In case of default by private co., director can be held liable for 'taxes due' and not for interest or penalty

SANJAY GHAI 

v. 

ACIT

In the instant case, the petitioner was the only surviving director of a company. The petitioner was entitled to get refund but the revenue proposed to set off the company's tax liability with the refund payable to the petitioner under section 179. The petitioner contended that the company's outstanding dues were in the form of interest and penalties whereas "tax due" under Section 179 does not include interest and penalty within its ambit. The revenue, however, urged that whatever was recoverable from the private company, inclusive of interest and penalties would become recoverable at the hands of the directors. On appeal, the High Court held in favour of assessee as under: The principal question requiring resolution was to understand the true ambit and scope of the provisions of Section 179; In H. Ebrahim v. DCIT, [2011] 332 ITR 122, the Karnataka High Court held that 'what is contemplated under Section 179 is the tax component and not the penalty and interest'; and In Dinesh T. Tailor v. Tax Recovery Officer (2010) 326 ITR 85, the Bombay High Court held that in Section 179(1), the expression "tax due" and, for that matter the expression "such tax" mean a tax as defined for the purposes of the Act by Section 2(43); "tax due" does not comprehend within its ambit a penalty. Thus, it was held that the petitioner could not be made liable for anything more than the tax as defined in Sec. 2 (43). The revenue was, consequently, directed to determine the liability of the petitioner in the light of the above finding. [2012] (Delhi)