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

Meera owes tax arrear of Rs 4,00,000 under the Black Money Act. Her debtor, Sunrise Traders, owes her Rs 6,00,000 and receives a notice under section 32(4) to pay the amount sufficient to meet the arrear. After receiving the notice, Sunrise Traders pays Rs 6,00,000 to Meera. To what extent is Sunrise Traders personally liable to the Assessing Officer?

Sunrise Traders is personally liable for Rs 4,00,000. Under section 32(13), a debtor who pays the assessee after receiving the notice is liable to the extent of the liability discharged or the assessee's liability under the Act, whichever is less. Here the arrear is the lower amount.

  1. ARs 6,00,000, being the whole debt
  2. BRs 2,00,000, being the excess of the debt over the arrear
  3. CRs 4,00,000, being the lesser of its liability to Meera discharged and the arrearCorrect
  4. DNil, since the payment was made in good faith

Explanation

Section 32(13) makes a person who discharges a liability to the assessee after receiving the notice personally liable to the extent of the liability discharged or the assessee's liability under the Act, whichever is less. The liability discharged is Rs 6,00,000 and the arrear is Rs 4,00,000, so the lower figure, Rs 4,00,000, applies. Rs 6,00,000 ignores the cap, and good faith is not an exception.

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