Section 321
Section 321: association dissolved or business discontinued
Section 321 makes sure a dissolved association of persons (AOP) can't dodge its tax obligations simply by winding up. The Assessing Officer assesses it as if nothing had changed, penalties can still be imposed, and every member - along with the legal representatives of deceased members - is made jointly and severally liable.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Assessment continues as if nothing changed
Where a business or profession carried on by an association of persons has been discontinued, or the association of persons is dissolved, the Assessing Officer assesses its total income as if no discontinuance or dissolution had taken place - all provisions of the Act, including those on levying a penalty or other chargeable sum, apply, so far as may be, to that assessment.
Penalties can still be imposed
Without limiting the above, if the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals) is satisfied, in the course of any proceeding, that the dissolved or discontinued association of persons was guilty of any act specified in Chapter XXI, they may impose (or direct the imposition of) a penalty under that Chapter.
Joint and several liability of members
Every person who was, at the time of discontinuance or dissolution, a member of the association of persons - and the legal representative of any such member who has since died - is jointly and severally liable for the tax, penalty or other sum payable; all provisions of the Act apply, so far as may be, to any such assessment or imposition of penalty or other sum.
Proceedings already underway can continue
Where the discontinuance or dissolution occurs after proceedings for a tax year have already begun, those proceedings may be continued against the members/legal representatives referred to above, from the stage they had reached at the time of discontinuance or dissolution.
Does not override Section 302(4)
Nothing in Section 321 affects the provisions of section 302(4) - the estate-limited liability rule for a legal representative.
Frequently asked questions
Can the tax department still assess an association of persons after it has dissolved?
Yes - Section 321(1) requires the Assessing Officer to assess the dissolved or discontinued association's total income exactly as if it had never dissolved, including for penalty purposes.
Who is personally liable for a dissolved AOP's unpaid tax?
Every person who was a member of the association at the time of discontinuance or dissolution, plus the legal representative of any member who has since died, is jointly and severally liable under Section 321(3).
Can proceedings that started before dissolution simply continue against the members?
Yes - Section 321(4) allows proceedings already underway to continue against the members/legal representatives from the stage they had reached at dissolution.
Related sections
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Get help with a dissolved AOP's tax assessmentLast updated 9 September 2026