Case Law Details
CA Vinamar Gupta
Facts of the case:
A partnership firm purchased property from NRI but failed to deduct TDS u/s 195. The ADIT (International Taxation) raised demand comprising tax and interest by issuing notice to one of the partners of the firm in his individual capacity. CIT A held against the assesse. The moot question before ITAT Amritsar in Sh. Rajan Chopra ITA 415/ASR/2016 pronounced on 28-03-2017 was whether service of notice to the partner in his individual capacity who signed sale deed on behalf of the firm was a valid notice?
Decision : The ITAT Amritsar weighed following legal consideration:
1. As per Section 195(1) person responsible for paying shall deduct TDS. As per section 204(iii), person responsible for paying = the payer himself. Hence, In the present facts of the case, firm itself can only be the person responsible, It can not shift burden to partner.
2. As per section 54 of the Transfer of Property Act read with section 55(5)(b) of the same Act, it is the firm which has acquired ownership rights and it is the firm which has to pay or tender at the time and place of sale. Just because, assesse acted on the behalf of the firm, he can not be treated as assesse in default for default of non deduction of TDS by the firm.
3. The assesse firm as per present provisions of the law could be circumscribed by serving the partner notice in his capacity as partner and not in his Individual capacity.
4. Order XXX of CPC states that persons liable as partners can only be sued in name of the firm and it is only where they are sued as partner in name of their firm,U that summons may be served upon one or more partners.
5. As per section 18 of the Partnership Act, a partner is agent of the firm for the business of the firm. Revenue’s case is that Omission of the partner can make firm liable but then again operative word is “partner”. Unless a person is brought to book for omission as partner, he can not be proceeded against under the provisions of the law.
6. Further as per Section 282(2) before its omission w.e.f. 01-10-2009 said that a notice in case of firm may be addressed to any member of the firm. Since the section 282(2) in its new avatar is devoid of any such proclamations, member of the firm can no longer be addressed for notices of the firm.
7. The ITAT further held that provisions of the law have to be followed SENSU STRICTO. Held by Ker High Court in AK Kochandi (110 ITR 406) that provisions for service of notice are codifications of principles of natural justice and natural justice demands that a person can not be proceded against without being provided opportunity by serving legally valid notice.
After elucidating the law, Hon’ble ITAT Bench allowed the appeal of the assesse.
Conclusion: For the omission done by partnership firm, the partner in his individual capacity can not be left holding the bag. It is the person who pays for the beer has to carry the can. ITAT bench in this case has made a diametrically 360 degree effort by not only “looking into” but also “looking through” all the relevant laws and provisions on the subject.
(Author :CA Vinamar Gupta, 53-E, Daya Nand Nagar-II, Lawrence Road, Amritsar, Mob: 9356048001, ca.skumargupta@gmail.com)
Offhand
For an academic purpose, and as a matter of general interest, may be worthwhile giving thoughts to the likely consequences, in a situation in which the partnership is a LLP; or a one man company or an ‘unregistered’ Firm for tax purposes !