Liability of directors of private company under section 179 of Income Tax Act & recent case law

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Liability of directors of private company under
section 179 of Income Tax Act recent case law
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• BackgroundA private limited company is a
  separate legal entity and separate from its
  members. The liabilities of its members are
  limited to the extent of subscribed share
  capital. But the operations of a company are
  managed by natural persons, called directors.
  Therefore, the directors are responsible for
  management of affairs of the company as they are
  the true mind behind all decisions taken by the
  company.
• Provision
• The provisions of Section 179 of the Income Tax
  Act, 1961 provides that 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 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.Read
  more at https//taxguru.in/income-tax/liability-d
  irectors-private-company-section-179-income-tax-ac
  t.htmlCopyright Taxguru.in

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• Key point
• v Provision of section 179 is applicable only to
  directors of private limited companies.
• v Every director is jointly and severally liable
  for tax of previous year during which they were
  directors.
• v Directors are liable to pay tax only if
  recovery of tax is not possible from the company.
  Recent case lawRead more at https//taxguru.in/
  income-tax/liability-directors-private-company-sec
  tion-179-income-tax-act.htmlCopyright
  Taxguru.in

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• Rajendra R Singh vs Assistant Commissioner of
  Income Tax (Bombay High Court 26-07-2022)
• AO served notice on assessee being director of
  private company under section 179 for payment of
  certain amount for which demand was outstanding
  since long. AO has further rejected contentions
  raised by assessee and passed an order under
  section 179 holding assessee liable to pay such
  demand with interest. Provision of section 179
  attracts only if tax dues can not be recovered
  from company. Show cause notice served upon
  assessee clears it that there is no satisfactory
  record regarding not possibility of recovering
  tax amount.
• High court held that AO can not recover tax
  amount from director without recording
  satisfaction that demand is irrecoverable from
  company. Tags income tax act 1961
• Read more at https//taxguru.in/income-tax/liabil
  ity-directors-private-company-section-179-income-t
  ax-act.htmlCopyright Taxguru.in