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CMA Final · Direct Tax Laws and International Taxation · Black Money Act, 2015

A debtor, Mr. Bose, owes ₹3,00,000 to an assessee whose tax arrear under the Act is ₹5,00,000. After receiving a section 32(4) notice, Bose pays ₹3,00,000 to the assessee instead of to the Government. What is Bose's liability to the Assessing Officer?

Bose is personally liable for ₹3,00,000. Section 32(13) makes a person who discharges liability to the assessee after receiving the notice liable to the extent of the amount discharged or the assessee's liability, whichever is less, and ₹3,00,000 is lower than ₹5,00,000.

  1. ANil, because the debt was owed to the assessee
  2. B₹5,00,000, being the full tax arrear
  3. C₹3,00,000, being the lesser of his liability discharged and the assessee's liabilityCorrect
  4. D₹2,00,000, being the excess of arrear over the debt

Explanation

Under section 32(13), a person discharging liability to the assessee after the notice is personally liable to the extent of the liability so discharged or the assessee's liability, whichever is less. Here the lesser of ₹3,00,000 and ₹5,00,000 is ₹3,00,000. Choosing ₹5,00,000 ignores the 'whichever is less' cap.

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