Section 504 of the Income-tax Act, 2025 — Service of Notice in Case of a Discontinued Business

In plain language

What Section 504 actually says

Section 504 of the Income-tax Act, 2025 is a machinery (procedural) provision, not a charging section. It answers one practical question the tax department faces every day: when a business or profession has already closed down, who does the Assessing Officer (AO) serve the notice on? A closed firm has no office, a dissolved partnership has no continuing entity, and a wound-up company has no active management — yet assessments, reassessments and recovery for the past years still have to happen. Section 504 makes sure the department can validly reach a live human being even after the business is dead.

In plain terms, where an assessment is to be made for a discontinued business or profession, the AO may serve a notice — containing all or any of the requirements that can be included in a notice under Section 268(1) (the general assessment/return notice provision) — on:

• The person whose income is to be assessed — the individual proprietor, or the assessee entity itself; or
• In the case of a firm or association of persons (AOP) — any person who was a partner (or member) at the time of its discontinuance; or
• In the case of a company — the principal officer of the company.

Why this provision exists

• Prevents assessments from being frustrated. Without Section 504, a taxpayer could argue "the firm no longer exists, so your notice is invalid." This section closes that escape route.
• Fixes an identifiable recipient. Service on any one former partner is enough — the department need not track down every ex-partner.
• Preserves natural justice. The notice still carries the same content and rights as any ordinary Section 268(1) notice, so the recipient can file returns, produce accounts and be heard.

Who it applies to

• Sole proprietors who have shut a business or profession — served personally.
• Partnership firms and LLPs / AOPs that have dissolved or discontinued — served on any erstwhile partner/member.
• Companies that have discontinued or are being wound up — served on the principal officer.

It applies whether the discontinuance was voluntary (owner closed shop) or by operation of law (death, dissolution, insolvency), so long as an assessment for a period before discontinuance is still to be made.

How it interacts with related sections

• Section 320 (discontinued business) — the substantive counterpart. It taxes income up to the date of closure and taxes post-discontinuance receipts; it also requires the person to notify the AO of discontinuance within 15 days. Section 504 supplies the service mechanism for the resulting assessment.
• Section 268 — the notice/return provision whose "requirements" Section 504 borrows. The discontinued-business notice can demand a return, accounts, documents, etc.
• Firm/AOP assessment-after-dissolution provisions — Section 504 works alongside the rule that a dissolved firm can still be assessed and its former partners held jointly and severally liable for the tax.
• Sections 501–503 — the general service, authentication and special-service rules (partitioned HUF, dissolved firm, discontinued business) sit together as the "service of notices" cluster.

Practical implications for taxpayers

• Closing a business does not close your tax exposure. File the 15-day discontinuance intimation and keep records; you can be validly assessed years later.
• Ex-partners remain reachable. If you leave or dissolve a firm, a notice served on any partner who was there at discontinuance binds the firm — so ensure a forwarding address and clear internal responsibility.
• Companies must keep a principal officer contactable even during winding-up.
• A notice served under Section 504 is legally valid service — ignoring it because "the firm is closed" is not a defence and can lead to best-judgment assessment and penalties.

Note on numbering: Section 504 of the 2025 Act is the successor to Section 284 of the Income-tax Act, 1961. The wording is modernised (cross-referring to the 2025 Act's own Section 268 and Section 320) but the substance is materially the same.