12.—Discontinuance of business, or dissolution.
Discontinued business.
320(1)
Irrespective of anything contained in section 4, where any business or profession is discontinued in any tax year, the income of the period beginning from the first day of that tax year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that tax year.
320(2)
The total income of each completed tax year or part of any tax year included in such period shall be chargeable to tax at the rate or rates in force in that tax year, and separate assessments shall be made in respect of each such completed tax year or part of any tax year.
320(3)
Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days thereof.
320(4)
Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.
320(5)
Where any profession is discontinued in any year on account of the cessation of the profession by, or the retirement or death of, the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the said person, had it been received before such discontinuance.
320(6)
Where an assessment is to be made under the provisions of this section, the Assessing Officer may serve on the person whose income is to be assessed or, in the case of a firm, on any person who was a partner of such firm at the time of its discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under section 268(1) and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under section 268.
320(7)
Irrespective of anything contained in section 268 or 280, where the provisions of sub-section (1) are applicable, the Assessing Officer may issue any notice under section 268 or 280, requiring the furnishing of the return by the person whose income is to be assessed in respect of any tax chargeable under any other provisions of this Act, within such period, not being less than seven days, as the Assessing Officer may think proper.
320(8)
The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act.
Section Summary:
Section 320 of the Income Tax Act deals with the taxation of income when a business or profession is discontinued. It outlines how income up to the date of discontinuance is taxed, the treatment of sums received after discontinuance, and the procedural requirements for notifying the Assessing Officer. This section ensures that income from discontinued businesses or professions is properly assessed and taxed, even after the cessation of operations.
Key Changes:
- Discretion of Assessing Officer: The Assessing Officer now has the discretion to tax the income from the start of the tax year up to the date of discontinuance in the same tax year (320(1)).
- Separate Assessments: Income for each completed tax year or part of a tax year during the discontinuance period is taxed at the rates applicable for those years, with separate assessments for each period (320(2)).
- Post-Discontinuance Income: Sums received after discontinuance are deemed taxable in the year of receipt if they would have been taxable had they been received before discontinuance (320(4) and 320(5)).
- Notice Requirements: Taxpayers must notify the Assessing Officer within 15 days of discontinuance (320(3)).
- Extended Notice Periods: The Assessing Officer can issue notices under Section 268 or 280, requiring returns to be filed within a minimum of seven days (320(7)).
Practical Implications:
- For Businesses: Businesses discontinuing operations must ensure proper accounting of income up to the discontinuance date and comply with notification requirements. Post-discontinuance receipts (e.g., outstanding payments) will still be taxable.
- For Professionals: Professionals retiring or ceasing their practice must account for income up to the discontinuance date and report any post-discontinuance receipts as taxable income.
- Compliance Burden: Taxpayers must act promptly to notify the Assessing Officer and maintain detailed records to support income calculations for the discontinuance period.
- Multiple Assessments: Separate assessments for each tax year or part-year during the discontinuance period may increase administrative complexity.
Critical Concepts:
- Discontinuance: Refers to the cessation of business or professional activities, either voluntarily or due to retirement, death, or other reasons.
- Deemed Income: Post-discontinuance receipts are treated as taxable income in the year they are received, even if the business or profession has ceased.
- Separate Assessments: Income for each tax year or part-year during the discontinuance period is assessed separately, applying the tax rates for those specific years.
- Notice Under Section 268: This refers to the requirement for taxpayers to file returns or provide information as requested by the Assessing Officer.
Compliance Steps:
- Notify the Assessing Officer: File a notice of discontinuance within 15 days of ceasing operations (320(3)).
- Maintain Records: Keep detailed records of income earned up to the discontinuance date and any post-discontinuance receipts.
- File Returns: If required, file returns for the discontinuance period and any post-discontinuance income.
- Respond to Notices: Comply with any notices issued by the Assessing Officer under Section 268 or 280 within the specified timeframe.
Examples:
- Business Discontinuance: A manufacturing business discontinues operations on June 30, 2023. The Assessing Officer may tax income from April 1, 2023, to June 30, 2023, in the 2023-24 tax year. Any outstanding payments received after June 30, 2023, will be taxed in the year they are received.
- Professional Retirement: A lawyer retires on September 15, 2023. Income from April 1, 2023, to September 15, 2023, is taxed in the 2023-24 tax year. Fees received after retirement for work done before retirement are taxable in the year of receipt.
This section ensures that income from discontinued businesses or professions is properly accounted for and taxed, even after operations cease.