TaxTMI 
TaxTMI 
Joint and Several Liability of Partners for Firm Tax Dues : Clause 329 of the Income Tax Bill, 2025 Vs. Section 188A of the Income-tax Act, 1961
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....ership firm, and that tax recovery is secured through a broad liability net encompassing both the firm and its partners. The significance of these provisions lies in the unique nature of partnership firms, which, while being recognized as separate tax entities for assessment purposes, are not distinct legal personalities in the same way as companies. This commentary provides a detailed analysis of Clause 329, explores its objectives and implications, and offers a comparative evaluation with the existing Section 188A of the Income-tax Act, 1961. Objective and Purpose The legislative intent behind both Clause 329 and Section 188A is to ensure that the Revenue's interest is safeguarded in the taxation of partnership firms. Partnerships, ....
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....d former partners (for the relevant tax year) and their legal representatives. * Nature of Liability: Liability is "joint and several," meaning the Revenue can proceed against any one or more partners (or their legal representatives), or the firm, for the full amount due, without being required to exhaust remedies against the firm first. * Tax, Penalty, or Other Sum: The liability extends not only to tax but also to penalties and "other sums" payable by the firm, ensuring comprehensive coverage of all statutory liabilities. * Temporal Scope: The liability is for the "tax year," aligning with the terminology of the Income Tax Bill, 2025. This is a shift from the earlier "previous year"/"assessment year" terminology. * Applicability o....
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....: While the provision makes legal representatives liable, it is a settled principle that such liability cannot exceed the value of the estate inherited. However, the clause does not explicitly state this limitation, which may require judicial clarification or administrative guidance. * Timing of Liability: The clause covers partners "during the tax year." Disputes may arise regarding the precise period of partnership and the apportionment of liability in cases of changes in partnership structure mid-year. * Recovery Proceedings: The clause does not specify the order or manner of recovery (i.e., whether the Revenue must first proceed against the firm's assets or may directly proceed against any partner). While joint and several liabi....
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....tration. However, authorities must ensure due process and provide affected partners an opportunity to be heard, especially in cases where liability is sought to be enforced against retired or deceased partners' estates. Comparative Analysis with Section 188A of the Income-tax Act, 1961 Textual Comparison A close reading reveals that Clause 329 of the Income Tax Bill, 2025, is substantially similar to Section 188A, with the following key differences: * Terminology: Clause 329 uses "tax year," while Section 188A refers to "previous year" and "assessment year." This reflects the shift in the new Bill towards a more globally harmonized tax period terminology. * Structural Parity: Both provisions extend joint and several liabilit....
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.... for Reform or Judicial Clarification * Express Limitation for Legal Representatives: Future legislation or clarificatory circulars could expressly state that legal representatives' liability is limited to the value of the estate inherited, to avoid unnecessary litigation. * Specific Guidance on Recovery Order: Administrative instructions could clarify whether the Revenue must exhaust remedies against the firm before proceeding against individual partners or legal representatives. * Apportionment of Liability: In cases of multiple changes in partnership during a tax year, guidelines for apportioning liability among partners could be beneficial. * Special Provisions for Successor Firms: Where a firm is succeeded by another, clari....