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of <h1>Partnership Firm's Liability for Deceased Partner's Tax</h1> The court affirmed the liability of a partnership firm in the recovery of income tax arrears from the legal representatives of a deceased partner, ... Garnishee Order, Income Tax Act, Legal Representative Issues: Recovery of income tax arrears from legal representatives of deceased partner, conversion of deceased's assets into capital of legal representatives in a reconstituted firm, liability of the petitioner firm in allowing withdrawal of funds by legal representatives, interpretation of section 24B of the Indian Income-tax Act, 1922.Analysis:The judgment pertains to an appeal against a learned single judge's decision regarding the liability of a partnership firm in the recovery of income tax arrears from the legal representatives of a deceased partner. The deceased partner had outstanding income tax dues, and after his death, the firm was reconstituted with his widow and minor daughters as partners. The Income-tax Officer initiated recovery proceedings against the legal representatives for the deceased partner's tax liabilities. The petitioner firm allowed the legal representatives to withdraw the funds despite a notice under section 46(5A) prohibiting such withdrawals. Subsequently, the Income-tax Officer demanded the firm to pay the withdrawn amount, leading to a writ petition seeking a prohibition on recovery proceedings.The petitioner contended that the funds standing to the credit of the deceased were converted into the capital of his legal representatives upon the firm's reconstitution, absolving them from the tax liabilities. However, the court held that the conversion of assets did not exempt the legal representatives from the deceased's tax obligations. The court emphasized that under section 24B of the Income-tax Act, legal representatives are liable to pay the deceased's tax liabilities from the inherited estate, irrespective of any conversion of assets. The court reasoned that even if the assets were converted into capital, the department could pursue the legal representatives for the tax dues.The court further noted that the petitioner was aware of the tax arrears and the funds inherited by the legal representatives, making them liable to hold the entire amount for tax satisfaction. As the petitioner allowed fund withdrawals post the notice under section 46(5A), they were held liable for the tax dues. The court dismissed the appeal, affirming the learned judge's decision, and clarified the petitioner's liability to the extent of the adjusted amount due to the deceased. The appeal was ultimately dismissed with costs imposed on the petitioner.In conclusion, the judgment underscores the legal obligation of the legal representatives to settle the deceased's tax liabilities from the inherited estate, regardless of any conversion of assets. The court's decision reaffirms the principle that tax obligations persist even if assets are transformed, emphasizing the importance of compliance with tax recovery notices and the consequences of non-compliance in such matters.
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