Dissolved partnership firm liability under old income-tax law extended to partners for pre-dissolution income; notice remained valid.

Under the unamended section 44 of the Indian Income-tax Act, 1922, dissolution of a partnership was treated as discontinuance of the firm's business, so the assessment machinery could be used against persons who were partners at dissolution on a joint and several basis for the firm's pre-dissolution income. The 1958 amendment was described as clarificatory rather than as creating the liability for the first time. On that construction, a notice under section 34 addressed to a partner as such was not invalid merely because the firm had been dissolved, and the reassessment proceedings were treated as valid.

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Issues: Whether, under section 44 of the Indian Income-tax Act, 1922, as it stood before the 1958 amendment, a partner of a dissolved firm could be proceeded against and assessed in respect of the pre-dissolution income of the firm, and whether the notice issued under section 34 was valid.

Analysis: The old section 44 covered a case where business carried on by a firm had been discontinued, and a dissolution of the firm necessarily involved such discontinuance. Though the earlier text used the word "firm" in the part dealing with discontinuance and omitted it in the part dealing with dissolution, the provision was construed as applying to a dissolved firm whose business had ceased. The assessment machinery was therefore available against the persons who were partners at the time of dissolution, on a joint and several basis, for the tax payable on the firm's pre-dissolution income. The later amendment of 1958 was treated as clarificatory rather than as creating the liability for the first time. On that construction, a notice under section 34 addressed to a partner as such was not invalid merely because the firm had been dissolved.

Conclusion: The notice and the reassessment proceedings were held valid, and the challenge under article 226 failed.

Ratio Decidendi: Under the unamended section 44 of the Indian Income-tax Act, 1922, dissolution of a partnership firm amounted to discontinuance of its business for assessment purposes, so the partners at the time of dissolution remained jointly and severally liable to be assessed on the firm's pre-dissolution income.

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