Untwalia, J. - (1.) This is an appeal by certificate from the Order of the High Court of Punjab and Haryana dismissing the appellants' writ application in limine. Sandhu Transport Company (Private) Limited is a private limited company. The two appellants were its directors. One of them was a Managing Director. A resolution was passed on the 13th November, 1961 for a voluntary liquidation of the company at the instance of its creditors. In respect of some years ending with the assessment year 1964-65 a huge amount of income tax to the tune of Rupees 1,34,319 remained due from the company. The Income-tax Officer issued a notice on 7th of February 1970 against appellant No. 2 under Section 179 of the Income-tax Act 1961, hereinafter called the Act, to show cause why action should not be taken against the directors of the company for realisation of the arrears of income-tax due from the company. A similar notice was issued to appellant No. 1 on the 11th of November, 1970. Both the appellants filed their show cause before the Income-tax Officer mainly taking the stand that since the company had gone into liquidation before the Act had come into force, action under Section 179 could not be taken against them. Some other points were also taken in the show cause filed by the appellants but it is not necessary to state them as the only point pressed in this Court is in relation to the jurisdiction of the Income-tax Officer under Section 179 of the Act.
(2.) The Income-tax Officer rejected the appellants' pleas by his order dated the 31st December, 1970. The appellants went in revision before the Commissioner of Income-tax. It was rejected on 31st January, 1972. Thereafter when proceedings were taken for realisation of the income-tax arrears aforesaid against the appellants they moved the High Court for the quashing of the proceedings and the orders under Section 179 of the Act. As already stated the High Court rejected their application in limine, but certificate to appeal to this Court was granted only because of the rule of valuation then prevalent.
(3.) Section 179 of the Act as it stood at the relevant time reads as follows:- "179. Liability of directors of private company in liquidation - Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) when any private company is would 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 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.";