Section 189

Section 189 — the law in short

What the courts have decided on section 189, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v S.V. Angidi Chettiar Supreme CourtHelps department
  Our firm was dissolved before the penalty order was passed, and as a registered firm it pays no tax of its own. Can a concealment penalty still be levied on it?
  Yes. A Constitution Bench of the Supreme Court held that penalty could be imposed on the firm after its dissolution. The provision continuing assessment proceedings against a discontinued firm applies to registered firms as much as unregistered ones, and assessment there means more than computation - it takes in the procedure for declaring and imposing liability and the machinery for enforcing it. Liability to pay tax is not a condition precedent to penalty, as clause (b) shows, since penalty may be imposed for failing to comply with a notice even where there is no assessable income. Jurisdiction depends on the officer's satisfaction before the assessment proceedings conclude.
• Mohmmad Zamir Khan v ACIT High CourtHelps departmentNo later treatment found
  My years are before June 2013. Can the department still say the Explanation to s.179 makes me liable for the company's interest and penalty?
  The Bombay High Court says yes. It held that the Explanation added to s.179 with effect from 1 June 2013 came in only to remove the doubt created by the earlier decisions, that it is therefore clarificatory, and that on Gold Coin a clarificatory amendment operates retrospectively - so directors were liable for the company's penalty and interest for years as far back as 1995-96.
• Statutory position — s.177 and s.189: an association or firm that is dissolved or has discontinued is still assessed as if nothing had happened, every member or partner is jointly and severally liable, and the penalty power survives CBDT Circulars & InstructionsCuts both ways
  Our firm was dissolved two years ago. The Assessing Officer has now made an assessment in the firm's name and served the demand on me as an ex-partner, with a penalty on top. Can he assess a firm that no longer exists, and can he recover the whole amount from me alone?
  Yes on both counts, and the two sections are in identical terms — s.189 for a firm and s.177 for an association of persons. Sub-section (1) of each requires the Assessing Officer, where the business or profession has been discontinued or the firm or association is dissolved, to make an assessment of the total income 'as if no such discontinuance or dissolution had taken place', with all the provisions of the Act, including those relating to the levy of a penalty or any other sum chargeable under any provision of the Act, applying so far as may be to that assessment. Sub-section (3) makes every person who was a partner (or member) at the time of the discontinuance or dissolution, and the legal representative of any such person who is deceased, jointly and severally liable for the amount of tax, penalty or other sum payable. Sub-section (2) preserves the penalty power expressly in the hands of the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals).
• Statutory position — sections 187, 188, 188A and 189: one assessment on the firm or two CBDT Circulars & InstructionsCuts both ways
  Partners left and joined during the year, and one of them died. Will the department make one assessment on the firm for the whole year or two separate assessments?
  One assessment if it is a change in constitution under section 187, two if it is a succession under section 188. Section 187 applies where partners cease or are admitted but at least one pre-change partner continues, or where all the partners continue with a change in their shares; the assessment is then made on the firm as constituted at the time of making the assessment. The dividing line is the proviso to section 187(2): where the firm is dissolved on the death of a partner, clause (a) does not apply, so the case falls to section 188 and separate assessments are made on the predecessor and successor firms in accordance with section 170.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.