The department wants to recover the company's tax dues from me because I was a director. Can they?
No, not on directorship alone. Section 179(1) is subject to an escape clause, and once the director puts material on record showing the non-recovery was not due to his gross neglect, misfeasance or breach of duty, the burden is discharged and the officer must deal with that material.
Decided by the High Court (Bombay High Court, Division Bench — Justice K.R. Shriram and Justice M.M. Sathaye) on 2023-06-12, reported as [2023] 151 taxmann.com 344 (Bombay) / (2023) 457 ITR 150 (Bombay); Writ Petition No. 3129 of 2019, with Interim Application Nos. 744 of 2019 and 2150 of 2021. It bears on section 179, section 179(1), section 264 of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
This is the answer to a s.179 show cause notice that says nothing more than that you held office when the demand arose. The Bombay High Court quashed the order where the director held 26% with control resting elsewhere, had no financial control and a limited role, no demand was outstanding while he was in office, and the notice came about eight years after he ceased to be a director. It also means the s.179 order itself must record reasons engaging with what the director filed, not merely assert liability.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner, a mechanical engineer, developed a smart-card ticketing system and formed a joint venture, Kaizen Automation Pvt. Ltd., with Khaleej Finance and Investment of Bahrain, which invested through its Mauritius company AFC Systems Ltd. Under the joint venture documents of June 2006, KFI held 74 per cent of the voting rights and appointed six of the eight directors; the petitioner and his wife held 26 per cent and were the other two. Following a disagreement he was removed as managing director in January 2009 and his directorship was terminated in September 2009, after which he had no access to the company's premises, accounts or filings. Eight years later, on 12 January 2017, he was served with a show cause notice under s.179 for the company's outstanding demand for assessment years 2008-09 and 2009-10, naming only him and his wife and no other director. By order dated 22 December 2017 the Income-tax Officer held him jointly and severally liable for Rs. 14,37,29,716 and his bank accounts were frozen. Earlier writ petitions (Nos. 643 and 645 of 2018) were withdrawn on 16 March 2018 with liberty to take the s.264 revision, which was rejected on 18 March 2019. He then filed this petition under Articles 226 and 227.
The petition succeeded. Both the order dated 18 March 2019 under s.264 and the order dated 22 December 2017 under s.179 were quashed and set aside (para 22). The Court held that the petitioner, having put on record material showing lack of financial control, lack of decision-making power and a very limited role, with the entire decision-making process resting with the directors appointed by the majority joint venture partner, had sufficiently discharged the negative burden in the later part of s.179(1) and was squarely covered by the exception it carves out (paras 17 to 19). The orders were also held unsustainable on a second, independent ground: the department had begun the action about eight years after the events, and delayed adjudication is contrary to procedural fairness (para 20).
The Court read s.179(1) as providing an escape route to the director: where 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, he is not liable, the burden of establishing that being on him; but once he places his material and reasons before the authority, the authority is bound to examine them and reach a reasoned conclusion (para 13). It emphasised that the legislature used 'gross neglect' and not mere neglect, and that gross negligence is to be judged in the context of the non-recovery of the company's tax dues and not of the company's general functioning, following the Gujarat High Court in Maganbhai Hansrajbhai Patel v. Asstt. CIT (2013) 353 ITR 567 and Gul Gopaldas Daryani v. ITO (2014) 367 ITR 558 (paras 14 and 15). Applying that, it found that both the Income-tax Officer and the revisional authority had proceeded mainly on the fact of directorship during the assessment years and had not considered gross neglect in the context of non-recovery; the first order in fact reproduced the petitioner's submissions and then rejected them in a cryptic sentence, without pointing to any material contrary to what he had produced (para 17). Support was drawn from Ram Prakash Singeshwar Rungta v. ITO (2015) 370 ITR 641 (Guj) for the proposition that in the absence of a finding attributing non-recovery to gross negligence no order under s.179(1) can be made (para 19). On delay, the Court applied Parle International Ltd. v. Union of India, 2021 (375) ELT 633 (Bom), that delayed adjudication defeats the purpose of the legal process and contravenes procedural fairness (para 20). It also noted that a coordinate Bench had quashed identical orders against the petitioner's wife in Geeta P. Kamat v. Pr. CIT [2023] 150 taxmann.com 490 (Bom), W.P. No. 3159 of 2019, decided 20 February 2023 (para 21).
Perusal of section 179(1) of the Act shows that it provides for an escape route to the Director. It says that where a Director proves that non-recovery of tax dues cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the Company, he shall not be liable for payment of tax dues. Of course, the responsibility of establishing such fact is upon the Director. Once the Director places before the authority his material and reasons why it should be held that non-recovery cannot be attributed to any of the three factors on his part, the Authority is bound to examine such grounds and come to a reasoned conclusion in this respect.
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Handle my notice → Ask a CA on WhatsAppNo, not on directorship alone. Section 179(1) is subject to an escape clause, and once the director puts material on record showing the non-recovery was not due to his gross neglect, misfeasance or breach of duty, the burden is discharged and the officer must deal with that material. This was decided by the High Court (Bombay High Court, Division Bench — Justice K.R. Shriram and Justice M.M. Sathaye) and bears on section 179, section 179(1), section 264 of the Income Tax Act 1961. It is reported as [2023] 151 taxmann.com 344 (Bombay) / (2023) 457 ITR 150 (Bombay); Writ Petition No. 3129 of 2019, with Interim Application Nos. 744 of 2019 and 2150 of 2021. This is the answer to a s.179 show cause notice that says nothing more than that you held office when the demand arose. The Bombay High Court quashed the order where the director held 26% with control resting elsewhere, had no financial control and a limited role, no demand was outstanding while he was in office, and the notice came about eight years after he ceased to be a director. It also means the s.179 order itself must record reasons engaging with what the director filed, not merely assert liability. If it applies to you, the first step is this: Answer the show cause notice with documents, not assertions: board minutes, banking mandates and shareholding showing where financial control and decision-making actually sat.
The petitioner, a mechanical engineer, developed a smart-card ticketing system and formed a joint venture, Kaizen Automation Pvt. Ltd., with Khaleej Finance and Investment of Bahrain, which invested through its Mauritius company AFC Systems Ltd. Under the joint venture documents of June 2006, KFI held 74 per cent of the voting rights and appointed six of the eight directors; the petitioner and his wife held 26 per cent and were the other two. Following a disagreement he was removed as managing director in January 2009 and his directorship was terminated in September 2009, after which he had no access to the company's premises, accounts or filings. Eight years later, on 12 January 2017, he was served with a show cause notice under s.179 for the company's outstanding demand for assessment years 2008-09 and 2009-10, naming only him and his wife and no other director. By order dated 22 December 2017 the Income-tax Officer held him jointly and severally liable for Rs. 14,37,29,716 and his bank accounts were frozen. Earlier writ petitions (Nos. 643 and 645 of 2018) were withdrawn on 16 March 2018 with liberty to take the s.264 revision, which was rejected on 18 March 2019. He then filed this petition under Articles 226 and 227. The matter was decided on 2023-06-12 by the High Court (Bombay High Court, Division Bench — Justice K.R. Shriram and Justice M.M. Sathaye). On those facts the High Court held as follows. The petition succeeded. Both the order dated 18 March 2019 under s.264 and the order dated 22 December 2017 under s.179 were quashed and set aside (para 22). The Court held that the petitioner, having put on record material showing lack of financial control, lack of decision-making power and a very limited role, with the entire decision-making process resting with the directors appointed by the majority joint venture partner, had sufficiently discharged the negative burden in the later part of s.179(1) and was squarely covered by the exception it carves out (paras 17 to 19). The orders were also held unsustainable on a second, independent ground: the department had begun the action about eight years after the events, and delayed adjudication is contrary to procedural fairness (para 20).
The Court read s.179(1) as providing an escape route to the director: where 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, he is not liable, the burden of establishing that being on him; but once he places his material and reasons before the authority, the authority is bound to examine them and reach a reasoned conclusion (para 13). It emphasised that the legislature used 'gross neglect' and not mere neglect, and that gross negligence is to be judged in the context of the non-recovery of the company's tax dues and not of the company's general functioning, following the Gujarat High Court in Maganbhai Hansrajbhai Patel v. Asstt. CIT (2013) 353 ITR 567 and Gul Gopaldas Daryani v. ITO (2014) 367 ITR 558 (paras 14 and 15). Applying that, it found that both the Income-tax Officer and the revisional authority had proceeded mainly on the fact of directorship during the assessment years and had not considered gross neglect in the context of non-recovery; the first order in fact reproduced the petitioner's submissions and then rejected them in a cryptic sentence, without pointing to any material contrary to what he had produced (para 17). Support was drawn from Ram Prakash Singeshwar Rungta v. ITO (2015) 370 ITR 641 (Guj) for the proposition that in the absence of a finding attributing non-recovery to gross negligence no order under s.179(1) can be made (para 19). On delay, the Court applied Parle International Ltd. v. Union of India, 2021 (375) ELT 633 (Bom), that delayed adjudication defeats the purpose of the legal process and contravenes procedural fairness (para 20). It also noted that a coordinate Bench had quashed identical orders against the petitioner's wife in Geeta P. Kamat v. Pr. CIT [2023] 150 taxmann.com 490 (Bom), W.P. No. 3159 of 2019, decided 20 February 2023 (para 21). In the words reproduced by the source cited on this page: "Perusal of section 179(1) of the Act shows that it provides for an escape route to the Director. It says that where a Director proves that non-recovery of tax dues cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the Company, he shall not be liable for payment of tax dues. Of course, the responsibility of establishing such fact is upon the Director. Once the Director places before the authority his material and reasons why it should be held that non-recovery cannot be attributed to any of the three factors on his part, the Authority is bound to examine such grounds and come to a reasoned conclusion in this respect." The decision followed or applied Maganbhai Hansrajbhai Patel v. Asstt. CIT [2012] 26 taxmann.com 226 / (2013) 353 ITR 567 (Guj)(HC); Gul Gopaldas Daryani v. ITO [2014] 46 taxmann.com 35 / 367 ITR 558 (Guj)(HC); Ram Prakash Singeshwar Rungta v. ITO [2015] 59 taxmann.com 174 / 370 ITR 641 (Guj)(HC); Parle International Ltd. v. Union of India, 2021 (375) ELT 633 (Bom)(HC).
It was decided by the High Court on 2023-06-12 and is reported as [2023] 151 taxmann.com 344 (Bombay) / (2023) 457 ITR 150 (Bombay); Writ Petition No. 3129 of 2019, with Interim Application Nos. 744 of 2019 and 2150 of 2021. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 179, section 179(1), section 264, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The petition succeeded. Both the order dated 18 March 2019 under s.264 and the order dated 22 December 2017 under s.179 were quashed and set aside (para 22). The Court held that the petitioner, having put on record material showing lack of financial control, lack of decision-making power and a very limited role, with the entire decision-making process resting with the directors appointed by the majority joint venture partner, had sufficiently discharged the negative burden in the later part of s.179(1) and was squarely covered by the exception it carves out (paras 17 to 19). The orders were also held unsustainable on a second, independent ground: the department had begun the action about eight years after the events, and delayed adjudication is contrary to procedural fairness (para 20). It arises in Demand, Recovery & Stay matters, on section 179, section 179(1), section 264 of the Income Tax Act 1961, and was decided by Bombay High Court, Division Bench — Justice K.R. Shriram and Justice M.M. Sathaye. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put on record the dates of your appointment and cessation and whether any demand was outstanding against the company during that period. If the s.179 order does not deal with the material you filed, take that as your ground — the order must engage with it and record reasons. Do not stop at the escape clause: the separate requirement that recovery be attempted against the company first needs its own authority.
Still good law. Followed within a week by another Division Bench of the same Court in Manjula D. Rita v. Pr. CIT [2023] 153 taxmann.com 468 / (2025) 472 ITR 116 (Bombay), Writ Petition No. 1672 of 2021, decided 19 June 2023, whose case review records this judgment as followed at its para 9. No SLP, stay, reversal or decision doubting it appears on the report. Note that Manjula D. Rita goes further than this decision on two points: it holds that the Assessing Officer must first make out a case under s.179(1) that the tax dues cannot be recovered from the company, and only then does the onus shift to the director; and it states that on the true purport of s.179(1) a person must be a director both in the relevant assessment year and when the demand was raised. Neither point was decided here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Cite this as Writ Petition No. 3129 of 2019, decided 12 June 2023, reported at [2023] 151 taxmann.com 344 / (2023) 457 ITR 150 (Bombay). The date of 21 June 2023 that circulated in secondary material is wrong. The decision is authority on two things and no more: that a director who places material before the authority showing absence of gross neglect, misfeasance or breach of duty in relation to non-recovery discharges the negative burden in the later part of s.179(1), and that the authority must then engage with that material and give reasons; and that a s.179 proceeding launched about eight years after the director left office is vitiated by delay on the touchstone of procedural fairness. It does not decide whether a person must have been a director when the demand was raised - that was argued and not ruled on - nor whether recovery from the company must first be attempted. Identical orders against the petitioner's wife had already been quashed by a coordinate Bench in Geeta P. Kamat v. Pr. CIT [2023] 150 taxmann.com 490 (Bom), W.P. No. 3159 of 2019, 20 February 2023, which is worth citing alongside. The judgment does not reproduce the assessment orders against the company or explain how the demand of Rs. 14,37,29,716 was arrived at, and does not record what became of the proceedings against the other directors. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petition succeeded. Both the order dated 18 March 2019 under s.264 and the order dated 22 December 2017 under s.179 were quashed and set aside (para 22). The Court held that the petitioner, having put on record material showing lack of financial control, lack of decision-making power and a very limited role, with the entire decision-making process resting with the directors appointed by the majority joint venture partner, had sufficiently discharged the negative burden in the later part of s.179(1) and was squarely covered by the exception it carves out (paras 17 to 19). The orders were also held unsustainable on a second, independent ground: the department had begun the action about eight years after the events, and delayed adjudication is contrary to procedural fairness (para 20).
TaxSphere, “Prakash B. Kamat v PCIT”, https://taxnotice.vittsphere.com/caselaw/case/prakash-b-kamat-v-pcit-179/ (validity last checked 2026-08-19)
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The department is recovering the company's tax from me as a director. I resigned, and an MOU and an arbitral award put the tax liability on another director. Is that a defence under s.179?
Under s.179 the burden is on me to disprove gross neglect. Does the Tax Recovery Officer have to deal with what I say?
The officer has raised a demand on me personally as a director of a private company that has closed, and the figure includes interest and penalty as well as tax. Does section 179 reach interest and penalty?
The department has passed an order under s.179 making me liable for my company's tax. Must the notice first show that recovery from the company failed?
