Accountability is one of the most essential elements of the structure of a company. A Director is liable in many ways, including, by way of a contract, in terms of a statute, in tort and even criminally in certain aspects contemplated under the Companies Act, 1956.
The tax liability on a Director of a company is absolute if it is established that a default by the company under the relevant tax statutes can be directly attributable to the acts of the director (Gurudas Hazra v. P.K.Chowdhury [2002 109 CompCas 530 Cal]). On the other hand, in the case of ‘Peter J R Prabhu v. Asstt Commissioner of Commercial Taxes’ [2001 105 CompCas 247 Kar], it was observed that despite of the fact that Directors have been held personally liable by various tax authorities, apart from any provisions of the taxing statute, arrears of the tax amount are not to be recovered from the directors personally.
Section 179 of the Income Tax Act, 1961 states that where any tax due from a private company 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 proves that 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.
Thus, even though the company is usually liable for evasion of taxes, the Directors can be held liable if they can be proved to have been grossly negligent in managing the affairs of the company and knowingly and willingly omitted to comply with the statutory obligations.
A judgement of the Bombay High Court delivered on March 9 in the case of Goradia Steel said 1. Duty Liabilty on the Company cannot be fastened on the directors of the company. 2. Penalty imposed for alleged violations committed by company cannot be extended to the directors of the company. Directors not liable to pay personal penalty under the Central Excise Rules for alleged contraventions of the Company. 3. Properties of a company under BIFR cannot be attached to recover government dues like excise dues in this case as that falls within the bar stipulated under section 22 of the Sick Industrial Companies Act, which provides that corecive measures like "distress" cannot be resorted to against such companies. The Court has held that the attachment was contrary to law and was therefore set aside.
Goradia Steel was under BIFR and it's assets had been attached by the revenue officials for recovery and the directors fined for non-payment of some monies as asked by a tribunal.
The director of a private company are jointly and severally liable for payment of tax due under the income tax act in respect of income during the years for which he was a director during any part of the year unless he proves that the non payment was due to any gross negligence, or breach of duty on his part. Sales Tax Acts provide that if the private company is being wound up the sales tax dues if cannot be recovered by the company than the same can be recovered from the director.
However, arrears of tax dues (sales tax ) cannot be recovered from directors personally in case of public and private company.
Liability under EPF, ESI, Gratuity and Minimum wages Act: under ESI Act Managing Director or any other person who can be established as a principle employer is liable for prosecution under ESI Act. Director is not personally liable and cannot be prosecuted under ESI Act unless proved that they are incharge of and responsible for conduct of company's business.
under the EPF Act Managing Director or any other person is held responsible unless proven beyond doubt that he is responsible for the company's affains.
Minimum wages Act: Director are liable for default to be prosecuted personally.
Accountability is one of the most essential elements of the structure of a company. A Director is liable in many ways, including, by way of a contract, in terms of a statute, in tort and even criminally in certain aspects contemplated under the Companies Act, 1956.
ReplyDeleteThe tax liability on a Director of a company is absolute if it is established that a default by the company under the relevant tax statutes can be directly attributable to the acts of the director (Gurudas Hazra v. P.K.Chowdhury [2002 109 CompCas 530 Cal]). On the other hand, in the case of ‘Peter J R Prabhu v. Asstt Commissioner of Commercial Taxes’ [2001 105 CompCas 247 Kar], it was observed that despite of the fact that Directors have been held personally liable by various tax authorities, apart from any provisions of the taxing statute, arrears of the tax amount are not to be recovered from the directors personally.
Section 179 of the Income Tax Act, 1961 states that where any tax due from a private company 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 proves that 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.
Thus, even though the company is usually liable for evasion of taxes, the Directors can be held liable if they can be proved to have been grossly negligent in managing the affairs of the company and knowingly and willingly omitted to comply with the statutory obligations.
A judgement of the Bombay High Court delivered on March 9 in the case of Goradia Steel said
ReplyDelete1. Duty Liabilty on the Company cannot be fastened on the directors of the company.
2. Penalty imposed for alleged violations committed by company cannot be extended to the directors of the company. Directors not liable to pay personal penalty under the Central Excise Rules for alleged contraventions of the Company.
3. Properties of a company under BIFR cannot be attached to recover government dues like excise dues in this case as that falls within the bar stipulated under section 22 of the Sick Industrial Companies Act, which provides that corecive measures like "distress" cannot be resorted to against such companies. The Court has held that the attachment was contrary to law and was therefore set aside.
Goradia Steel was under BIFR and it's assets had been attached by the revenue officials for recovery and the directors fined for non-payment of some monies as asked by a tribunal.
The director of a private company are jointly and severally liable for payment of tax due under the income tax act in respect of income during the years for which he was a director during any part of the year unless he proves that the non payment was due to any gross negligence, or breach of duty on his part.
ReplyDeleteSales Tax Acts provide that if the private company is being wound up the sales tax dues if cannot be recovered by the company than the same can be recovered from the director.
However, arrears of tax dues (sales tax ) cannot be recovered from directors personally in case of public and private company.
Liability under EPF, ESI, Gratuity and Minimum wages Act: under ESI Act Managing Director or any other person who can be established as a principle employer is liable for prosecution under ESI Act. Director is not personally liable and cannot be prosecuted under ESI Act unless proved that they are incharge of and responsible for conduct of company's business.
under the EPF Act Managing Director or any other person is held responsible unless proven beyond doubt that he is responsible for the company's affains.
Minimum wages Act: Director are liable for default to be prosecuted personally.