Section 179(1)

Section 179(1) — the law in short

What the courts have decided on section 179(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Prakash B. Kamat v PCIT High CourtHelps taxpayer
  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.
• Rajeev Behl v PCIT High CourtHelps departmentNo later treatment found
  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?
  No. The burden under s.179(1) is on the director to prove that the non-recovery cannot be attributed to his gross neglect, misfeasance or breach of duty - it is not for the Revenue to prove that he was guilty of it. And a private arrangement between directors, even one affirmed by an arbitral award upheld by the High Court, governs rights in personam and cannot bind a statutory authority; income-tax liability cannot be apportioned by private agreement.
• Sonal Nimish Patel v ACIT (Gujarat) High CourtHelps taxpayerNo later treatment found
  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?
  Yes. That the tax cannot be recovered from the company is a condition precedent to any action under s.179, and the satisfaction of it must appear in the show-cause notice and in the order itself. A notice silent on what steps were taken against the company cannot be saved by explaining it later in an affidavit-in-reply. The order and the consequential s.226(3) notices to the banks were quashed.
• Gul Gopaldas Daryani v ITO (Gujarat) High CourtHelps taxpayerNo later treatment found
  Under s.179 the burden is on me to disprove gross neglect. Does the Tax Recovery Officer have to deal with what I say?
  Yes. The burden under the proviso to s.179(1) is cast in the negative and lies on the director, but once he places the necessary facts before the Tax Recovery Officer, the officer must apply his mind and record definite findings. Here the three grounds on which the Officer had found gross neglect were held unsustainable and the order was quashed. The Court also held the department need not wait for the company's appeal to be decided before invoking s.179.
• Maganbhai Hansrajbhai Patel v ACIT High CourtHelps taxpayerSuperseded by amendment
  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?
  On this judgment, no - not as the section then stood. Section 179(1) makes a director of a private company jointly and severally liable for the tax due from the company which cannot be recovered from it. The Gujarat High Court held that the words tax due cannot be stretched to take in interest and penalty. The Act defines tax, it separately defines interest, and it does not define penalty at all; and where the legislature meant to sweep in everything it said so, as it did in s.156, which speaks of tax, interest, penalty, fine or any other sum payable. Section 179 does not use those words. The position has since been changed for later years by an Explanation added to the section.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.