Section 313 — Succession to business or profession otherwise than on death. Successor to s.170 of the 1961 Act.
Section 313 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
Sub-section (1) splits the year of a succession to a business or profession otherwise than on death: the predecessor is assessed on the income of that tax year up to the date of succession, and the successor on the income after that date. Sub-section (2) overrides that where the predecessor cannot be found — the assessment for the year of succession up to the date of succession and for the preceding tax year is then made on the successor in the same manner and to the same extent as it would have been made on the predecessor. Sub-section (3) deems assessments, reassessments or other proceedings made or initiated on the predecessor during the pendency of the succession to have been made or initiated on the successor. Sub-section (4) makes the predecessor's tax for the year of succession up to that date, and for the preceding year, recoverable from the successor where it cannot be recovered from the predecessor and the Assessing Officer records a finding to that effect, with the successor entitled to recover what he pays from the predecessor. Sub-section (5) routes tax on a Hindu undivided family business succeeded to with a simultaneous or subsequent partition through section 315. Sub-section (6) defines "income" to include gain on transfer of the business or profession as a result of the succession, and defines "pendency" by reference to the filing or admission of the relevant application before the High Court, tribunal or the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 and the receipt of the order by the jurisdictional Principal Commissioner or Commissioner.
A change of hands mid-year leaves two persons with a claim to the same year's income and a risk that the outgoing owner disappears with the liability; the section allocates the year between them and, where recovery fails, shifts the burden to the person who took over the business. Sub-section (3) keeps proceedings alive across a restructuring or insolvency instead of requiring them to be started again.
The successor's exposure is wider than the period he ran the business. Under sub-section (2) he can be assessed for the pre-succession part of the year and the whole preceding year if the predecessor cannot be found, and under sub-section (4) he can be made to pay the predecessor's assessed tax for those same periods once the Assessing Officer records that it cannot be recovered from the predecessor — with only a right of recovery against the predecessor to fall back on. Sub-section (3) means a notice or proceeding issued to the predecessor while the succession was pending does not lapse; it is treated as issued to the successor, and "pendency" runs from the filing of the scheme application or admission of the insolvency application until the order reaches the jurisdictional Principal Commissioner or Commissioner. Note that "income" for this section includes the gain on transferring the business itself.
A proprietor sells his running business on 1 September and the buyer continues it. Ordinarily the predecessor is assessed on the income to 1 September and the successor on the income after — but if the predecessor cannot be found, sub-section (2) shifts the pre-succession part of that year and the whole preceding year onto the successor, assessed in like manner and to the same extent as it would have been on the predecessor. Recovery reaches further still: where Rs. 40 lakh assessed on the predecessor for those same periods cannot be recovered from him and the Assessing Officer records a finding to that effect, sub-section (4) makes it payable by and recoverable from the successor, who is left only with a right to recover it back. Note also that 'income' here includes the gain the predecessor makes on transferring the business itself.
In an assessment or notice issued to the successor for a period before the succession, and in a recovery proceeding against him founded on the Assessing Officer's recorded finding that the sum cannot be recovered from the predecessor. It is also met where a proceeding begun against the predecessor during a pending merger or insolvency is treated by sub-section (3) as begun against the successor.
the assessment or reassessment or any other proceedings, made or initiated on the predecessor during the course of pendency of such succession, shall be deemed to have been made or initiated on the successor
See the full 1961 to 2025 concordance.