Section 179 Needs A Finding Of Neglect Or Misfeasance, And There Was None
A man who briefly served as a company director was called on to pay its unpaid income tax of about Rs 2.40 crore. The Gujarat High Court has quashed the order.
The Court held that before holding a former director liable under Section 179 of the Income Tax Act, the officer must examine and record findings on whether he siphoned funds or defrauded the revenue, and whether non-recovery is due to his gross neglect, misfeasance or breach of duty. He had explained he never ran the company. The order was bereft of such findings and was quashed.
- Being a director is not enough. The tax officer must find gross neglect or misfeasance.
- His explanation went unanswered — no findings were recorded on it.
- He had left long before the assessment and never ran the company's affairs.
- A long road: an earlier order fell for want of a hearing, this one for want of findings.
- Court
- High Court of Gujarat at Ahmedabad
- Bench
- Justice HONOURABLE MR. JUSTICE A.S. SUPEHIA, Justice HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
- Citation
- Special Civil Application No. 6580 of 2016
- Case
- Special Civil Application No. 6580 of 2016
- Decided
- 11 September 2026
- Outcome
- Writ petition allowed; Section 179 recovery order quashed
The demand
The petitioner was a director of a biotech company from 20 March 2005 until he resigned on 5 September 2005. For assessment year 2006-07 the company was assessed to additional tax of about Rs 2.40 crore, which it did not pay.
The department proceeded against him under Section 179. An order in 2013 was quashed in 2015 because he had not been heard. A fresh order followed in March 2016.
His petition was dismissed in 2017, but the judgment was recalled on review in 2018, and the Supreme Court in 2019 directed that the petition be decided on merits.
His explanation
He said he never operated the company's bank accounts, filed its returns, signed its contracts or cheques, or managed its affairs, and was never authorised to sign financial or tax documents. He supported this with an affidavit.
He was not a director when the assessment was completed in 2008. The company's properties were sold by lender banks under the SARFAESI Act, and the loans and mortgages were arranged by another director after he resigned.
Why the order was quashed
After such an explanation, the officer had to apply his mind and record findings on two questions: whether the petitioner siphoned off funds and defrauded the revenue, and whether non-recovery of the company's tax could be attributed to his gross neglect, misfeasance or breach of duty.
The impugned order contained no such findings, so Section 179(1) was not attracted. The order was quashed and the petition allowed.
Who argued it
Appearances as recorded in the judgment of the Court.
Frequently asked
Is every former director liable for a company's unpaid income tax?
No. The officer must find gross neglect, misfeasance or breach of duty attributable to that director.
What if the order has no such finding?
It can be quashed, as it was here.
If you are chased for a company's tax as a former director
- Record your exact dates of appointment and resignation.
- Show you had no role in accounts, returns, signing or management.
- Ask the officer to decide gross neglect or misfeasance specifically.
- Challenge an order that recites liability without those findings.
Source. High Court of Gujarat at Ahmedabad, Special Civil Application No. 6580 of 2016, decided 11 September 2026 by Justice HONOURABLE MR. JUSTICE A.S. SUPEHIA, Justice HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI. This explainer is written from the judgment text as reported.
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