Assessment of dissolved firm remains valid where notice and return were completed before dissolution

Where a firm is dissolved or its business discontinued, assessment does not fail merely on that account if notice was served and the return was filed while the firm still existed. Section 44 of the Indian Income-tax Act, 1922 preserves the assessment machinery and makes the partners at the time of discontinuance jointly and severally liable. Reading the provision with binding Supreme Court authority, the HC held that contrary Tribunal observations were only obiter and could not override that position. The assessment made against the dissolved firm was therefore valid, and the reference was answered in favour of the Revenue.

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Issues: Whether an assessment made against a firm after its dissolution is valid where notice had been served and the return filed while the firm was still in existence.

Analysis: Section 44 of the Indian Income-tax Act, 1922 provides that where the business of a firm is discontinued, the partners at the time of discontinuance remain jointly and severally liable to assessment and the provisions of Chapter IV continue to apply. The provision was read in the light of the Supreme Court decisions explaining that the assessment machinery does not fail merely because the firm has been dissolved or its business discontinued. The court also noted that the earlier contrary observations relied upon by the Tribunal were treated as obiter and could not prevail against the binding Supreme Court authorities.

Conclusion: The assessment made against the dissolved firm was valid, and the question referred was answered in the affirmative, in favour of the Revenue.

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