Section 167C — Liability of Partners of LLP in Liquidation
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live but untested. Part DD of Chapter XV. Inserted by the Finance (No. 2) Act, 2009 on the introduction of the LLP regime.
Subject: Where any tax due from an LLP in respect of any income of any previous year cannot be recovered, every person who was a partner during that year is jointly and severally liable for the payment of the tax, unless he proves that the non-recovery is not attributable to any gross neglect, misfeasance or breach of duty on his part; 'tax due' includes penalty, interest or any other sum payable under the Act.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
Section 167C imports into the LLP regime the director-liability mechanism that section 179 applies to private companies. The architecture is identical: a precondition that the tax due from the LLP 'cannot be recovered'; joint and several liability of every person who was a partner in the relevant previous year; and an escape route for a partner who proves that the non-recovery is not attributable to any gross neglect, misfeasance or breach of duty on his part. The Explanation gives 'tax due' an inclusive meaning — penalty, interest or any other sum payable under the Act — so that, unlike the position under the pre-2013 text of section 179 considered in Maganbhai, the LLP partner's exposure expressly extends beyond tax simpliciter.
2. No direct authority; governed by the section 179 analogue
Section 167C has not yet been meaningfully litigated; no reported decision construes it. That must be stated openly. Because the provision is a deliberate clone of section 179, the correct approach is to import the well-developed section 179 jurisprudence as the governing analogue — in particular: (a) the recovery against the LLP must be attempted and shown to have failed before a partner is proceeded against, and the show-cause notice must reflect that failure (the section 179 pre-condition cases); and (b) the burden then shifts to the partner to disprove gross neglect, misfeasance or breach of duty, the threshold being 'gross' neglect, not mere neglect (Maganbhai). The one textual divergence to flag is the 'tax due' definition: the Maganbhai holding that 'tax due' excludes interest and penalty was on the pre-Explanation text of section 179 and does not carry over to section 167C, whose Explanation expressly includes them.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
167C. Notwithstanding anything contained in the Limited Liability Partnership Act, 2008 (6 of 2009), where any tax due from a limited liability partnership in respect of any income of any previous year or from any other person in respect of any income of any previous year during which such other person was a limited liability partnership cannot be recovered, in such case, every person who was a partner of the limited liability partnership at any time during the relevant previous year, shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the limited liability partnership.
Explanation.—For the purposes of this section, the expression "tax due" includes penalty, interest or any other sum payable under the Act.
C. AUTHORITIES
Candour rule. No reported decision construes section 167C. The governing analogue is the section 179 jurisprudence (private-company directors), applied with the caveat that section 167C's Explanation expressly makes 'tax due' include penalty and interest.
Cluster A — Cognate section 179 jurisprudence (the controlling analogue)
Facts: A section 179(1) order was passed against a director to recover a private company's unpaid dues.
Held: Under the then text of section 179, 'tax due' meant tax and not interest or penalty; the Legislature used 'gross neglect', not mere neglect, so the bar is high; and once the director places his reasons, the authority must examine them and record findings. Order quashed for want of gross neglect/misfeasance/breach.
Relevance: Directly transposable to section 167C on the 'gross neglect/misfeasance/breach' defence — but the 'tax due excludes interest/penalty' point is on the pre-Explanation text and does NOT carry over to section 167C, whose Explanation includes them.
Bombay High Court line on the section 179 pre-condition
Citation: e.g. Mehul Jadavji Shah; Madhavi Kerkar (Bom, 2018) — see section 179
Facts: Section 179 orders passed against directors without first establishing that the company's dues could not be recovered.
Held: A section 179 order can be made only after the Revenue establishes that the dues cannot be recovered from the company despite efforts; only then does the onus shift to the director to disprove gross neglect/misfeasance/breach. The power cannot be invoked casually.
Relevance: Supplies the procedural template for section 167C: the LLP's irrecoverability must be established first before any partner is proceeded against (full citations under section 179).
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XV — LIABILITY IN SPECIAL CASES
Section 167C — Liability of Partners of LLP in Liquidation
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live but untested. Part DD of Chapter XV. Inserted by the Finance (No. 2) Act, 2009 on the introduction of the LLP regime.
Subject: Where any tax due from an LLP in respect of any income of any previous year cannot be recovered, every person who was a partner during that year is jointly and severally liable for the payment of the tax, unless he proves that the non-recovery is not attributable to any gross neglect, misfeasance or breach of duty on his part; 'tax due' includes penalty, interest or any other sum payable under the Act.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. The LLP analogue of section 179
Section 167C imports into the LLP regime the director-liability mechanism that section 179 applies to private companies. The architecture is identical: a precondition that the tax due from the LLP 'cannot be recovered'; joint and several liability of every person who was a partner in the relevant previous year; and an escape route for a partner who proves that the non-recovery is not attributable to any gross neglect, misfeasance or breach of duty on his part. The Explanation gives 'tax due' an inclusive meaning — penalty, interest or any other sum payable under the Act — so that, unlike the position under the pre-2013 text of section 179 considered in Maganbhai, the LLP partner's exposure expressly extends beyond tax simpliciter.
2. No direct authority; governed by the section 179 analogue
Section 167C has not yet been meaningfully litigated; no reported decision construes it. That must be stated openly. Because the provision is a deliberate clone of section 179, the correct approach is to import the well-developed section 179 jurisprudence as the governing analogue — in particular: (a) the recovery against the LLP must be attempted and shown to have failed before a partner is proceeded against, and the show-cause notice must reflect that failure (the section 179 pre-condition cases); and (b) the burden then shifts to the partner to disprove gross neglect, misfeasance or breach of duty, the threshold being 'gross' neglect, not mere neglect (Maganbhai). The one textual divergence to flag is the 'tax due' definition: the Maganbhai holding that 'tax due' excludes interest and penalty was on the pre-Explanation text of section 179 and does not carry over to section 167C, whose Explanation expressly includes them.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
167C. Notwithstanding anything contained in the Limited Liability Partnership Act, 2008 (6 of 2009), where any tax due from a limited liability partnership in respect of any income of any previous year or from any other person in respect of any income of any previous year during which such other person was a limited liability partnership cannot be recovered, in such case, every person who was a partner of the limited liability partnership at any time during the relevant previous year, shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the limited liability partnership.
Explanation.—For the purposes of this section, the expression "tax due" includes penalty, interest or any other sum payable under the Act.
C. AUTHORITIES
Candour rule. No reported decision construes section 167C. The governing analogue is the section 179 jurisprudence (private-company directors), applied with the caveat that section 167C's Explanation expressly makes 'tax due' include penalty and interest.
Cluster A — Cognate section 179 jurisprudence (the controlling analogue)
Maganbhai Hansrajbhai Patel v. ACIT
Citation: (2013) 353 ITR 567 / (2012) 211 Taxman 386 (Guj)
Facts: A section 179(1) order was passed against a director to recover a private company's unpaid dues.
Held: Under the then text of section 179, 'tax due' meant tax and not interest or penalty; the Legislature used 'gross neglect', not mere neglect, so the bar is high; and once the director places his reasons, the authority must examine them and record findings. Order quashed for want of gross neglect/misfeasance/breach.
Relevance: Directly transposable to section 167C on the 'gross neglect/misfeasance/breach' defence — but the 'tax due excludes interest/penalty' point is on the pre-Explanation text and does NOT carry over to section 167C, whose Explanation includes them.
Bombay High Court line on the section 179 pre-condition
Citation: e.g. Mehul Jadavji Shah; Madhavi Kerkar (Bom, 2018) — see section 179
Facts: Section 179 orders passed against directors without first establishing that the company's dues could not be recovered.
Held: A section 179 order can be made only after the Revenue establishes that the dues cannot be recovered from the company despite efforts; only then does the onus shift to the director to disprove gross neglect/misfeasance/breach. The power cannot be invoked casually.
Relevance: Supplies the procedural template for section 167C: the LLP's irrecoverability must be established first before any partner is proceeded against (full citations under section 179).
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.