Assessment of dissolved firm remains valid for pre-dissolution income despite discontinuance of business

A dissolved firm could still be assessed for pre-dissolution income under the Indian Income-tax Act, 1922. The Bombay HC applied its earlier binding authority, as later reaffirmed, to hold that dissolution and discontinuance of business did not by themselves invalidate income-tax or excess profits tax assessments made after dissolution. The contrary Gujarat view was noted but could not override the settled Bombay position. The assessments were therefore valid in law, and the issue was decided against the assessee.

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Issues: Whether income-tax and excess profits tax assessments made on a firm after its dissolution and discontinuance of business were valid in law.

Analysis: The reference turned on a single legal question arising from the finding that the firm had been dissolved and its business discontinued before the assessments were made. The Court held that the question was governed by earlier Bombay authority, as subsequently reaffirmed, which treated a dissolved firm as continuing for the purpose of assessing pre-dissolution income under the relevant provisions of the Indian Income-tax Act, 1922. The contrary Gujarat view was noted but could not displace the binding Bombay decisions. The assessments were therefore not invalid merely because the firm had already been dissolved.

Conclusion: The assessments were valid in law and the issue was answered against the assessee.

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