I bought a running business in October. The Assessing Officer has issued a notice to me for the whole year, and a separate demand for the seller's tax for the year before I arrived. Who is supposed to be assessed on a succession, and when can the department recover the seller's tax from me?
Section 170(1) splits the previous year at the date of succession: the predecessor is assessed on the income of the previous year in which the succession took place up to the date of succession, and the successor is assessed on the income of that previous year after the date of succession. Two provisions displace that split and both are narrow — s.170(2) allows the assessment to be made on the successor, but only where the predecessor cannot be found and only for the year of succession up to the date of succession and the previous year preceding that year; and s.170(3) allows tax assessed on the predecessor for those same two periods, and only that tax, to be recovered from the successor once the Assessing Officer has recorded a finding that it cannot be recovered from the predecessor.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1988-04-01, reported as Income-tax Act, 1961, s.170, sub-sections (1), (2), (3) and (4) with the Explanation, as printed on the Year 2025 and Year 2024 (No. 2) departmental pages. It bears on section 170, section 170(1), section 170(2), section 170(3), section 170(4), section 171, section 159 of the Income Tax Act 1961, in Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters.
Almost every dispute in this area is a dispute about the two limits that practitioners skip. The first is the period limit. Section 170(2) and section 170(3) reach the previous year in which the succession took place, up to the date of succession, and the previous year preceding that year — nothing earlier. A demand transferred to a successor for a year three years before the succession is outside the section on its own words. The second is the condition. Section 170(3) does not operate automatically on non-payment: the Assessing Officer 'shall record a finding to that effect', and a successor served with a section 170(3) demand should ask to see that finding before he pays anything, because without it the recovery has no statutory foundation. Two further points are routinely missed. A successor who pays under s.170(3) 'shall be entitled to recover from the predecessor any sum so paid' — the section gives him a statutory right of recovery, not merely a contractual indemnity. And the Explanation at the end of the section provides that for the purposes of the section 'income' includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession, so the predecessor's slice of the year includes the gain on the sale of the business itself. Note the boundary of the whole section: it is headed 'Succession to business otherwise than on death', so a succession on death is governed by section 159 and not by this section; and s.170(4) sends a case where a Hindu undivided family's business is succeeded to, with a partition simultaneously or afterwards, to the machinery of section 171. Finally, section 170 decides who is assessed on a succession. It does not answer the different question of whether an assessment framed on an entity that has ceased to exist is a nullity: that question is governed by the amalgamation line and by s.292B, and this library carries it separately.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
As printed on the Year 2025 and Year 2024 (No. 2) departmental pages, section 170 reads: '(1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,— (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession. (2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly. ... (3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid. (4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section. Explanation.—For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession.' Sub-section (2A), which sits between (2) and (3) on the current pages, is set out in a separate entry.
On a succession to business or profession otherwise than on death, the predecessor is assessed on the income of the previous year of succession up to the date of succession and the successor on the income of that previous year after that date. Where the predecessor cannot be found, the assessment for the year of succession up to the date of succession and for the previous year preceding it is made on the successor in like manner and to the same extent as it would have been made on the predecessor. Where a sum so assessed on the predecessor for either of those two periods cannot be recovered from him, the Assessing Officer must record a finding to that effect, whereupon the sum becomes payable by and recoverable from the successor, who is entitled to recover from the predecessor any sum so paid. Where a Hindu undivided family's business is succeeded to and there is a partition simultaneously or afterwards, the tax on the pre-succession income is assessed and recovered under section 171 without prejudice to section 170. For the purposes of the section, 'income' includes any gain accruing from the transfer of the business or profession as a result of the succession.
Not applicable — this is a statement of statutory text transcribed from departmental section pages. No judicial reasoning is involved.
Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppSection 170(1) splits the previous year at the date of succession: the predecessor is assessed on the income of the previous year in which the succession took place up to the date of succession, and the successor is assessed on the income of that previous year after the date of succession. Two provisions displace that split and both are narrow — s.170(2) allows the assessment to be made on the successor, but only where the predecessor cannot be found and only for the year of succession up to the date of succession and the previous year preceding that year; and s.170(3) allows tax assessed on the predecessor for those same two periods, and only that tax, to be recovered from the successor once the Assessing Officer has recorded a finding that it cannot be recovered from the predecessor. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 170, section 170(1), section 170(2), section 170(3), section 170(4), section 171, section 159 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.170, sub-sections (1), (2), (3) and (4) with the Explanation, as printed on the Year 2025 and Year 2024 (No. 2) departmental pages. Almost every dispute in this area is a dispute about the two limits that practitioners skip. The first is the period limit. Section 170(2) and section 170(3) reach the previous year in which the succession took place, up to the date of succession, and the previous year preceding that year — nothing earlier. A demand transferred to a successor for a year three years before the succession is outside the section on its own words. The second is the condition. Section 170(3) does not operate automatically on non-payment: the Assessing Officer 'shall record a finding to that effect', and a successor served with a section 170(3) demand should ask to see that finding before he pays anything, because without it the recovery has no statutory foundation. Two further points are routinely missed. A successor who pays under s.170(3) 'shall be entitled to recover from the predecessor any sum so paid' — the section gives him a statutory right of recovery, not merely a contractual indemnity. And the Explanation at the end of the section provides that for the purposes of the section 'income' includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession, so the predecessor's slice of the year includes the gain on the sale of the business itself. Note the boundary of the whole section: it is headed 'Succession to business otherwise than on death', so a succession on death is governed by section 159 and not by this section; and s.170(4) sends a case where a Hindu undivided family's business is succeeded to, with a partition simultaneously or afterwards, to the machinery of section 171. Finally, section 170 decides who is assessed on a succession. It does not answer the different question of whether an assessment framed on an entity that has ceased to exist is a nullity: that question is governed by the amalgamation line and by s.292B, and this library carries it separately. If it applies to you, the first step is this: Fix the date of succession first and check it against the two periods the section reaches. Section 170(2) and section 170(3) go back only to the previous year in which the succession took place and the previous year preceding that one.
As printed on the Year 2025 and Year 2024 (No. 2) departmental pages, section 170 reads: '(1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,— (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession. (2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly. ... (3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid. (4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section. Explanation.—For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession.' Sub-section (2A), which sits between (2) and (3) on the current pages, is set out in a separate entry. The matter was decided on 1988-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. On a succession to business or profession otherwise than on death, the predecessor is assessed on the income of the previous year of succession up to the date of succession and the successor on the income of that previous year after that date. Where the predecessor cannot be found, the assessment for the year of succession up to the date of succession and for the previous year preceding it is made on the successor in like manner and to the same extent as it would have been made on the predecessor. Where a sum so assessed on the predecessor for either of those two periods cannot be recovered from him, the Assessing Officer must record a finding to that effect, whereupon the sum becomes payable by and recoverable from the successor, who is entitled to recover from the predecessor any sum so paid. Where a Hindu undivided family's business is succeeded to and there is a partition simultaneously or afterwards, the tax on the pre-succession income is assessed and recovered under section 171 without prejudice to section 170. For the purposes of the section, 'income' includes any gain accruing from the transfer of the business or profession as a result of the succession.
Not applicable — this is a statement of statutory text transcribed from departmental section pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly."
It was decided by the CBDT Circulars & Instructions on 1988-04-01 and is reported as Income-tax Act, 1961, s.170, sub-sections (1), (2), (3) and (4) with the Explanation, as printed on the Year 2025 and Year 2024 (No. 2) departmental pages. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 170, section 170(1), section 170(2), section 170(3), section 170(4), section 171, section 159, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. On a succession to business or profession otherwise than on death, the predecessor is assessed on the income of the previous year of succession up to the date of succession and the successor on the income of that previous year after that date. Where the predecessor cannot be found, the assessment for the year of succession up to the date of succession and for the previous year preceding it is made on the successor in like manner and to the same extent as it would have been made on the predecessor. Where a sum so assessed on the predecessor for either of those two periods cannot be recovered from him, the Assessing Officer must record a finding to that effect, whereupon the sum becomes payable by and recoverable from the successor, who is entitled to recover from the predecessor any sum so paid. Where a Hindu undivided family's business is succeeded to and there is a partition simultaneously or afterwards, the tax on the pre-succession income is assessed and recovered under section 171 without prejudice to section 170. For the purposes of the section, 'income' includes any gain accruing from the transfer of the business or profession as a result of the succession. It arises in Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters, on section 170, section 170(1), section 170(2), section 170(3), section 170(4), section 171, section 159 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If you have been served under s.170(3), ask in writing for a copy of the Assessing Officer's recorded finding that the sum cannot be recovered from the predecessor. The section makes that finding a condition of the recovery. If you have been assessed under s.170(2), require the Assessing Officer to show what enquiry was made to find the predecessor. The sub-section opens only 'when the predecessor cannot be found'. Where you have paid the predecessor's tax as successor, preserve the statutory right of recovery in s.170(3) against him and do not let it be replaced by whatever the sale agreement says; the two are cumulative. When you compute the predecessor's slice of the year, bring in the gain on the transfer of the business itself: the Explanation makes it 'income' for the purposes of this section. Check whether the succession is on death. If it is, this section does not apply at all and you are in section 159. If the business is that of a Hindu undivided family and there has been a partition simultaneously with or after the succession, work the tax on the pre-succession period through section 171 as s.170(4) directs, without prejudice to section 170. If the succession is a court- or tribunal-sanctioned business reorganisation, read this section with s.170(2A) and s.170A, which are separate entries in this library.
Still good law. The Year 2024 (No. 1), Year 2024 (No. 2) and Year 2025 departmental pages print sub-sections (1) to (4) and the Explanation identically, and so do the Year 2000, Year 2018 and Year 2019 pages, which is the strongest evidence available on this pass that nothing has altered these sub-sections since the 1987 change of 'Income-tax Officer' to 'Assessing Officer'. That is not the same as reading a Finance Act: no Finance Act text was retrieved this pass, and I could not find a departmental page for this section stamped Year 2026. The only recent change to section 170 that I established is the insertion of sub-section (2A) with effect from 1 April 2022, which is dealt with separately. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Every word of the text set out below was transcribed this pass from departmental section pages that each printed the heading 'Succession to business otherwise than on death' and the Act name 'Income-tax Act, 1961' alongside a 'Year:' stamp. Current text read from https://incometaxindia.gov.in/w/section-170-64 (Year: 2025) and https://incometaxindia.gov.in/w/section-170-63 (Year: 2024 (No. 2)), which print sub-sections (1) to (4) and the Explanation identically. Earlier text read for history from https://incometaxindia.gov.in/w/section-170 (Year: 2000), /w/section-170-65 (Year: 2018) and /w/section-170-66 (Year: 2019 (No. 1)) — all three print sub-sections (1), (2), (3), (4) and the Explanation in the same words as the current pages, which is why 'decided_on' is given as 1 April 1988, the commencement date of the only amendment footnoted on the Year 2000 page ('Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988', which is the change of 'Income-tax Officer' to 'Assessing Officer'). That is a COMMENCEMENT DATE and not a decision date; this is a statutory entry and there is no decision behind it, so 'bench' is 'Not applicable — statutory text' and 'favours' is null. I did NOT locate a departmental page for section 170 stamped Year 2026: I probed /w/section-170, -62, -63, -64, -65 and -66, and the newest stamp returned was Year 2025. The suffixes on this section are not year-ordered — -65 returned Year 2018 and -66 returned Year 2019 (No. 1) — which again confirms the brief's warning that the numeric suffix does not track vintage. Sub-section (2A), which the Year 2025 and Year 2024 pages also print, is dealt with in a separate entry in this library because it has its own commencement date. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On a succession to business or profession otherwise than on death, the predecessor is assessed on the income of the previous year of succession up to the date of succession and the successor on the income of that previous year after that date. Where the predecessor cannot be found, the assessment for the year of succession up to the date of succession and for the previous year preceding it is made on the successor in like manner and to the same extent as it would have been made on the predecessor. Where a sum so assessed on the predecessor for either of those two periods cannot be recovered from him, the Assessing Officer must record a finding to that effect, whereupon the sum becomes payable by and recoverable from the successor, who is entitled to recover from the predecessor any sum so paid. Where a Hindu undivided family's business is succeeded to and there is a partition simultaneously or afterwards, the tax on the pre-succession income is assessed and recovered under section 171 without prejudice to section 170. For the purposes of the section, 'income' includes any gain accruing from the transfer of the business or profession as a result of the succession.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our family divided the income but not the properties. Is that a partition the department must accept?
Is an assessment on an amalgamated company always void?
The notice names a company that has already merged into another. Does taking part in the proceedings fix that?
They issued a 148 notice in my late husband's name. Can they just issue a fresh one now?