Joint and Several Liability of Partners and Assessment of Dissolved Firms under Income Tax Law
The income-tax law can continue to impose and recover tax, penalty and other sums relating to a partnership firm even where partners change, a partner dies, the firm is dissolved, or its business or profession is discontinued. The current rules are principally contained in Sections 329 and 330 of the Income-tax Act, 2025.
Section 329: Joint and several liability of partners for tax payable by firm
Section 329 of the Income-tax Act, 2025 provides for personal statutory liability of persons who were partners of a firm during the relevant tax year. It also extends the rule to the legal representative of a deceased partner.
Meaning and effect of Section 329
Every person who was a partner of the firm during the tax year, and the legal representative of a deceased such person, is jointly and severally liable along with the firm for tax, penalty or any other sum payable by the firm for that tax year. The provisions of the Act apply, so far as may be, to assessment of the tax and imposition or levy of the penalty or other sum.
Joint and several liability means that the statutory liability is not confined to the firm alone. Subject to the Act, the revenue can enforce the firm's qualifying tax liability against persons on whom Section 329 imposes liability.
Section 330: Firm dissolved or business discontinued
Section 330 governs assessment where a firm is dissolved or where a business or profession carried on by it is discontinued. Dissolution or discontinuance does not, by itself, prevent assessment of income earned by the firm or the application of provisions relating to penalty and other sums.
Assessment despite dissolution or discontinuance
The Assessing Officer is required to assess the total income of the firm as if the dissolution or discontinuance had not taken place. The provisions of the Income-tax Act, 2025, including those relating to penalty or other sums chargeable under the Act, apply so far as may be to that assessment.
Penalty proceedings
If, during proceedings concerning such a firm, the Assessing Officer, Joint Commissioner (Appeals) or Commissioner (Appeals) is satisfied that the firm committed an act specified in the penalty chapter, the authority may impose or direct imposition of penalty in accordance with that chapter.
Liability of partners after dissolution or discontinuance
Every person who was a partner when the dissolution or discontinuance took place, and the legal representative of a deceased such person, is jointly and severally liable for tax, penalty or other sums payable. Thus, dissolution of the partnership does not automatically extinguish liabilities arising under the income-tax law.
Proceedings already commenced
If dissolution or discontinuance occurs after proceedings for a tax year have begun, the proceedings may continue against the persons specified in Section 330 from the stage at which they stood when the dissolution or discontinuance occurred.
Legal representatives
Section 330 expressly preserves the relevant provision concerning legal representatives. Under the Income-tax Act, 2025, the connected provision is Section 302.
Section 329 and Section 330: Key difference
| Provision | When it applies | Main consequence |
|---|---|---|
| Section 329 | A tax, penalty or other sum is payable by a firm for a tax year. | Partners during that tax year, and legal representatives of deceased such partners, have joint and several liability along with the firm. |
| Section 330 | The firm is dissolved or its business or profession is discontinued. | The firm remains assessable as if dissolution or discontinuance had not occurred; specified partners or legal representatives can also be jointly and severally liable. |
Legacy Sections 188A and 189 of the Income-tax Act, 1961
Section 188A: Joint and several liability of partners
Section 188A provided that every person who was a partner of a firm during the previous year, and the legal representative of a deceased such person, was jointly and severally liable along with the firm for tax, penalty or other sums payable by the firm for the assessment year relevant to that previous year.
Section 189: Firm dissolved or business discontinued
Section 189 provided that where a business or profession carried on by a firm was discontinued, or the firm was dissolved, the Assessing Officer would assess the firm's total income as if no discontinuance or dissolution had occurred. Provisions concerning penalties and other sums continued to apply.
It also permitted penalty action where the competent authority was satisfied that the firm had committed an act covered by the relevant penalty provisions. Persons who were partners at the time of discontinuance or dissolution, together with legal representatives of deceased such persons, were jointly and severally liable for tax, penalty and other sums payable.
Where proceedings had already commenced before dissolution or discontinuance, Section 189 allowed them to continue from the stage already reached. The section also preserved the operation of the provision relating to legal representatives then contained in Section 159(6).
1961 Act and 2025 Act correspondence
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Joint and several liability of partners for tax payable by firm | Section 188A | Section 329 |
| Firm dissolved or business discontinued | Section 189 | Section 330 |
| Legal representative | Section 159 | Section 302 |
Related Income Tax provisions
Assessment of firms, change in constitution and succession: Sections 185, 187 and 188
Past assessments of firms, deduction at source and advance payment: Sections 189A and 190
Assessment as a firm: Section 184 and related provisions
The applicable provision depends on the relevant tax year or assessment year and the transition and savings rules. Current filings and payments should use the Act applicable to the period concerned.