Section 321 — Association dissolved or business discontinued. Successor to s.177 of the 1961 Act.
Section 321 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
Sub-section (1) requires the Assessing Officer, where the business or profession of an association of persons is discontinued or the association is dissolved, to assess the association's total income as if no discontinuance or dissolution had taken place, with the Act's provisions — including those on levy of penalty or any other sum chargeable — applying to that assessment. Sub-section (2) allows the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals), if satisfied in any proceeding that the association was guilty of an act specified in Chapter XXI, to impose or direct imposition of a penalty under that Chapter. Sub-section (3) makes every person who was a member at the time of the discontinuance or dissolution, and the legal representative of any deceased member, jointly and severally liable for the tax, penalty or other sum payable. Sub-section (4) allows proceedings already commenced to continue against those persons from the stage they had reached. Sub-section (5) preserves section 302(4).
Dissolving an association or shutting its business would otherwise leave an assessment with no assessable entity and no one to recover from; the section keeps the association assessable notionally and puts the liability on the individuals who were its members.
Dissolution is not an exit. The assessment proceeds as though the association still existed, penalties under Chapter XXI remain available, and each former member is jointly and severally liable for the whole of the tax, penalty or other sum — so the Department may recover the entire amount from any one of them, and a deceased member's legal representative stands in the same position. Proceedings pending at the date of dissolution do not restart; sub-section (4) continues them against the members from the stage they had reached.
An association of persons dissolves in March with an assessment for an earlier year already part-heard. The assessment is not lost: sub-section (1) requires the Assessing Officer to assess the association’s total income as if no dissolution had taken place, and sub-section (4) lets the pending proceeding continue against the former members from the stage it had reached. Penalty survives too — sub-section (2) lets the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) impose a Chapter XXI penalty on the association. When a demand of, say, Rs. 90 lakh in tax and penalty is raised, every person who was a member at dissolution, and the legal representative of a member since deceased, is liable for the whole of it under sub-section (3), not merely for his own share.
In the assessment order and demand made on an association whose business has been discontinued or which has been dissolved, and then in the recovery pursued against its former members personally. A member usually meets it when the notice or demand comes to him rather than to the association, the proceedings having simply carried on from where they stood.
Every person who was at the time of such discontinuance or dissolution a member of the association of persons, 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
See the full 1961 to 2025 concordance.