1. In this writ application, the petitioners have challenged the jurisdiction of the respondents to issue two notices both dated July 31, 1967,and to proceed against them under two notices both dated May 3, 1973, in the following circumstances :
G. Dey & Company (Contractors) Private Ltd., hereinafter stated as the company, is the assessee under the Income-tax Act. The company is liable to pay the assessed tax of Rs. 690'82 and Rs. 5,212.88, respectively, for the assessment years 1952-53 and 1953-54. The petitioner No. 1 was a director and the petitioner No. 2 was a shareholder of the company for the above period. They have sold their shares in 1962 and the petitioner No. 1 has ceased to be a director of the company since then.
2. The impugned notices of July, 1967, were served on the petitioner No. 1 in the tax recovery proceedings started against the company. Thereafter, the impugned notices of February, 1973, were served on the company and the premises No. 3, Robinson Street, Calcutta, and 120/6, Masjid Bari Street, Calcutta, were attached for recovery of those taxes.
3. The petitioners' case is this : The company was dissolved on April 3, 1967, under the provisions of Sub-sections (1), (2), (3) and (5) of Section 560 of the Companies Act, 1956. The premises No. 3, Robinson Street, is a trust property of which the petitioner No. 2 is the sole trustee. The other property is in the possession of a receiver appointed by this court in Suit No. 4719 of 1952. These two properties are not liable to be attached and the petitioners have no liability to pay those taxes.
4. It is an admitted fact that the petitioners are not the assessees. It is also an admitted fact that no notices under Section 156 of the Income-tax Act, 1961, were served on them. Therefore, the petitioners are not the defaulter within the meaning of the Income-tax Act under Sections 220 and 222 of the Act which have no application so far as the petitioners are concerned.
5. In these circumstances, the question is whether the impugned notices of July, 1967, could be issued against the petitioner No. 1 by the respondent, Tax Recovery Officer, and, if so, whether the said respondent could proceed against the petitioners under the impugned notices of February, 1973, served on the company.
6. Mr. Ajit Kumar Sen Gupta, the learned counsel for the revenue authorities, has placed reliance on Section 179 of the Income-tax Act, 1961, which is as follows :
' Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), when any private company is wound up after the commencement of this Act, and any tax assessed on the company, whether before or in the course of or after its liquidation, in respect of any income of any previous year cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he provesthat the 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.'
7. It has been contended by Mr. Sen Gupta that the Tax Recovery Officer is entitled to proceed against the petitioner No. 1 under this section. His contention is that, though this section speaks of winding up and liquidation of a private limited company, yet it includes a dissolved company. But I am not impressed by his contention. Section 560 of the Companies Act, 1956, empowers the Registrar of Joint Stock Companies to strike out the name of a defunct private limited company from the register mainly under two circumstances: (1) where the company has ceased to carry on any business, and (2) where nothing has been done in the course of the winding up of the company or the affairs of the company has been completely wound up in liquidation proceedings by the court.
8. A company may be wound up either voluntarily or by the court. Sub-section (4) of Section 560 of the Companies Act relates to such winding up of a company, whereas Sub-sections (1), (2) and (3) relate to a company which is not carrying on any business. The legal entity of a company is not extinguished by its liquidation or by an order of its winding up. The dissolution, under Section 560, puts an end to the life of a company. The legislature knew this distinction and yet did not make any provision under the Indian Income-tax Act for recovering the assessed taxes from the directors of a dissolved private limited company. Section 179 of the Indian Income-tax Act, in my opinion, does not relate to a private limited company whose name has been struck off the register under Section 560 of the Act, because on striking out the name of the company its legal entity is perished whereas the life of a private limited company in liquidation continues for the purpose of its final winding up and for its ultimate dissolution.
9. Further, the directors of a private limited company have no personal liability to pay the tax of the company under the Companies Act, 1956. But the non-obstante clause in Section 179 of the Income-tax Act has made them personally liable to pay such tax provided these conditions are fulfilled : (1) such company is wound up after the commencement of the Act; and (2) assessed tax cannot be recovered from such company. The words used in Section 179 of the Income-tax Act are plain and clear. Hence, the non-obstante clause cannot cut down its construction nor can it enlarge its scope and ambit to enable the revenue authorities to recover the assessed taxes from the directors of a dissolved private limited company.
10. Moreover, the recovery proceedings against the company are still pending in the admitted case, and, therefore, in any event, Section 179 of the Act can have no application in the facts and circumstances of this case for it can only apply where the assessed tax cannot be recovered from thecompany. In this view of the matter, it must be held that the respondent. Tax Recovery Officer, has issued the impugned notices both dated July 31, 1967, without jurisdiction and he has also no jurisdiction to proceed against the petitioners on the impugned notices dated Februarys, 1973. In this view of the matter, the impugned notices both dated 31st July, 1967, mentioned in the petition are quashed. The respondents are prohibited by a writ of prohibition from proceeding only against the petitioners under the impugned notices dated 3rd February, 1973, mentioned in the petition. But this order will not affect the rights of the revenue authority to proceed against the assessee-company.
11. The rule is made absolute to the extent stated above. The parties shall pay and bear their own costs. The operation of this order will remain stayed till 31st May, 1974.