Sec 94- Liability in other cases

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Sec 94- Liability in other cases 2017-04-14T01:56:24+00:00
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    (1) Where a taxable person is a firm or an association of persons or a Hindu Undivided Family and such firm, association or family has discontinued business–
    (a) the tax, interest or penalty payable under this Act by such firm, association or family up to the date of such discontinuance may be determined as if no such discontinuance had taken place; and
    (b) every person who, at the time of such discontinuance, was a partner of such firm, or a member of such association or family, shall, notwithstanding such discontinuance, jointly and severally, be liable for the payment of tax and interest determined and penalty imposed and payable by such firm, association or family, whether such tax and interest has been determined or penalty imposed prior to or after such discontinuance and subject as aforesaid, the provisions of this Act shall, so far as may be, apply as if every such person or partner or member were himself a taxable person.

    (2) Where a change has occurred in the constitution of a firm or an association of persons, the partners of the firm or members of association, as it existed before and as it exists after the reconstitution, shall, without prejudice to the provisions of section 90, jointly and severally, be liable to pay tax, interest or penalty due from such firm or association for any period before its reconstitution.

    (3) The provisions of sub-section (1) shall, so far as may be, apply where the taxable person, being a firm or association of persons is dissolved or where the taxable person, being a Hindu Undivided Family, has effected partition with respect to the business carried on by it and accordingly references in that sub-section to discontinuance shall be construed as reference to dissolution or to partition.

    Explanation.–For the purposes of Section 85 to Section 94,–
    (i) a “Limited Liability Partnership” formed and registered under the provisions of the Limited Liability Partnership Act, 2008 shall also be considered as a firm;
    (ii) “court” means the District Court, High Court or Supreme Court.

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    94.1    Introduction
    This section discusses the liability of partners of firm or members of AOP or HUF on discontinuation of business.
    94.2    Analysis
    (i)    In case of discontinuance of business, the firm or AOP or HUF the liability of the firm/AOP/HUF shall be determined (upto the date of discontinuance) as if no such discontinuance had taken place.
    (ii)    Every partner of such firm or member of such AOP or HUF at the time of discontinuance shall be jointly and severally liable for payment of tax, interest and penalty imposed.
    (iii)    In case of change in the constitution of the firm or association, the partners and members who existed before reconstitution shall be liable jointly and severally to pay tax, interest and penalty for any period upto the date of reconstitution. This will operate even if the retirement was intimated to the commissioner in terms of Section 90.
    (iv)    Discontinuance includes dissolution of firm or association and partition in case of HUF.
    (v)    This provision, the way it applies to a partnership firm will apply to an LLP as well.
    94.3 FAQs
    Q1. In case of discontinuance of business of a firm or AOP or HUF, who would be liable to pay the tax and other dues?
    Ans. Every partner of the firm or member of the AOP or HUF at the time of discontinuance shall be jointly and severally liable.
    Q2. In case of discontinuance of partnership business to what extent a partner would be liable?
    Ans. The partner is liable jointly and severally for liability of the discontinued firm of tax, interest and penalty.
    Q3. In case of reconstitution of partnership firm how and to what extent the partners liability is determined?
    —     Upto the date of reconstitution, all the partners of the firm prior to the date of reconstitution
    —     After the date of reconstitution, all partners as they exist after reconstitution
    94.4 MCQs
    Q1. In case of discontinuance of HUF business, the liability would arise till the date of
    (a)    Discontinuance
    (b)    Court verdict
    (c)    As mutually agreed upon by the HUF members  (d)     determination of liability by the Department.
    Ans. (a) Discontinuance
    Q2. The expression ‘firm’ would include a ___________
    (a)    company
    (b)    LLP  (c) HUF
    (d)     AOP.
    Ans. (b) LLP

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