Assessment liability under section 44 covered dissolved firms, but penalty could not be imposed without express statutory authority.

Unamended section 44 of the Income-tax Act made former partners jointly and severally liable for assessment and tax of a dissolved firm, but not for penalty under section 28(1)(c). The Court held that "assessment" cannot be extended to include penalty, because the Act treats assessment and penalty as distinct liabilities and penalty requires express legislative authority against the person who committed the default. The later amendment expressly adding penalty was treated as confirming that the earlier provision did not authorise it. Section 44 nevertheless applied to dissolved firms for assessment purposes.

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Issues: (i) Whether, on the unamended section 44 of the Income-tax Act, penalty proceedings under section 28(1)(c) could be initiated against a dissolved firm and penalty levied on the former partners; (ii) whether section 44 applied to a dissolved firm.

Issue (i): Whether, on the unamended section 44 of the Income-tax Act, penalty proceedings under section 28(1)(c) could be initiated against a dissolved firm and penalty levied on the former partners.

Analysis: Section 44 fastened joint and several liability on the former partners only in respect of assessment and the amount of tax payable, and made the provisions of Chapter IV applicable so far as may be for that purpose. The Court held that the word "assessment" could not be stretched to include penalty, because the Act consistently distinguished assessment from penalty in several provisions, including those dealing with appeal and recovery. Penalty under section 28 required identity between the person who had committed the default and the person sought to be penalised, which was absent once the firm had ceased to exist. The later amendment to section 44, which expressly inserted reference to penalty, was treated as confirming that the earlier provision did not authorise such imposition.

Conclusion: Section 44, as it stood before amendment, did not authorise the Revenue to initiate or levy penalty under section 28(1)(c) against the dissolved firm or its former partners.

Issue (ii): Whether section 44 applied to a dissolved firm.

Analysis: The language of section 44 referred to discontinuance of a firm's business and to persons who "was" a partner of such a firm, indicating a prior firm that had ceased to exist. The provision was read as covering the assessment of income of a dissolved firm and the consequent tax liability of its former partners. The Court rejected the contention that the section was limited to mere discontinuance without dissolution, and held that a dissolved firm fell within its scope.

Conclusion: Section 44 applied to dissolved firms.

Final Conclusion: The reference was answered for the assessee on the main issue, holding that the unamended section 44 did not permit penalty under section 28 against a dissolved firm, though the section did cover dissolved firms for assessment purposes.

Ratio Decidendi: A statutory provision imposing joint and several liability for assessment and tax cannot be construed, in the absence of express words, as authorising penalty proceedings against a dissolved firm, because assessment and penalty are distinct liabilities and penalty requires specific legislative authority.

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