Joint and Several Liability of Partners.
Whenever we talk about the partnership agreement one thing that triggers our mind is that the partners are jointly and severally liable for the partnership agreement. We have heard these words jointly and severally a number of times. Let us today, in this article understand its implications with the help of examples. Section 188A of the Income Tax Act, 1961 explains the concept of Joint and several liability of partners for tax payable by firm.
Section 188A of the Act reads as under:
188A. Every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which such previous year is relevant, and all the provisions of this Act, so far as may be, shall apply to the assessment of such tax or imposition or levy of such penalty or other sum.
The section uses two important terms:
· Every Person
· During the year
No planning is possible by retiring from the partnership firm on 29th of March of the previous year. This is because the criteria says being in partnership DURING the year.
Also, the section clearly states if a person is a partner for a single day during the year he shall be liable for the whole year.
One should avoid retiring from the firm in April or during the earlier months of the financial year because such retirement will make him bound to the firm for whole year.
Example:
A partnership firm was constituted on 1st of April 2017 with partners A, B, C & D.
On 5th April, 2017 Mr. A retired from the firm.
On 20th of March 2018 Mr. E was admitted in the partnership.
On 29th of March 2018 Mr. E died due to car accident.
Who all shall be liable for any amount payable by the firm along with the partnership firm?
Answer:
Mr. B, C & D shall be liable as they were the partners in the firm for whole year.
Mr. A shall be liable for the whole year because he was the partner from 1st till 5th April.
Legal heirs of Mr. E shall also be liable as he was partner in the firm from 20th March to 29th March.
