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

Under the Black Money Act, 2015, a debtor Mr. Rao receives a notice for tax arrear of Rs 8,00,000 from the assessee. Mr. Rao owes the assessee Rs 5,00,000 on the date of the notice, but pays the whole Rs 5,00,000 to the assessee afterwards. What is Mr. Rao's personal liability to the Assessing Officer?

Mr. Rao is personally liable for Rs 5,00,000. Under section 32(13), a person who pays the assessee after receiving the notice is liable up to the liability he discharged or the assessee's dues, whichever is less, and Rs 5,00,000 is less than Rs 8,00,000.

  1. ARs 8,00,000, the full tax arrear
  2. BRs 3,00,000, the excess of the arrear over the debt
  3. CRs 5,00,000, being the lesser of his liability discharged and the arrearCorrect
  4. DNil, as he acted in good faith

Explanation

Section 32(13) makes a person who discharges liability after receiving the notice personally liable to the extent of his own liability so discharged or the assessee's liability for sums due, whichever is less. Rs 5,00,000 is less than Rs 8,00,000, so liability is Rs 5,00,000. Rs 8,00,000 ignores the lower-of rule.

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