Service of notice in case of discontinued business.

504.

Where an assessment is to be made under section 320, the Assessing Officer may serve on the—

• (a) person whose income is to be assessed; or
• (b) person who was a member of a firm or association of persons at the time of its discontinuance, in the case of a firm or an association of persons; or
• (c) principal officer, in case of a company, 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 that sub-section.

Explanation

Section Summary:

Section 504 of the Income Tax Act deals with the service of notices in cases where a business has been discontinued. It allows the Assessing Officer to issue notices to individuals or entities whose income is to be assessed, even after the business has ceased operations. This ensures that tax assessments can still be carried out for income earned during the period when the business was operational.

Key Changes:

This section is not a new provision but clarifies the process for serving notices in cases of discontinued businesses. It aligns with the broader framework of the Income Tax Act, particularly Section 320 (assessment of income in case of discontinued businesses) and Section 268(1) (requirements for notices). The key emphasis is on ensuring continuity in tax assessments, even after a business has been discontinued.

Practical Implications:

1. For Individuals and Businesses: If a business is discontinued, the Assessing Officer can still issue notices to assess income earned during the operational period. This means taxpayers cannot avoid assessments simply by discontinuing their business.
2. For Firms and Associations: In the case of a firm or association of persons, notices can be served on any member who was part of the entity at the time of discontinuance.
3. For Companies: Notices can be served on the principal officer of the company, ensuring accountability even after the company ceases operations.

Critical Concepts:

• Discontinued Business: A business that has ceased operations, either temporarily or permanently.
• Assessing Officer: The tax authority responsible for assessing and determining tax liability.
• Principal Officer: In the context of a company, this refers to an individual who is responsible for the company’s affairs and can act on its behalf.

Compliance Steps:

1. Maintain Records: Ensure all financial records and documents related to the business are retained, even after discontinuation, as they may be required for assessments.
2. Respond to Notices: If a notice is received under Section 504, the recipient must comply with the requirements outlined in the notice, such as providing income details or supporting documents.
3. Update Contact Information: Ensure the Assessing Officer has updated contact details to avoid missing any notices.

Examples:

• Scenario 1: A partnership firm discontinues its operations in March 2023. In 2024, the Assessing Officer issues a notice to one of the partners under Section 504 to assess the firm’s income for the financial year 2022-23. The partner must provide the necessary details and documents to complete the assessment.
• Scenario 2: A private limited company shuts down in 2023. The Assessing Officer serves a notice on the former principal officer in 2024 to assess the company’s income for the financial year 2022-23. The principal officer must comply with the notice and provide the required information.

This section ensures that tax authorities can effectively assess income even after a business has been discontinued, maintaining the integrity of the tax system.