Public Company Director Cannot Face Section 179 Recovery Without Statutory Findings: Gujarat HC

Ajay Surendra Patel Vs DCIT (Gujarat High Court)

Summary: The Gujarat High Court quashed an order dated 31.03.2016 passed under Section 179 of the Income Tax Act, 1961 fastening the outstanding tax liability of Hirak Biotech Limited upon its former director, Ajay Surendra Patel. The proceedings concerned Assessment Year 2006-07, for which additional income-tax liability of Rs.240.08 lakh had been determined against the company. The petitioner had been appointed as a director on 20.03.2005 and resigned on 05.09.2005.

The petitioner principally contended that Hirak Biotech Limited had been incorporated as a public limited company and therefore the jurisdictional foundation for invoking Section 179 was absent. He further argued that he had never been a shareholder in his individual capacity, was neither an authorised signatory nor involved in the company’s management or day-to-day affairs, and that the Revenue had failed to establish that non-recovery of the company’s tax dues was attributable to any gross neglect, misfeasance or breach of duty on his part. The Revenue, on the other hand, relied heavily upon the petitioner’s alleged 98.33% shareholding during the relevant period and contended that the company was effectively a “one-man show”, warranting lifting of the corporate veil and treatment of the public company as being, in substance, a private company.