Are partners personally liable if the firm does not pay its tax or commits a tax offence?

A partnership firm is taxed as its own taxpayer, but that does not shield the partners. If the firm’s tax cannot be collected from the firm, the Income Tax Ordinance lets the Commissioner collect all of it from any person who was a partner during that year. If the firm commits an offence under the Ordinance, every partner at the time is treated as guilty of it, with a narrow defence.

What does the law say?

Separate taxpayer. Section 92(1) makes an association of persons liable to tax separately from its members. The firm files, is assessed and pays in its own name.

Members answer for the AOP’s unpaid tax. Section 139(5) says that, notwithstanding anything in any other law, where tax payable by an association of persons for a tax year cannot be recovered from it, every person who was a member at any time in that year is jointly and severally liable for the tax due by the association.

Recovery between members. Section 139(6) says a member who pays tax under sub-section (5) is entitled to recover it from the association, or a share of the tax from any other member.

The AOP answers for a member’s tax. Section 139(4) runs the other way. Where tax payable by a member in respect of the member’s share of the association’s income cannot be recovered from the member, the association is liable for it.

Treated as tax due. Section 139(7) applies the Ordinance to any amount due under section 139 as if it were tax due under an assessment order. The recovery powers for assessed tax therefore apply to it.

Offences. Section 200(2) says that where an offence under Part XI of the Ordinance (offences and prosecutions) is committed by an association of persons, every person who was a member at the time is guilty of the offence, notwithstanding anything in any other law. Section 201 adds that a prosecution may be brought without prejudice to any other liability under the Ordinance, so penalties and recovery can run alongside it.

What does “jointly and severally” mean here?

It means the Commissioner is not limited to each partner’s profit-sharing ratio. The full unpaid amount can be recovered from any one member, or from several. The partnership deed’s split between partners does not limit what the Commissioner can recover under section 139(5); it matters only when the partners settle up among themselves.

Is there any defence to an offence?

Section 200(3) says sub-section (2) does not apply to a person where both of these hold:

1. the offence was committed without the person’s consent or knowledge; and
2. the person exercised all the diligence to prevent it that ought to have been exercised, having regard to the nature of the person’s functions and all the circumstances.

Both conditions are joined by “and”. Lack of knowledge alone is not enough under the text.

Worked example (illustrative figures)

Ahmed, Farah and Kamran were partners in a Karachi electronics firm, sharing profits equally. Ahmed retired on 31 March 2027. The firm’s assessed tax for tax year 2027 is Rs. 900,000, and it closes without paying.

1. Tax year 2027 runs from 1 July 2026 to 30 June 2027. Ahmed was a member for part of it.
2. Section 139(5) covers every person who was a member “at any time in that year”. Ahmed, Farah and Kamran are all jointly and severally liable for Rs. 900,000.
3. The Commissioner recovers the full Rs. 900,000 from Ahmed, the only one with assets available.
4. Under section 139(6), Ahmed may recover the tax from the firm, or a share from Farah and Kamran. If the partners agree to split it by their equal profit shares, that would be Rs. 300,000 each, but section 139(6) itself does not fix the basis.

What if …?

What if the firm can still pay? Section 139(5) applies only where the tax “cannot be recovered from the association of persons”. While the firm can pay, the liability is the firm’s.

What if a partner joined late in the year? The words “at any time in that year” cover a partner who joined partway through as well as one who left.

What if the member’s own tax on the share is unpaid? Section 92(1) normally exempts a member’s share where the AOP has paid tax. Section 139(4) matters where a member does owe tax on the share, for example where the second proviso to section 92(1) removes the exemption for a large AOP without audited accounts. The AOP is then liable if that tax cannot be recovered from the member.

Common mistakes

• Assuming liability ends on retirement. Section 139(5) looks at membership at any time in the tax year, not on the day the tax falls due.
• Assuming each partner owes only a share. Liability is joint and several.
• Relying on the partnership deed. Section 139(5) applies notwithstanding anything in any other law. A clause limiting a partner’s share of liabilities governs only the partners among themselves.
• Treating a sleeping partner as automatically safe. Section 200(3) requires both lack of consent or knowledge and due diligence.

What to check in the official text

Read section 139(4) to (7), section 200 in full and section 201. The individual offences are set out in Part XI of the Ordinance, headed Offences and Prosecutions, and each carries its own punishment; read the one that applies. Rights between partners under general partnership law are outside this corpus.