SURESH NARAIN BHATNAGAR Vs. INCOME TAX OFFICER
HIGH COURT OF GUJARAT
Suresh Narain Bhatnagar
INCOME TAX OFFICER
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(1.) The petitioner had challenged an order dated 3.1.2005 passed by the Income Tax officer under section 179 of the Income Tax Act, 1961 ("the said Act" for short).
(2.) Brief facts are as under:
2.1) The petitioner was a director of one M/s. Sirs Engineering Private Limited ("the company" for short). For the assessment year 20002001, the Assessing Officer passed order of assessment on 28.3.2003, raising tax demand of Rs.40,99,967/-.
With penalty, it came to Rs.41,09,967/-.
Five more separate orders of assessment dated 27.2.2004 were also passed in case of the same company for the assessment year 1996-1997 to 1999-2000 and 2001-2002 raising different tax demands.
2.2) On 22.3.2004, the Income Tax officer issued a notice to the petitioner indicating that a tax demand of the said company of Rs.41,11,967/for the assessment year 2000-2001 was still outstanding. He was the director of the company during the relevant period. He was asked to show cause why he should not be held personally liable for such recovery under section 179 of the said Act.
2.3) The petitioner filed several replies to said notice. In his first reply dated 30.3.2004, he conveyed that records of the company were lost; that he himself was suffering from heart problem. During the assessment years 2002-2003, he was totally immobile and was not able to attend any of the meetings or day to day business of the company. He was therefore, not responsible for negligence, misfeasance or breach of duty in connection with the affairs of the company. Yet another reply came to be filed on 28.9.2004 in which he contended that he was only supplying technical support to the company. He was rendering such service for various other companies. He was never engaged in the day to day business of the company. In yet another reply dated 13.10.2004, he contended that he had already resigned from the company on 25.2.1996. He also contended that by virtue of section 43A of the Companies Act, 1956, since the company's turn over had crossed the threshold limit, the company would be a deemed public company. In his further reply dated 26.10.2004, he reiterated this aspect and stated thus :
"Further by the virtue of the provisions of section 43A of the company's act Sirs Engineering Pvt. Ltd. has became a public company by crossing the turnover criterion and the same has also been certified by the assessment order passed for the AY 199697."
2.4) In his further reply which is produced at AnnexureL, he elaborated the question of company having become a deemed public company and contended as under :
"c) I am advised by my Chartered Accountant that this company falls in category of deemed Public Limited in view of its turnover being more than Rs.1 crores as estimated by the Department under section 144 of the IT Act, therefore section relating to personal liability of Director does not arise in this case if the assessment of income is correct by the department. This issue has been raised by me in my first submission itself. A copy of the said section 43A of the companies Act is attached herewith."
2.5) In his last reply dated 1.1.2005, he once again asserted that :
"5. Further it has also brought to the notice of the learned ITO that u/s. 43A of the company's act states that where one of the share holder of the company is a body corporate holding more than 25% of its paid up capital it should be treated as public limited company. I have also provided the copy of annual return for the FY 9495 along with the copy of shareholders register, which I could found from the factory premises of the company after so many efforts. They are provided along with the letter dated 30.12.2004, which is also enclosed herewith."
(3.) The Assessing Officer passed his impugned order dated
3.1.2005. Regarding the petitioner's resignation, he observed that he had signed and verified the return of the income of the company for the assessment year 2001-2002 on 23.3.2003. He had also filed appeals before the Commissioner(Appeals) for the assessment year 1996-1997 to 2001-2002 which prove that he continued to be the director of the company even after submission of his resignation.
3.1) With respect to his involvement in the company, the Income Tax officer held that he failed to prove that nonrecovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to affairs of the company. His contention that he was only a technical director was negated observing that section 179 includes every person who is a director of a private company and the onus is on such director to prove nonnegligence, nonmisfeasance or nonbreach of duty on his part. In the present case, the petitioner failed to produce any evidence to prove such facts.
3.2) With respect to the status of the company being a deemed public company, the Assessing Officer observed as under :
"Another argument raised by him is M/s. Sirs Engg. Pvt. Ltd. is a deemed public company under 43A of the Companies Act, 1956, in view of its turnover being more than Rs.1 crore as estimated by the department in the assessment order. The section 179 specifically overrides the provisions of the Companies Act, 1956. The section 179 deals with only private limited companies. Hence this contention is not tenable.";
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