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of <h1>Dissolved firm liable for assessment despite dissolution under Income-tax Act</h1> <h3>Commissioner of Income-Tax Versus Chheharta Button Factory</h3> Commissioner of Income-Tax Versus Chheharta Button Factory - [1965] 56 ITR 246 Issues:Validity of assessment on a dissolved firm for the assessment year 1953-54 when notice under section 22(2) was served and the return was filed while the firm was in existence.Detailed Analysis:The judgment involves a reference under section 66(1) of the Indian Income-tax Act, 1922, by the Income-tax Appellate Tribunal to decide the validity of an assessment on a dissolved firm, Messrs. Chheharta Button Factory, for the assessment year 1953-54. The firm was unregistered, and a notice under section 22(2) was served on the firm on May 28, 1963. The firm informed the Income-tax Officer about the closure of its business in December 1957 and January 1958. The Income-tax Officer assessed the firm's income on January 20, 1958, after the firm had been dissolved on April 30, 1957. The Appellate Assistant Commissioner set aside the assessment, stating that it could not be made in the name of a dissolved firm. The Tribunal upheld this decision, leading to the reference to the High Court.The judgment delves into the interpretation of section 44 of the Income-tax Act, which deals with the liability in case of a discontinued firm or association. The court refers to the Supreme Court's observations in various cases to elucidate the purpose and scope of section 44. It is highlighted that section 44 operates in cases of discontinuance of business by a firm or association and dissolution of an association, imposing joint and several liability on partners or members. The court emphasizes that the liability to assessment under Chapter IV applies in cases of discontinuance of business, whether due to dissolution or other causes.The court further discusses the Supreme Court decisions in Shivram Poddar v. Income-tax Officer and C.A. Abraham v. Income-tax Officer, emphasizing that assessment proceedings can continue against a firm even after discontinuance of business. The court clarifies that the assessment order against a dissolved firm is valid as per the provisions of section 44 and the precedents set by the Supreme Court. It dismisses the argument that no assessment order can be made against a dissolved firm, citing the Calcutta High Court decision in R.N. Bose v. Manindra Lal Goswami as obiter dicta and not binding.In conclusion, the court answers the question referred in the affirmative, stating that the dissolution of the firm and discontinuance of its business do not affect the validity of the assessment order. The judgment underscores that the case is covered by the pronouncements of the Supreme Court and leaves the parties to bear their own costs. Both judges, A.N. Grover and H.R. Khanna, concur with the decision.
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