2025 (11) TMI 1008 - HC - Income Tax

Liability of deceased partner's legal representatives limited to inherited estate; bank attachment set aside under s.159 r/w s.189

HC held that liability of a deceased partner's legal representatives is limited to the value of the estate inherited and cannot exceed assets received. ... Attachment of bank account to recover dues of assessee's husband - deceased partner liability of recovery of amount from partnership firm - liability of legal representatives u/s 159 - HELD THAT:- Liability of legal representative is confined to value of estate of the deceased. Liability cannot be over and above the assets inherited. The respondent had mechanically attached bank account of the petitioner. There was meagre amount of Rs. 60,002/- in the account. The respondent could attach assets of the petitioner which she had inherited from partners of defaulter firm. In the absence of evidence to the effect that petitioner had inherited assets of partners of defaulter firm, there was no reason to attach her bank account. In the wake of above discussion and findings, this Court is of the considered opinion that the instant petition deserves to be allowed and accordingly allowed. The impugned attachment notice is hereby set aside. The respondents are at liberty to initiate recovery proceedings against aforesaid partnership firm, its partners and their legal heirs in accordance with Section 159 read with Section 189 of 1961 Act. ISSUES PRESENTED AND CONSIDERED 1. Whether a revenue authority may attach monies standing to the credit of a joint bank account of the legal representative (petitioner) to recover tax liability assessed against a dissolved partnership firm and its partners, absent evidence that the legal representative inherited assets of the defaulting partner. 2. Whether the liability of a legal representative under the Income-tax Act is to be limited to the value of the estate inherited from the deceased partner and, relatedly, whether attachment of assets beyond that estate is permissible. 3. Whether the revenue authority acted lawfully in mechanically attaching a bank account belonging jointly to the legal representative and another person without proof that the funds constituted assets of the deceased partner's estate. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to attach joint bank account of legal representative to recover firm/partner liability Legal framework: Sections 159 and 189 of the Income-tax Act govern (a) liability of legal representatives for sums payable by a deceased person and (b) liability of partners and legal representatives where a firm is dissolved or business discontinued. Section 159(1) makes the legal representative liable 'to pay any sum which the deceased would have been liable to pay', and subsections (4) and (6) qualify and limit that liability. Section 189(3) makes every person who was a partner at the time of dissolution and the legal representative of any such person jointly and severally liable for tax, penalty or other sums payable. Precedent Treatment: No prior judicial authority was relied upon or discussed by the Court in the judgment; therefore no precedent was followed, distinguished or overruled. Interpretation and reasoning: The Court reads Section 159 as imposing liability on legal representatives but expressly confines that liability to the extent the estate is capable of meeting it, and where applicable subsection (4) limits personal liability to the value of assets charged, disposed of or parted with. Section 189 similarly preserves the principle of liability of partners and their legal representatives but does not expand the legal representative's liability beyond the estate. Applying these provisions, the Court concludes that attachment of assets is permissible only to the extent those assets form part of the deceased partner's estate or have been inherited by the legal representative. Ratio vs. Obiter: Ratio - the statutory scheme (Sections 159 and 189) limits the recoverable amount from a legal representative to the value of the estate inherited; attachment of property not shown to be part of that estate is impermissible. Obiter - none relevant beyond the statutory interpretation provided. Conclusion: The revenue authority lacked lawful basis to attach the joint bank account funds absent evidence that those funds were assets inherited from the deceased partner; therefore attachment was improper. Issue 2 - Extent and limitation of liability of legal representative; requirement of proof before attachment Legal framework: Section 159(4) and (6) limit the legal representative's personal liability and cap recovery to the extent the estate can meet the liability; Section 159(2) treats proceedings against the deceased as continuing against the legal representative but does not alter the substantive limitation on recoverability. Precedent Treatment: No judicial precedents were cited or applied; the Court's conclusion rests on textual analysis of statutory provisions. Interpretation and reasoning: Emphasising the limiting language of Section 159, the Court concludes that liability is confined to assets inherited and to value of the estate. The statutory scheme contemplates assessment and recovery against legal representatives only to the extent the estate is capable of meeting the liability; hence, revenue cannot, without evidence, reach monies that are not part of the estate. The Court rejects the respondent's contention that the petitioner bore the onus to prove non-inheritance; rather, before depriving a person of property by attachment, the revenue must have basis to treat the property as within the deceased's estate or inherited by the legal representative. Ratio vs. Obiter: Ratio - the legal representative's liability is limited by statute and the revenue must satisfy itself (by evidence) that the assets attached are part of the deceased's estate; absent such proof, attachment is unlawful. Obiter - the statement that the revenue is 'mechanically' attaching property is evaluative but underscores the Court's view of procedural unfairness. Conclusion: Attachment without evidence that the assets belonged to or were inherited from the deceased partner contravenes statutory limits; the petitioner need not first prove non-inheritance to prevent wrongful attachment. Issue 3 - Lawfulness of mechanical attachment of joint account and appropriate relief Legal framework: Principles flowing from Sections 159 and 189 together with the statutory limitation that the legal representative's liability is 'limited to the extent to which the estate is capable of meeting the liability'. Precedent Treatment: None cited; Court decides on statutory construction and facts. Interpretation and reasoning: On the facts, the impugned attachment targeted a joint account of the petitioner and another person and contained a modest balance (Rs. 60,002/-). There was no material on record establishing that the petitioner had inherited assets from the partners of the defaulter firm. Given the statutory limitation, the Court finds the attachment to be a mechanical exercise lacking the required evidentiary foundation and therefore invalid. The Court also clarifies that the revenue retains the right to initiate recovery proceedings in accordance with Sections 159 and 189 against the partnership firm, its partners and legal heirs where appropriate, but cannot retain the impugned attachment against the petitioner's account absent proof of inheritance. Ratio vs. Obiter: Ratio - where the revenue mechanically attaches assets without material showing those assets are part of a deceased partner's estate, such attachment is unlawful and must be set aside; revenue may pursue recovery consistent with statutory limits. Obiter - none significant beyond the remedy ordered. Conclusion: The attachment notice is set aside; the revenue is permitted to institute recovery proceedings compliant with Sections 159 and 189 but cannot continue the impugned attachment against the petitioner's bank account in absence of evidence that the account funds formed part of the deceased partner's estate.