Tax Act, 1961, which imposes joint and several liability on directors for company tax arrears, applies retrospectively to tax assessed prior to the 1975 amendment.
- Whether the petitioner, as a director, can be held liable for company tax arrears assessed before the amendment of section 179.
Arguments of the Parties
Petitioner's Arguments
- The petitioner relied on the Division Bench judgment of the Kerala High Court in Ratanlal Murarka v. ITO ([1981] 130 ITR 797), which held that section 179 is prospective and does not apply to tax arrears assessed prior to its commencement.
- The petitioner contended that the amended section 179 should not be applied retrospectively to tax liabilities assessed before the 1975 amendment.
Respondents' Arguments
- The respondents argued that the language of section 179 allows tax authorities to recover tax arrears from directors even if the tax was determined before the amendment.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ratanlal Murarka v. ITO, [1981] 130 ITR 797 (Kerala High Court) | Section 179 is prospective and does not apply retrospectively to tax arrears assessed prior to its commencement. | The court relied on this precedent to hold that the amended section 179 cannot be applied retrospectively to tax assessed before the 1975 amendment. |
Court's Reasoning and Analysis
The court analyzed the language of the amended section 179 and found no indication that it was intended to have retrospective effect. The tax arrears sought to be recovered were assessed prior to the 1975 amendment. The court distinguished the respondents' contention by emphasizing that the statute’s wording does not support retroactive application. It relied on the Kerala High Court’s Division Bench decision in Ratanlal Murarka v. ITO, which held that section 179 is prospective in operation. Accordingly, the petitioner could not be held liable for tax arrears assessed before the amendment. The court thus sustained the petitioner’s contention and made the petition absolute with costs.
Holding and Implications
The petition is allowed and made absolute with costs.
The petitioner is entitled to withdraw the deposited sum of Rs. 9,780 (with accrued interest) that was credited to the court's account. The decision limits the application of the amended section 179 to tax arrears assessed after the amendment, thereby protecting directors from retrospective liability for earlier tax assessments. No new precedent beyond this factual context was established.
1. The petitioner is a director of a private limited company called Bhimjee & Company Pvt. Ltd. For the years 1964-65 and 1965-66, the company was assessed upon a best judgment basis under the provisions of s. 144 of the I.T Act, 1961. For the years 1964-65 the tax was determined to be Rs. 2,300 and interest in the sum of Rs. 1,169 was made payable. For the year 1965-66 Rs. 4,200 was determined to be the tax and interest in the sum of Rs. 2,045 was made payable. The company did not pay the tax. On 17th September, 1977, pursuant to a show-cause notice to the company's directors under s. 179 of the Act, the ITO passed an order holding, inter alia, the petitioner jointly and severally liable for the arrears of tax. The petitioner went in revision, which application was turned down on 2nd August, 1978.
2. The petitioner challenges by this petition the application of s. 179 as it reads subsequent to the amendment thereof in 1975, to the tax of the company assessed prior to the said amendment. Prior to 1975 a director of a private limited company was, under s. 179, liable jointly and severally for the payment of his company's tax arrears only if the company had been wound up. After the 1975 amendment, s. 179(1) reads thus:
“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.”
3. Mr. Patil, learned counsel for the petitioner, relied upon the judgment of the Division Bench of the Kerala High Court in Ratanlal Murarka v. ITO, [1981] 130 ITR 797. The question there was in respect of a company's tax arrears prior to the introduction of s. 179 in the act which came into force on 1st April, 1962. The petitioner was sought to be made liable for such arrears under s. 179. He challenged this.
4. The Division Bench observed that the section was prospective and there was nothing in its wording which could attract its provisions to a year previous to the commencement of the Act on April 1, 1962.
5. It was contended by Mr. Naik, learned counsel for the respondents, that the phraseology employed in s. 179 enabled the tax authorities to recover from a director the tax which was determined to be due from his company prior to the coming into force of the amended s. 179.
6. This does not appear to me to be correct. There is nothing in the section as amended which makes its operation retrospective. In the instant case, the tax sought to be collected was much prior to the coming into force of the amended s. 179. The petitioner's contention that he cannot be saddled with such tax liability under s. 179 is well founded and must be sustained.
7. In the circumstances, the petition is made absolute with costs.
8. The petitioner shall be entitled to withdraw from the court the sum of Rs. 9,780 (with interest accrued thereon) deposited by the petitioner to the credit of this petition on 22nd November, 1978.
Alert