INCOME TAX ACT, 1961

Section 179(1)

Director's liability - Vicarious liability under section 179(1) - Interpretation of word 'tax' whether includes 'penalty and interest' prior to of insertion of Expln. to section 179 added w.e.f. 1-6-2013 -

The amount was assessed for the years 1995-96, 1996-97 and 2002-03 and this order was against both the Company and the Directors. In the petitions, it was contention of the directors that word 'tax' used in section 179 does not include penalty and interest and so these amounts cannot be recovered from them. The respondent-authority had given finding that the word 'tax' used in section 179 includes both the penalty and the interest. It was further held that in view of the explanation added to section 179 the tax includes penalty and interest. The explanation to section 179 was added with effect from 1-6-2013, and on that ground, it was contention of the directors that the explanation cannot be used against them, in view of the relevant assessment years, which were quoted above.Held:In the present matter, it can be said that the explanation was added to make clear the intention of the Parliament. This Court holds that the ratio of the Gold Coin case needs to be applied to the present matters. In view of the aforesaid position of law, if one was to go with the presumption that the Parliament had intended to provide that the word 'Tax' includes penalty and interest and as the burden of proof is shown on the directors to prove that they were not negligent etc., then it follows that the directors can be held responsible to pay penalty and interest when the company was liable to pay the penalty and interest. The non-obstante clause with which section 179 starts shows that the provisions of Company Act, 1956 will not come in the way of fastening the liability created by section 179 on the directors and it also shows that right from the beginning, there was such intention of the Parliament. In the present matter, in view of the explanation given and also the intention, which can be gathered from section 179 itself, it can be said that the word 'Tax' used in section 179 was to be used also for penalty and interest. If the word 'Tax' is not read in that way, there will be loss of interest and penalty to the State Exchequer. The provision was made to see that the amount was recovered from the directors when the company is not able to make the payment of the amount of liability. Thus, the word used in 'enactment' is important, but the context is no less important. The aforesaid interpretation also allows to hold and interpret that the provisions of sections 170, 177, 188A and 189 are only enabling provisions. They cover specific situations mentioned in those Sections and the Parliament had no other intention for making such specific provisions. Those provisions cannot be read to ascertain the scheme of the Act. This Court holds that no interference is warranted in the order made by the respondent authority against the petitioners.

Applied:(2008)9 SCC 662 : 2008 TaxPub(DT) 2223 (SC) (CIT-I, Ahmedabad v. Gold Coin Health Food Private Limited.Relied:AIR 1987 SC 1454 (Utkal Contractors & Joinery (P) Ltd. & Ors., etc. v. State of Orissa & Ors. Distinguished: (2005) 279 ITR 310 (SC) : 2005 TaxPub(DT) 1870 (SC), Sedco Forex International Drill Inc. & Ors. v. CIT & Anr.] (2014) 367 ITR 466 (SC) : 2014 TaxPub(DT) 3934 (SC), CIT v. Vatika Township Privated Limited. (2018) 401 ITR 445 (SC) : 2018 TaxPub(DT) 0652 (SC), CIT v. Essar Teleholdings Ltd. (2014) 42 Taxmann.com 284 (All) : 2014 TaxPub(DT) 2332 (All-HC) and Smt. Pratibha Garg v. CIT, Muzaffar Nagar.