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May 4, 2022

Income Tax Demand recovery from directors Post Liquidation of Company cannot be stopped by HC

by CA Shivam Jaiswal in Income Tax

Income Tax Demand recovery from directors Post Liquidation of Company cannot be stopped by HC

Facts and Issue of the case

This writ petition has been filed against the  impugned  two garnishee notices dated 18th February, 2009 for recovery of the income tax demand in question against the petitioners who were the directors of one M/s. Basant Udyog (P) Ltd. at the relevant period relating to assessment  years  1983-84,  1984-85  and  1985-86  relating  to  which the demand in question arises and against the recovery of which the impugned garnishee notices were issued. Petitioner has challenged the impugned garnishee notices  on  the  ground  that  at  the  time  of initiation of impugned recovery proceeding and the  issuance  of garnishee notices they  were  no  more  attached  to  the  company  and had retired in 1990 and in view of Section 179 of the Income Tax Act, 1961 respondent Income Tax Authority  should have taken steps only if they could not recover from the company. It is an admitted position that the petitioners were directors of the company during the period relating to which demand  in  question  arises  and  garnishee  notices were issued.

Observation of the Court

In view of the report of the Official Liquidator  dated  8th April, 2022 which has been filed in Court it appears  that  the  company has already gone into liquidation on 11th August, 1997 and further on perusal of the aforesaid report of the Official Liquidator it  appears  that he has got no fund  in  his  hand.  Since  it  is  a  Government  revenue arises out of a valid assessment order which  was  never  challenged before any authority, it is the bounden  duty  of  the  Income  Tax Authority concerned to take steps for recovery of  the  demand  arises from such assessment order and law empowers them to take recovery steps against the persons who were directors at the relevant point  of time.

This Court cannot shut its eyes towards ground reality that department is not in a position to recover this genuine and valid Government revenue from the company since the same is no more in existence. Though learned advocate appearing for  the  petitioner contends that no claim was lodged before the Official Liquidator in accordance with law though learned advocate appearing for the respondent submits that  claim  was  lodged  before  the  Official Liquidator on the basis of instruction from the respondent Authority concerned.

Without going into these disputed facts that whether claim was lodged before the Official Liquidator, admitted position today  which exists on the basis of report of the Official Liquidator is that even if the respondent Income Tax Authority wants to recover the demand from the said company,  it  is  not  in  existence  and  has  already  been dissolved in March 2013 upon formal advertisement in the newspaper as stated in the report of the Official Liquidator  and  no  fund  is  lying with it.

Considering these facts, this Court cannot interfere with the impugned recovery proceeding and garnishee notices in this writ petition and stop the respondent from realising valid Government revenue from the petitioners since at present there is no option before them to recover this demand except from the petitioners.


The Court dismissed the writ petition.


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