Flurry of tax notices puts directors in a spot

Flurry of tax notices puts directors in a spot

Directors of private companies are fall in a big trouble. Here trouble are in the form of tax notice, holding them liable for dues/disputes which are pending at company’s end.

Section 179 of the income tax act imposes a  tax liability on directors of the private company to recover tax dues of the firm.it was imposed by assessing officer without adjudication by a court. This section was applicable to all those companies whether which are under liquidation or not.

The number of tax notices are tremendously rising day by day. This creates mounting pressure on the back of assessing officers.1.8million of which 95% of the companies in India are private companies. The directors of these companies are being asked to pay the tax within 10-15 days. The flurry of these notices may compel directors of the company to quit and prompt to rethink among those seeking directorship position.

The directors which are covered under this section are current and former directors, as well as retired directors, nominee, and technical ones. When the directors make any delay in tax payment and tax notice receives then they are considered as “assesse in default” which means their bank account and property could be attached if they fail to pay up within the requisite time period.

The chartered accountant Dilip Lakshmi argued that the only way out is if the director proves that the non-recovery cannot be attributed to any gross neglect, misfeasance, or breach of trust on their part. However, in a closely held company where directors are involved in day to day affairs and it will be difficult to fall in the exception.

The direct tax partner of Khaitan &Co ,Indruj rai argued that it is important for directors to prove they had discharged their duties judiciously and it  would be helpful to show opinions from consultants that back any position adopted  by the company.

The law stipulates clearly that the directors of closely held firms are liable to tax of the companies where they are directors. The burden of the proof should be on the tax authority to prove that the directors has been guilty of gross negligence or willful misconduct.

In addition to notice, the tax department is also trying to meet its target by conducting recovery surveys at the premises of defaulters, and issuing garnishee notices on debtors who have to pay defaulters.