TaxTMI 
TaxTMI 
Procedural Safeguards for Assessment of Discontinued Businesses : Clause 504 of the Income Tax Bill, 2025 Vs. Section 284 of the Income-tax Act, 1961
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....he entity, changes in representation, and challenges in identifying the correct recipient. Clause 504 of the Income Tax Bill, 2025, seeks to address this issue by laying down the mechanism for the service of notice where an assessment is to be made in respect of a discontinued business. This provision is the successor to Section 284 of the Income-tax Act, 1961, which has governed similar scenarios for several decades. This commentary examines Clause 504 in detail, analyzing its structure, legislative intent, and practical implications. It further undertakes a comparative analysis with Section 284 of the 1961 Act, highlighting similarities, differences, and the broader policy context. The discussion is structured to provide a comprehensive ....
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....sessment is to be made u/s 320, the Assessing Officer may serve on the- * (a) person whose income is to be assessed; or * (b) person who was a member of a firm or association of persons at the time of its discontinuance, in the case of a firm or an association of persons; or * (c) principal officer, in case of a company, a notice containing all or any of the requirements which may be included in a notice u/s 268(1) and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. Key Components * Scope of Application: The clause applies where an assessment is to be made u/s 320, which, by context, would relate to assessments arising from discontinued business or....
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....pany is in liquidation or has ceased operations. * Procedural Safeguards: The cross-reference to section 268(1) ensures that procedural requirements are met, but there may be ambiguity if section 268(1) itself is substantially different from the corresponding provision (section 139(2)) in the 1961 Act. * Service on Former Members: In the case of firms or AOPs, the provision allows service on any person who was a member at the time of discontinuance. This raises questions about the extent of liability and the rights of such persons to defend the assessment. Legal Principles Underlying the Provision The provision embodies the principle that the cessation of business or the dissolution of an entity does not extinguish the tax liability a....
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.... u/s 268(1) Key Points of Similarity * Purpose: Both provisions are designed to facilitate the assessment of income relating to a discontinued business or profession. * Persons on Whom Notice May Be Served: The categories are identical: the person whose income is to be assessed, former members of a firm/AOP, and the principal officer of a company. * Deeming Provision: Both provide that the notice is to be treated as if issued under a general provision governing assessment notices. Points of Difference * Reference to Assessment Section: Section 284 refers to assessments u/s 176 (which deals with discontinuance of business), while Clause 504 refers to section 320. The actual scope of these sections may differ depending on the struct....
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....erson who was a member at the time of discontinuance. Questions may arise as to whether such persons are jointly and severally liable for the entire tax liability or only to the extent of their share. * Service of Notice in Case of Death or Non-Traceability: How should the notice be served if the person is deceased or cannot be traced? The Act may need to provide for service on legal representatives or by substituted service. * Interaction with Limitation Periods: The timing of discontinuance and the service of notice may affect the computation of limitation periods for assessment. Judicial clarification may be needed on whether the period of limitation is extended or suspended in such cases. * Procedural Safeguards and Natural Justic....