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CA Final · Indirect Tax Laws · Liability to Pay in Certain Cases

Kapoor & Sons, a registered partnership with partners Dev and Esha, admitted Farhan as a new partner and Esha retired in the same reconstitution on 1 October. Later, an order demanded tax and penalty for a period before 1 October. Which statement is correct?

Dev, Esha and Farhan are all jointly and severally liable. When a firm's constitution changes, both the partners before and after reconstitution answer for tax, interest or penalty relating to periods before the reconstitution, so the incoming partner Farhan is also covered.

  1. AOnly Dev and Farhan are liable, as they are the partners now
  2. BOnly Dev and Esha are liable, being partners during the default period
  3. CThe partners as the firm existed before and as it exists after reconstitution, namely Dev, Esha and Farhan, are jointly and severally liableCorrect
  4. DOnly the firm is liable, as reconstitution creates a new taxable person

Explanation

On change in the constitution of a firm, the partners as it existed before and as it exists after the reconstitution are jointly and severally liable for dues for any period before reconstitution. Hence Dev, Esha and Farhan are all covered. Restricting liability to old or to current partners is not what the provision says.

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