Firm dissolved or business discontinued
[Section-330 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 330(1) of Income Tax Act 2025
330(1) Where a firm is dissolved or any business or profession carried on by it has been discontinued, the Assessing Officer shall make an assessment of the total income of the firm, as if no such dissolution or discontinuance had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment.
Section 330(2) of Income Tax Act 2025
330(2) Regardless of the generality of sub-section (1), if the Assessing Officer or Joint Commissioner (Appeals) or Commissioner (Appeals), in the course of any proceeding under this Act in respect of any such firm as referred to in that sub-section, is satisfied that the firm was guilty of any of the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty as per the provisions of that Chapter.
Section 330(3) of Income Tax Act 2025
330(3) Every person who was at the time of such dissolution or discontinuance a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum.
Section 330(4) of Income Tax Act 2025
330(4) Where such dissolution or discontinuance takes place after any proceedings in respect of a tax year have commenced, the proceedings may be continued against the person referred to in sub-section (3) from the stage at which the proceedings stood at the time of such dissolution or discontinuance, and all the provisions of this Act shall, so far as may be, apply accordingly.
Section 330(5) of Income Tax Act 2025
330(5) The provisions of this section shall not affect the provisions of section 302(4).
FAQs on Section 330 of Income Tax Act 2025
What happens to tax assessment if a firm is dissolved or its business is discontinued?
The Assessing Officer will assess the total income of the firm as if no dissolution or discontinuance had occurred. All provisions of the Act, including penalties and other charges, will apply as usual.
Can penalties still be imposed after the firm is dissolved?
Yes. If the Assessing Officer, Joint Commissioner (Appeals), or Commissioner (Appeals) finds during proceedings that the firm committed acts listed in Chapter XXI, they may impose or direct penalties accordingly.
Who is liable to pay the tax, penalty, or other amounts after dissolution or discontinuance?
Every person who was a partner at the time of dissolution or discontinuance, and legal representatives of any deceased partner, are jointly and severally liable for the tax, penalty, or other sums payable.
Do the provisions of the Act still apply after the firm ceases to exist?
Yes. The provisions of the Act continue to apply for assessment, penalty, or other procedures as if the firm had not been dissolved or its business not discontinued.
What happens to ongoing proceedings if the firm is dissolved mid-way?
If dissolution or discontinuance occurs after proceedings for a tax year have begun, the proceedings can continue from that stage against the liable persons under sub-section (3).
Is there any restriction or override on Section 330?
Yes. The provisions of Section 330 do not affect the application of Section 302(4).
Is a separate assessment required post dissolution?
No separate assessment is needed due to dissolution. The assessment proceeds as if the firm continues to exist.
Does joint and several liability extend to legal heirs?
Yes. Legal representatives of deceased partners are also jointly and severally liable along with surviving partners.
Are penalties under Chapter XXI specifically mentioned for post-dissolution cases?
Yes. Sub-section (2) explicitly allows imposition of penalties under Chapter XXI if applicable.
Is it necessary for fresh proceedings to be initiated after discontinuance?
No. Existing proceedings continue from where they left off, under the same framework, against the liable persons.
