2018 (11) TMI 138 - HC - Income Tax

Joint and several liability of partners for tax payable by firm u/s 188A - stay against the recovery of entire tax - recovery from the erstwhile partners of the firm after retirement - Held that - Present situation is that the Commissioner (Appeals) has granted stay against the recovery of entire tax on condition of depositing 20% thereof. The firm has also been granted the facility of such 20% through installments. Till date, the department does not complaint of any breach. Where, in any case, thus the firm has been protected by the interim order, subject to conditions which the firm is anyway fulfilling, the recoveries from the petitioners even otherwise would not be called for. We however cannot take care of the anxieties of the petitioners for the future developments, many of which are not possible to foresee with any clarity at this stage. We can only request the department to be vigilant about enforcing the conditions against the firm. The department would also look into the transactions of the firm in the said account number which is supplied by the petitioners. Petition is disposed of at this stage. Further, providing that as long as the respondent no.2 firm continues to fulfill the conditions of depositing installments and till the stay pending appeal continues, there shall be no further recoveries from the petitioners. In case of either of these two conditions undergoing material change, the department would proceed in accordance with law.

Issues:
1. Tax demands against erstwhile partners of a partnership firm.
2. Invocation of section 188A of the Income Tax Act, 1961.
3. Recovery of tax dues from partners of the firm.
4. Stay against recovery of tax and installment facilities granted.

Analysis:

Issue 1: Tax demands against erstwhile partners
The petitioners, former partners of a partnership firm, faced tax demands raised by the Assessing Officer for the assessment year 2015-16. Despite claiming retirement from the firm in December 2017, they were held liable for the tax demands against the firm. The Commissioner (Appeals) required the firm to deposit 50% of the disputed tax to stay further recovery. The Revenue authorities attached the firm's bank accounts to recover tax dues.

Issue 2: Invocation of section 188A
The grievance of the petitioners stemmed from the department invoking section 188A of the Income Tax Act, 1961, and issuing a notice to deposit tax as former partners of the firm. A substantial tax amount was raised against the petitioners, amounting to ?852.87 lakhs.

Issue 3: Recovery of tax dues from partners
The petitioners argued that the departmental authorities should first attempt recovery from the firm and its current partners before pursuing erstwhile partners. They contended that the firm and current partners had sufficient means to repay tax dues, and the focus on former partners was unwarranted. The Revenue authorities pointed out that the firm was paying installments by selling properties not under attachment.

Issue 4: Stay against recovery and installment facilities
The Commissioner (Appeals) granted a stay against the recovery of the entire tax on the condition of depositing 20% thereof. The firm was allowed to pay this 20% through installments. As long as the firm fulfilled these conditions and the stay pending appeal continued, no further recoveries were to be made from the petitioners. Any material change in these conditions would prompt the department to proceed as per the law.

In conclusion, the petition was disposed of with the understanding that as long as the firm abided by the conditions set for installment payments and the stay pending appeal, no additional recoveries would be made from the former partners. The department was urged to monitor the firm's compliance closely and act in accordance with the law if conditions changed.

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