Liability after firm discontinuance: partners remain jointly and severally liable including penalties under Chapter IV.
Where a firm's business is discontinued, section 44 makes every person who was a partner at discontinuance jointly and severally liable to assessment under Chapter IV and directs that all provisions of Chapter IV apply so far as may be. The Article construes "assessment" to include the Chapter's machinery for determination and enforcement, including penalty provisions, and reasons that the phrase "so far as may be" excludes only provisions impossible by their nature to apply. Consequently penalties under section 28(1)(c) may be imposed after firm discontinuance on former partners; outcome favours the Revenue.
Issues: Whether, after discontinuance or dissolution of a firm, a penalty under section 28(1)(c) of the Income-tax Act can be imposed in proceedings under Chapter IV by applying section 44 so that partners remain liable for penalty incurred during the firm's existence.
Analysis: Section 44 declares that where a firm's business has been discontinued every person who was a partner at the time of discontinuance shall be jointly and severally liable to assessment under Chapter IV and that all provisions of Chapter IV shall, so far as may be, apply to such assessment. Chapter IV uses the word "assessment" in a broad sense covering not only computation of income but the machinery for determination and enforcement of tax liability, including provisions that impose liability such as penalties. The statutory phrase "so far as may be" excludes only those provisions that by their nature cannot apply; it does not limit application to mere computation. Penalties imposed under section 28 arise in the course of assessment proceedings as part of the machinery for ensuring correct disclosure of income. To interpret section 44 as excluding imposition of penalties would permit partners to evade penal consequences by dissolving the firm, contrary to the legislative purpose of continuity in assessment procedures. Prior decisions treating section 44 as enabling application of Chapter IV, including penalty provisions, support this construction; decisions to the contrary that sought to treat section 44 as confined to computation are not followed.
Conclusion: Penalty under section 28(1)(c) can be imposed after discontinuance of the firm by applying section 44; conclusion in favour of Revenue.
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