2019 (2) TMI 180 - HC - Income Tax

Liability of partner after retirement - recovery of dues of the firm from partners - Held that - Respondent No. 2 has incorrectly discarded the stand of the petitioner of having retired from the partnership. No provision under the Partnership Act 1932 has been brought to our notice which would require a resolution to be passed by the firm before a partner, that too, in a partnership at will, can retire. However, this conclusion would not solve the entire issue. Several other considerations would have to be weighed before the question of recovery of dues of the firm can be made against the petitioner. Firstly, the Authority has not examined the genuineness or correctness of the communication dated 10.12.1999 under which the petitioner claimed to have retired as a partner of the firm. Secondly, the question of outgoing partner being liable for the dues of the third party even after retirement unless public notice or knowledge of such retirement can be imputed on said third party may also have to be gone into. For such reasons, we would prefer that respondent No. 2 decides the entire issue afresh after giving fresh opportunity to the petitioner of hearing if he so desires. Accordingly, the impugned order is set aside. The issue placed back before Respondent No. 2 for passing fresh order in accordance with law.

Summary

Issues:
Challenge to order under Section 188A of the Income Tax Act, 1961 regarding recovery of dues from a retired partner of a partnership firm.

Analysis:
The petitioner, a former partner of a partnership firm, contested the recovery proceedings initiated against him for the dues of the firm from the assessment year 2006-07. The petitioner claimed to have retired from the partnership firm in 1999, providing a communication and endorsement by the other partner as evidence. However, the respondent disregarded this claim, insisting on a formal resolution for retirement, leading to the application of Section 188A of the Act for recovery from the petitioner as a partner.

Upon review, the Court found that the respondent erred in dismissing the petitioner's retirement claim without legal basis under the Partnership Act 1932. The Court highlighted that no provision necessitated a resolution for a partner's retirement in a partnership at will. However, the Court acknowledged that additional factors needed consideration beyond retirement status for imposing dues on the petitioner.

The Court identified two key aspects overlooked by the Authority. Firstly, the genuineness of the retirement communication dated 10.12.1999 required examination. Secondly, the liability of an outgoing partner for third-party dues post-retirement, without public notice or knowledge, needed assessment. Consequently, the Court set aside the impugned order and directed a fresh consideration by the respondent, granting the petitioner an opportunity for a hearing. The Court maintained neutrality on the issues, leaving all contentions open for future adjudication.