Section 179

Section 179 — the law in short

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

• Padma Sree Chigurupati v Union of India High CourtHelps taxpayerValidity unconfirmed
  The first I knew of the s.179 order was when my bank account was attached. Nobody ever gave me a notice. Is that enough to get it set aside?
  Yes. The Andhra Pradesh High Court held that the principles of natural justice are to be read into s.179(1), because the reverse burden the sub-section places on the director can only be discharged if he is put to notice and given an opportunity to prove it. Both the s.179 order and the consequential attachment order were set aside, with liberty to the department to start again on notice.
• 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.
• Jagesh Savjani v Union of India High CourtHelps taxpayerValidity unconfirmed
  Can the department recover a private company's tax from you personally as a director?
  Only after it has tried and failed to recover from the company. Section 179 is engaged where the tax cannot be recovered, and the notice and order must show what recovery steps were taken. Bare notices were quashed.
• Rajeev Behl v PCIT High CourtHelps departmentValidity unconfirmed
  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 taxpayerValidity unconfirmed
  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.
• Mohmmad Zamir Khan v ACIT High CourtHelps departmentValidity unconfirmed
  My years are before June 2013. Can the department still say the Explanation to s.179 makes me liable for the company's interest and penalty?
  The Bombay High Court says yes. It held that the Explanation added to s.179 with effect from 1 June 2013 came in only to remove the doubt created by the earlier decisions, that it is therefore clarificatory, and that on Gold Coin a clarificatory amendment operates retrospectively - so directors were liable for the company's penalty and interest for years as far back as 1995-96.
• Sadhna Ramchandra Jeswani v ITO High CourtHelps taxpayerValidity unconfirmed
  The s.179 order against me recites that the company had no assets and that all the directors were guilty of gross neglect. The show-cause notice said none of that. Is the order good?
  No. The Assessing Officer must lay the foundation for s.179 in the show-cause notice itself, and must put the primary facts he relies on to the director before he acts on them. An order whose conclusions rest on material at the officer's command that was never shared with the director is set aside.
• Gul Gopaldas Daryani v ITO (Gujarat) High CourtHelps taxpayerValidity unconfirmed
  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.
• Sanjay Ghai v ACIT High CourtHelps taxpayerSuperseded by amendment
  The s.179 order against me is mostly interest and penalty, not tax. Can the department recover those from me as a director?
  On the section as it stood before 1 June 2013, no. The Delhi High Court held that 'tax due' in s.179(1) means tax as defined by s.2(43) and does not carry interest or penalty with it, so the director could not be made liable for anything more than the tax. That position has since been displaced by the Explanation to s.179 - read the validity note and the amendment warning before relying on this.

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.