Dissolved firm taxation requires clear statutory fiction; post-dissolution receipts cannot be assessed without express legislative extension.

A dissolved firm could not be assessed to agricultural income-tax on dividends received after dissolution for supplies made earlier, because the firm's existence for tax purposes cannot be extended beyond dissolution unless the statute creates a clear deeming fiction. Section 27 was confined to income that accrued before dissolution and did not cover post-dissolution receipts in the hands of erstwhile partners. The amended section 26(4), which addresses discontinuance of business, also did not revive the firm's assessability, and the validating provision could not sustain assessments lacking statutory foundation. Assessment orders were therefore unsustainable to that extent and were quashed in part.

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Issues: (i) Whether a dissolved firm could be assessed to agricultural income-tax after its dissolution in respect of dividends received thereafter for supplies made before dissolution. (ii) Whether the amended section 26(4) and the validating provision could sustain assessment of the dissolved firm for such post-dissolution receipts.

Issue (i): Whether a dissolved firm could be assessed to agricultural income-tax after its dissolution in respect of dividends received thereafter for supplies made before dissolution.

Analysis: The existence of the assessee at the time of assessment is essential in taxing proceedings unless the statute creates a clear fiction. Section 27 permits assessment of the income of the firm as if no dissolution had taken place, but that deeming provision is confined to income of the firm which accrued before dissolution. It does not extend to income received after dissolution by erstwhile partners. A strict interpretation of the taxing provision was required, and the fiction could not be expanded to cover a dissolved firm in respect of post-dissolution receipts.

Conclusion: The dissolved firm could not be assessed under section 27 in respect of income received after the date of dissolution.

Issue (ii): Whether the amended section 26(4) and the validating provision could sustain assessment of the dissolved firm for such post-dissolution receipts.

Analysis: Section 26(4) deals with discontinuance of business and deems sums received after discontinuance to be the income of the recipient. It does not create a legal fiction that a dissolved firm continues to exist for assessment on income received after dissolution. The amendment did not alter the legal position, and the validating provision could not revive assessments that lacked statutory foundation.

Conclusion: The amended section 26(4) and the validating provision did not authorise assessment of the dissolved firm for post-dissolution receipts.

Final Conclusion: The proceedings and assessment orders against the dissolved firms were unsustainable to the extent they related to income received after dissolution, and the impugned actions were quashed in part with consequential relief.

Ratio Decidendi: In a taxing statute, a dissolved firm cannot be assessed on income received after dissolution unless the statute expressly creates a clear deeming fiction extending the firm's existence for that purpose; a provision dealing with discontinuance of business does not by itself supply such a fiction.

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