Section 44 and partner liability: reconstitution is not discontinuance, and ex-partners may separately challenge the demand.

Section 44 applies only on discontinuance of the firm's business, not on a mere reconstitution or change in partners; deeds transferring shares and goodwill did not by themselves show cessation, so ex-partners were not fastened with liability on that basis. Separate appeals by ex-partners against the same demand were maintainable because each, as an assessee served with notice of demand, had an independent right of challenge; the second proviso to section 30 did not apply to an unregistered firm assessed under section 44, and constructive res judicata or estoppel did not bar the later appeals. Assessment on a dissolved firm remained legally valid because the statutory machinery continued after dissolution.

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Issues: (i) whether separate appeals by ex-partners against the same demand were maintainable and barred by the second proviso to section 30, res judicata or estoppel; (ii) whether the deeds of 21 July 1952 brought about discontinuance or cesser of the firm's business so as to attract section 44 and render the ex-partners liable; (iii) whether assessment on the firm after dissolution was valid in law.

Issue (i): Whether separate appeals by ex-partners against the same demand were maintainable and barred by the second proviso to section 30, res judicata or estoppel.

Analysis: A dissolved firm assessed to tax and whose partners are served with notices of demand gives each ex-partner a right to challenge the assessment and demand as an assessee within section 2(2). The second proviso to section 30 applied to cases of assessment of partners on their own shares in a registered firm and had no application to an unregistered firm assessed under section 44. Since each ex-partner had a separate right of appeal, the filing and disposal of one appeal did not bar the others by constructive res judicata or estoppel.

Conclusion: The appeals were maintainable and were not barred by the second proviso to section 30, res judicata or estoppel.

Issue (ii): Whether the deeds of 21 July 1952 brought about discontinuance or cesser of the firm's business so as to attract section 44 and render the ex-partners liable.

Analysis: On a reading of the two deeds, the transaction amounted to a reconstitution of the firm by retirement of partners and introduction of new partners, followed by further reconstitution when the remaining partner sold his share. The transfer of shares in assets and goodwill did not establish a complete cessation of the business. Section 44 applies only where there is discontinuance of the business and not where there is merely a change in ownership or constitution of the firm.

Conclusion: There was no discontinuance or cesser of business on 21 July 1952, and section 44 was not attracted to fasten liability on the ex-partners.

Issue (iii): Whether assessment on the firm after dissolution was valid in law.

Analysis: Section 44 permits assessment machinery to continue against a firm after discontinuance of business, and the assessment on a dissolved firm is not invalid merely because it is made after dissolution. The statutory fiction preserves the assessment liability notwithstanding the dissolution.

Conclusion: The assessment on the firm after dissolution was valid in law.

Final Conclusion: The reference was answered substantially in favour of the assessee on the question of discontinuance and partner liability, while sustaining the legal validity of assessment after dissolution under section 44.

Ratio Decidendi: Section 44 applies only upon discontinuance of the firm's business, not on a mere reconstitution or change in partners; where ex-partners receive separate demands, each may independently challenge the assessment as an assessee, and such appeals are not barred by constructive res judicata or estoppel.

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