Chapter XVII - Special Provisions Relating to Certain Persons
Section 330
Section 330: firm dissolved or business discontinued
Section 330 stops a firm's dissolution or the discontinuance of its business or profession from being used to avoid assessment or penalty. It treats the firm as if it were still in existence for assessment purposes and fixes liability on the partners who were there at the time.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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.
(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.
(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.
(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.
(5) The provisions of this section shall not affect the provisions of section 302(4).
Introduction
Dissolving a partnership or discontinuing its business does not prevent assessment or penalty proceedings for the firm’s earlier income. Partners retain the statutory liability.
Key takeaways
Dissolution does not stop assessment
The Assessing Officer assesses the firm's total income as if dissolution or discontinuance had not occurred.
Partners at the relevant time are liable
Those who were partners when dissolution or discontinuance occurred, and legal representatives of any deceased such partners, are jointly and severally liable for the specified dues.
Existing proceedings may continue
If proceedings began before dissolution or discontinuance, they can continue against those persons from the stage already reached.
Penalties remain possible
Chapter XXI penalties can still be imposed for the firm's specified acts despite dissolution or discontinuance.
Assessment continues despite dissolution or discontinuance
Sub-section (1): where a firm is dissolved or its business or profession 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 the Act - including those relating to levy of penalty or any other chargeable sum - apply so far as may be to that assessment.
Penalty can still be imposed
Sub-section (2): regardless of the generality of sub-section (1), if the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals), in the course of any proceeding regarding such a firm, is satisfied that the firm was guilty of any of the acts specified in Chapter XXI, a penalty may be imposed or its imposition directed under that Chapter.
Partners remain jointly and severally liable
Sub-section (3): every person who was a partner of the firm at the time of dissolution or discontinuance, and the legal representative of any such person who has since died, is jointly and severally liable for the tax, penalty or other sum payable, and all provisions of the Act apply, so far as may be, to that assessment or the imposition of penalty or other sum.
Proceedings can continue from where they stood
Sub-section (4): where the dissolution or discontinuance takes place after proceedings for a tax year have already commenced, those proceedings may be continued against the persons referred to in sub-section (3) from the stage they had reached at the time of dissolution or discontinuance, and all provisions of the Act apply accordingly.
Sub-section (5): this section does not affect the provisions of Section 302(4).
Step-by-step flow for applying Section 330
- 1
Has the firm been dissolved, or has a business or profession carried on by it been discontinued?
- No: Section 330 does not apply.
- Yes: Go to the next step.
- 2
Assess the firm as if there were no dissolution or discontinuance
Under Section 330(1), the Assessing Officer assesses the firm's total income as if the firm still existed. All the provisions of the Act, including those on penalty or any other sum, apply so far as may be.
- 3
Is the authority satisfied that the firm committed any act specified in Chapter XXI?
Under Section 330(2), the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals) may impose or direct a penalty under that Chapter in any proceeding about the firm. Section 330 itself does not state any penalty amount.
- 4
Who is liable to pay?
Under Section 330(3), every person who was a partner at the time of the dissolution or discontinuance, and the legal representative of any such deceased person, is jointly and severally liable for the tax, penalty or other sum. Section 330(5) keeps Section 302(4) on a legal representative's liability unaffected.
- 5
Had proceedings for a tax year already started before the dissolution or discontinuance?
- Yes: Under Section 330(4), the proceedings may continue against the persons in Section 330(3) from the stage they had reached.
- No: Fresh proceedings are taken under Section 330(1), with the persons in Section 330(3) liable for the amounts.
Practical checklist
Do
- Keep accounting records and partner contacts after dissolution.
- Resolve pending notices and demands as part of winding up.
Avoid
- Assume closure of the firm cancels tax already due.
Illustrative example
Worked example: a firm dissolved during an ongoing assessment
Hypothetical facts (illustration only, not a real taxpayer): A firm of three partners, X, Y and Z, was dissolved on 31 August 2026. Assessment proceedings for an earlier tax year had already begun and a notice had been issued before that date. Y died in December 2026. The tax finally assessed for that earlier year is an assumed ₹4,80,000.
Dissolution does not stop assessment
Under Section 330(1), the firm is assessed as if it had not been dissolved.
Proceedings continue
Because proceedings had started before 31 August 2026, Section 330(4) lets them continue against X, Y's legal representative and Z from the stage they had reached. They do not have to start again.
Who pays
X, Z and Y's legal representative were partners (or represent a partner) at the time of dissolution, so they are jointly and severally liable for the ₹4,80,000 under Section 330(3). Y's legal representative's liability remains subject to Section 302(4).
Penalty
If the authority is satisfied that the firm committed an act specified in Chapter XXI, a penalty may be imposed under that Chapter (Section 330(2)). Whether any penalty applies, and its amount, depends on Chapter XXI.
Outcome
- The ₹4,80,000 (assumed) can be recovered from X, Z or Y's legal representative, jointly or severally.
- Dissolution neither ends the assessment nor removes penalty exposure.
Frequently asked questions
Does dissolving a firm stop the tax department from assessing it?
No. Section 330(1) requires the Assessing Officer to assess the dissolved or discontinued firm's total income exactly as if the dissolution or discontinuance had not taken place.
Who is liable for the firm's tax after dissolution?
Every person who was a partner at the time of dissolution or discontinuance, and the legal representative of any partner who has since died, are jointly and severally liable under Section 330(3).
Can a penalty still be levied on a dissolved firm?
Yes - Section 330(2) allows a penalty to be imposed under Chapter XXI if the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals) is satisfied the firm was guilty of an act specified in that Chapter.
Need help applying this provision to your situation?
Get help responding to an assessment of a dissolved firmLast updated 9 October 2026