Section 330 of the Income-tax Act, 2025 — Assessment When a Firm Is Dissolved or Business Discontinued

In plain language

What Section 330 actually deals with

Despite being catalogued under a broad "assessment machinery" grouping, Section 330 of the Income-tax Act, 2025 has nothing to do with trusts or charitable institutions — it deals squarely with partnership firms. It is the direct successor to Section 189 of the Income-tax Act, 1961. In plain words, it stops a firm from escaping tax simply by dissolving itself or shutting down its business or profession.

The core idea is a legal fiction: even after a firm is dissolved or its business is discontinued, the Assessing Officer (AO) can still assess the firm's total income "as if no such dissolution or discontinuance had taken place." The firm is treated as if it still exists for the limited purpose of completing assessment, levying tax, imposing penalty, and recovering dues.

Who it applies to

• Partnership firms (including LLPs treated as firms for income-tax purposes) that have been dissolved.
• Firms whose business or profession has been discontinued, even if the firm itself technically survives.
• Every person who was a partner at the time of dissolution or discontinuance.
• Legal representatives (heirs/estate) of any partner who has since died.

The key sub-sections, decoded

• Sub-section (1) — Assessment continues: The AO assesses the firm's total income as though it never dissolved. All provisions of the Act apply, including provisions on levy of penalty and any other sum chargeable.
• Sub-section (2) — Penalty powers survive: The AO, Joint Commissioner (Appeals) or Commissioner may impose penalties under the penalty chapter (Chapter XXI) for defaults committed while the firm existed. Dissolution does not wipe the slate clean.
• Sub-section (3) — Joint and several liability: Every erstwhile partner — and a deceased partner's legal representative — is jointly and severally liable for the tax, penalty or other sum payable. "Jointly and severally" means the department can recover the entire demand from any one partner, who must then settle among themselves.
• Sub-section (4) — Proceedings carry on from where they stopped: If dissolution/discontinuance happens after proceedings for a tax year have already begun, those proceedings simply continue against the former partners from the stage they had reached — no fresh start needed.

The section is expressly stated not to affect the operation of Section 302(4) (recovery-related provisions), so the two work in tandem rather than in conflict.

How it interacts with related sections

• Section 321 is the parallel provision for an Association of Persons (AOP) or Body of Individuals (BOI) that is dissolved or discontinued — the mirror of the old Section 177.
• Discontinuance of business generally triggers reporting duties (successor and discontinuance provisions), and Section 330 ensures the tax on the discontinued firm's income still lands correctly.
• The penalty chapter (Chapter XXI) is imported wholesale, so penalties for concealment, late filing or TDS defaults remain leviable.

Practical implications for taxpayers

• You cannot dissolve your way out of tax. Winding up the firm does not close open assessments or pending demands.
• Personal exposure is real. Because liability is joint and several, a single ex-partner can be pursued for 100% of the firm's dues and penalties — not merely their profit-sharing ratio.
• Estate risk. If a partner dies, their heirs inherit the exposure (limited, in practice, to the estate they receive).
• Keep records after closure. Preserve books, the dissolution deed and settlement of accounts, because the AO can reopen and complete assessment years later.
• Draft indemnities in the dissolution deed so partners have a private-law route to apportion any tax that one of them is forced to pay.