TaxTMI 
TaxTMI 
Continuity of Tax Liability After Firm Dissolution : Clause 330 of Income Tax Bill, 2025 Vs. Section 189 of Income Tax Act, 1961
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....sion or escape of liability by the firm or its partners. This commentary provides a detailed analysis of Clause 330, examining its structure, objectives, and implications, and then undertakes a comprehensive comparison with the existing Section 189. The analysis highlights both continuity and change, examining the practical and legal consequences for stakeholders. Objective and Purpose The primary objective of both Clause 330 and Section 189 is to prevent the dissolution or discontinuance of a firm from being used as a means to avoid tax liability. The legislative intent is to ensure that the assessment of income, levy of penalties, and recovery of taxes can proceed as if the firm had not been dissolved or the business had not been discon....
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.... over the firm's income for the relevant period. Imposition of Penalty Clause 330(2) specifically empowers the Assessing Officer, Joint Commissioner (Appeals), or Commissioner (Appeals) to impose penalties if, in the course of proceedings, it is found that the firm was guilty of acts specified in Chapter XXI (which deals with penalties and prosecutions). This provision clarifies that the power to impose penalties is not affected by the dissolution or discontinuance of the firm. This sub-section is a safeguard to ensure that firms cannot escape penal consequences by ceasing to exist. It also aligns with the principle that penalties are attached to the conduct of the firm during its existence, and dissolution does not exonerate such co....
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.... need to restart proceedings. Saving Clause Clause 330(5) states that the section does not affect the provisions of section 302(4). This is a standard saving clause, ensuring that the special provisions of section 302(4) (which likely deals with another aspect of succession or dissolution) are not overridden by Clause 330. The exact content of section 302(4) would need to be referenced for a complete understanding, but the intent is to avoid conflict and preserve the application of other relevant provisions. Practical Implications For Firms and Partners The provisions ensure that the dissolution or discontinuance of a firm does not provide an escape from tax liability. Partners, including legal representatives of deceased partners, mus....
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....a legal fiction for assessment, treating the firm as if it were still in existence. * Allow for the imposition of penalties post-dissolution or discontinuance. * Impose joint and several liability on partners and legal representatives of deceased partners. * Permit continuation of proceedings already commenced prior to dissolution/discontinuance. * Contain saving clauses to protect the application of other relevant provisions. Key Differences and Evolution 1. Language and Clarity Clause 330 is drafted in a more contemporary legislative style, with improved clarity and structure. For instance, sub-section (2) in Clause 330 uses the phrase "regardless of the generality of sub-section (1)" instead of "without prejudice to the genera....
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....mpose penalties. The references have been updated over time in Section 189 to reflect changes in administrative hierarchy, which are now reflected in Clause 330. Jurisprudential Context and Judicial Interpretation Indian courts have consistently upheld the validity and necessity of such provisions, emphasizing the need to prevent tax evasion through dissolution or discontinuance. The Supreme Court and various High Courts have ruled that these provisions create a legal fiction only for the purpose of assessment and recovery, and do not revive a dissolved firm for other legal purposes. The liability of partners is limited to their capacity as such at the time of dissolution, and legal representatives are liable only to the extent of the est....