1. This writ petition is filed by the petitioner for quashing the impugned notices dated October 10, 1996 and October 19, 1996 (annexures '9' and '11', respectively, to the writ petition), and for quashing the assessment order dated March 1, 1994 (annexure '4' to the writ petition).
2. It is to be made clear that learned counsel for the petitioner stated at the very outset that he does not press for quashing of the assessment order dated March 1, 1994 (annexure '4'), which is appealable. He confines his arguments only for quashing the impugned notices (annexures '9' and '11').
3. The petitioner was, admittedly, a director in the company, Gauri Steel Alloys Private Limited up to January 1, 1993. The proceedings relate to the assessment year 1992-93.
4. The submission of counsel for the petitioner is that the company is itself a juristic entity and, therefore, the respondent can proceed against the assets of the company and the respondent has no legal right to proceed against the assets of the petitioner who was merely a director in the company.
5. Section 179 of the Income-tax Act, 1961 (briefly, 'the Act'), clearly provides that notwithstanding anything contained in the Companies Act, 1956, 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. From this Section, it is clear that the recovery can be made from a director of the company.
6. Then, it is submitted by counsel for the petitioner that Section 179(1) of the Act refers to a private company which is under liquidation. This submission he made on the basis of the heading which Section 179(1) bears. There is nothing in Sub-section (1) of Section 179 to indicate that it refers to a private company which is under liquidation.
7. Section 179(1) came to be amended by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, The words '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' were substituted by the Amending Act, 1975.
8. In Union of India v. Manik Dattatreya Lotlikar : [1988]172ITR1(Bom) , the Bombay High Court piercing into the legislative history of Sub-section (1) of Section 179, observed as under (headnote) :
'Section 179 of the Income-tax Act, 1961, prior to its amendment in 1975, for the first time provided that the directors of a private limited company in liquidation would be liable jointly and severally with the company for payment of arrears of tax. There was no corresponding provision in the Indian Income-tax Act, 1922. Section 179 imposes a vicarious liability on the directors of a private limited company, even though a private limited company is a separate entity. The liability is coextensive with the company and a director is liable only in respect of arrears of tax of the assessment year when he was functioning as a director. Section 179 was amended with effect from October 1, 1975. The object of the amendment was to extend the liability for taxes due from a private company to the directors thereof, even though such company may not be in liquidation.'
9. We quite agree with the aforesaid observations made by the Bombay High Court and, therefore, notwithstanding the misleading heading of Section 179, it must be held that the directors of a private company though not under liquidation, may be liable for the dues outstanding against the company. Therefore, the submission of counsel for the petitioner that no recovery can be made from the petitioner of the dues outstanding against the company has to be rejected.
10. Then, the submission of counsel for the petitioner is that though the impugned notices (annexures '9' and '11') purport to have been issued as notices, they are in fact orders calling upon the petitioner to pay up the dues outstanding against the company. We are not at all impressed by this submission of learned counsel for the petitioner. A careful perusal of the impugned notice (annexure '9') clearly shows that the same is nothing but a notice calling upon the petitioner to accept the notice having been issued against the company in which he was admittedly a director, at least up to January 1, 1993. The impugned notice (annexure '11') simply states that the petitioner despite service of notice failed to make payment due from the company and, therefore, he was required to pay the outstanding dues.
11. Lastly, it is contended by counsel for the petitioner that in the first instance, the respondent should have proceeded against the company and if all attempts to make recovery against the company fail, then only the respondent can proceed against the petitioner. In para 12 of the counter-affidavit, it is clearly stated that all assets of the company had been disposed of under Section 29 of the State Financial Corporations Act and that the possession of the unit was handed over to the purchaser on March 4, 1995. In this fact-situation it cannot be argued that the respondent should have proceeded against the company.
12. For these reasons, we are of the view that it is not a fit case for interference under article 226 of the Constitution.
13. The petition is, therefore, dismissed in limine with the observation that the petitioner may unfold his case before the respondent.