Companies under Liquidation [Section 178 and 179] under Liability in Special Cases :

1. In the case of all companies [Section 178]: Every person (i) who is the liquidator of any company which is being wound up, whether under the orders of a Court or otherwise, or (ii) who has been appointed as the receiver of any assets of a company is bound under a statutory obligation to give notice of his appointment as liquidator or receiver, as the case may be. This notice may be given within thirty days of his appointment to the Assessing Officer having jurisdiction to assess the income of the company. The Assessing Officer, in his turn is bound after making such enquiries or calling for such information as he may deem fit, to notify to the liquidator, within three months from the date of receipt of the notice of appointment, of the amount which in his opinion would be sufficient to provide for any tax which is then or likely thereafter to become payable by the company.

The liquidator is debarred from parting with the assets of company and its properties in his hands until he is notified by the Assessing Officer of the amount which will be sufficient to provide for any tax which is then, or is likely thereafter, to become payable by the company except with the prior approval of the Commissioner and for a specific purpose viz., payment of the tax payable by the company, payment to secured creditors whose debts are entitled under law to priority of payments over the debts due to the Government on the date of liquidation and meeting such costs and expenses of the winding up of the company as are, in the opinion of the Chief Commissioner or the Commissioner, reasonable immediately on receipt of the notice and before parting with any of the assets of the company, directly or indirectly.

If the liquidator fails to notify the Assessing Officer of his appointment within the time specified or fails to set aside the amount intimated by the Assessing Off icer as being sufficient to provide for the tax liability of the company or parts with any of the assets or
property of the company in his hands in contravention of the above provisions, he shall be personally liable for payment of the tax which the company would be liable to pay or, as the case may be, the amount intimated to him by the Assessing Officer. Failure to comply with the above requirement would be an offence punishable under section 276A.

Where there are more liquidators than one, their obligations and liabilities under this section are joint and several. The provisions of this section have the effect of over -riding any thing to the contrary contained under the Companies Act or any other law for the time being in force and apply to all companies, public or private.

Leave of the winding up Court is not necessary for an Assessing Officer to commence or continue the assessment proceedings against the company in liquidation. An assessment cannot, however, be made on a company after it has ceased to exist and its name has been struck off the Register of Companies by the Registrar.

2. In the case of private companies [Section 179]: Where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was director of a private company at any time during the relevant previous year shall be jointly and severally liable for the payment of the 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. The personal liability imposed by this section on the directors of a private company shall have the effect of over- riding any provision under the Companies Act, 1956 by which the liability of the directors is reduced or curtailed. Thus, personal liability can be imposed by the Assessing Officer on a direction even without any adjudication by a Court.

The directors of a private company would be personally liable to pay the taxes due from the company not only at the time when the company is wound up but even in cases where the company is not in liquidation. Thus, the directors of a private company are jointly and severally liable for the payment of any tax due from a private company in respect of its income liable to tax in any accounting year from any other company in respect of any income of any previous year during which time such other company was a private company. In cases where a private company is converted into a public company and the taxes assessed in respect of any income of any previous year during which such company was a private company could not be recovered from the company, then, any tax due in respect of the income of the private company could be recovered f rom any of the persons who were directors of the private company before its conversion into a public company. A director would be free from this personal liability to pay the taxes of the company, if he could prove that the non-recovery of the taxes due from the private company is not attributed to any gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the private company.

For the purposes of this section, “tax due” includes penalty, interest or any other sum payable under the Income-tax Act, 1961.