Statutory fiction under income-tax law permits assessment of a dissolved firm where dissolution caused business discontinuance.

Under the unamended section 44 of the Indian Income-tax Act, 1922, a firm whose dissolution brought about discontinuance of business could still be assessed as if the business had continued. The provision was treated as a machinery section creating a statutory fiction to preserve assessment continuity, and the partners at the time of discontinuance remained jointly and severally liable. Earlier Supreme Court decisions in Abraham and Shivram Poddar were followed on the point that dissolution causing discontinuance attracted section 44, while mere dissolution without discontinuance would not.

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Issues: Whether, under section 44 of the Indian Income-tax Act, 1922, assessment could validly be made on a firm after its dissolution where dissolution resulted in discontinuance of business.

Analysis: The unamended section 44 applied where the business of a firm was discontinued, and in that situation every partner at the time of discontinuance was jointly and severally liable to assessment under Chapter IV. The provision was treated as a machinery section enacted to preserve continuity in assessment despite discontinuance, by deeming the firm to continue for assessment purposes. The earlier decisions in Abraham and Shivram Poddar had already settled that where dissolution of a firm resulted in discontinuance of business, assessment could still be made under section 44 on the dissolved firm. The distinction recognised in those decisions was that mere dissolution without discontinuance would not attract section 44, but that was not the factual situation here.

Conclusion: Assessment on the dissolved firm was valid, and the challenge to the assessment failed.

Final Conclusion: The appeal was dismissed because the statutory fiction under section 44 authorised assessment of the firm notwithstanding its dissolution, where dissolution had brought about discontinuance of the business.

Ratio Decidendi: Under the unamended section 44 of the Indian Income-tax Act, 1922, a dissolved firm whose dissolution resulted in discontinuance of business could still be assessed as if the discontinuance had not taken place.

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