I shut my consultancy two years ago and money is still coming in for work I did before I closed. My accountant says section 176 taxes it. Which sub-section does that, what notice was I supposed to give when I closed, and how much time did I have?
Two different sub-sections do the deeming and it matters which one you are in. Section 176(3A) covers a discontinued BUSINESS: any sum received after the discontinuance is deemed to be the income of the recipient and charged to tax in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance. Section 176(4) covers a discontinued PROFESSION, but only where the discontinuance was on account of the cessation of the profession by, or the retirement or death of, the person carrying it on, and it deems the sum received after discontinuance to be the income of the recipient charged to tax in the year of receipt on the same 'would have been included' condition. Separately, s.176(3) requires any person discontinuing any business or profession to give the Assessing Officer notice of the discontinuance within fifteen days of it.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1989-04-01, reported as Income-tax Act, 1961, s.176, sub-sections (1) to (7), as printed on the Year 2024 (No. 2) departmental page. It bears on section 176, section 176(1), section 176(2), section 176(3), section 176(3A), section 176(4), section 176(5), section 176(6), section 176(7), section 142(1), section 148, section 4 of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
This entry corrects a mis-description that circulates widely. Section 176(2) is not about a profession discontinued on death; it is the rating rule, providing that the total income of each completed previous year or part of a previous year in the accelerated period is chargeable at the rate or rates in force in that assessment year and that separate assessments are to be made for each. And section 176(3A) is not a notice provision; the notice provision is s.176(3) alone, and (3A) is the deeming of a post-discontinuance business receipt. Getting that right decides which condition you must satisfy: (3A) applies to any discontinuance of a business, however it came about, whereas (4) applies to a profession only if the discontinuance was on account of cessation by, or retirement or death of, the person carrying it on. Beyond that, three limits are worth knowing. Section 176(1) is discretionary and prospective in a special way: 'notwithstanding anything contained in section 4', where a business or profession is discontinued in any assessment year, the income from the expiry of the previous year for that assessment year up to the date of discontinuance MAY, at the discretion of the Assessing Officer, be charged to tax in that assessment year — the Assessing Officer may accelerate, and if he does not, the ordinary previous-year machinery applies. Section 176(6) makes the tax chargeable under the section additional to any tax chargeable under any other provision. And section 176(7) allows a notice under section 142(1)(i) or section 148 in a case where sub-section (1) applies to require a return in a period 'not being less than seven days' — which is the shortest compliance window in the Act and worth knowing before you assume the usual thirty. Whether a receipt caught by the deeming in s.176(4) can in fact be brought to charge, given that the head of income and the computation provisions have to be satisfied as well, is a separate and contested question; this library carries both sides of it.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 176 has stood in the same words for a quarter of a century; the text below is identical in every departmental print consulted, the earliest of which is from 2000. It reads: '(1) Notwithstanding anything contained in section 4, where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year for that assessment year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that assessment year. (2) The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year. (3) Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days thereof. (3A) 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. (4) 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 aforesaid person had it been received before such discontinuance. (5) 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 clause (i) of sub-section (1) of section 142 and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under clause (i) of sub-section (1) of section 142. (6) The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act. (7) Where the provisions of sub-section (1) are applicable, any notice issued by the Assessing Officer under clause (i) of sub-section (1) of section 142 or section 148 in respect of any tax chargeable under any other provisions of this Act may, notwithstanding anything contained in clause (i) of sub-section (1) of section 142 or section 148, as the case may be, require the furnishing of the return by the person to whom the aforesaid notices are issued within such period, not being less than seven days, as the Assessing Officer may think proper.'
Section 176 provides: a discretionary accelerated charge on the broken period up to the date of discontinuance (sub-section (1)); separate assessments for each completed previous year or part, at the rate or rates in force in that assessment year (sub-section (2)); a duty on any person discontinuing any business or profession to give the Assessing Officer notice within fifteen days (sub-section (3)); a deeming of any sum received after the discontinuance of a business as the income of the recipient, charged in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance (sub-section (3A)); the same deeming for a profession discontinued on account of the cessation of the profession by, or the retirement or death of, the person carrying it on (sub-section (4)); service of a section 142(1)(i)-type notice on the person to be assessed, on any person who was a partner of a firm at the time of discontinuance, or on the principal officer of a company (sub-section (5)); that the tax under the section is in addition to tax under any other provision (sub-section (6)); and that in a sub-section (1) case a notice under section 142(1)(i) or section 148 may require a return within a period not less than seven days (sub-section (7)).
Not applicable — this is a statement of statutory text transcribed from departmental section pages. No judicial reasoning is involved.
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 aforesaid person had it been received before such discontinuance.
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Handle my notice → Ask a CA on WhatsAppTwo different sub-sections do the deeming and it matters which one you are in. Section 176(3A) covers a discontinued BUSINESS: any sum received after the discontinuance is deemed to be the income of the recipient and charged to tax in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance. Section 176(4) covers a discontinued PROFESSION, but only where the discontinuance was on account of the cessation of the profession by, or the retirement or death of, the person carrying it on, and it deems the sum received after discontinuance to be the income of the recipient charged to tax in the year of receipt on the same 'would have been included' condition. Separately, s.176(3) requires any person discontinuing any business or profession to give the Assessing Officer notice of the discontinuance within fifteen days of it. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 176, section 176(1), section 176(2), section 176(3), section 176(3A), section 176(4), section 176(5), section 176(6), section 176(7), section 142(1), section 148, section 4 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.176, sub-sections (1) to (7), as printed on the Year 2024 (No. 2) departmental page. This entry corrects a mis-description that circulates widely. Section 176(2) is not about a profession discontinued on death; it is the rating rule, providing that the total income of each completed previous year or part of a previous year in the accelerated period is chargeable at the rate or rates in force in that assessment year and that separate assessments are to be made for each. And section 176(3A) is not a notice provision; the notice provision is s.176(3) alone, and (3A) is the deeming of a post-discontinuance business receipt. Getting that right decides which condition you must satisfy: (3A) applies to any discontinuance of a business, however it came about, whereas (4) applies to a profession only if the discontinuance was on account of cessation by, or retirement or death of, the person carrying it on. Beyond that, three limits are worth knowing. Section 176(1) is discretionary and prospective in a special way: 'notwithstanding anything contained in section 4', where a business or profession is discontinued in any assessment year, the income from the expiry of the previous year for that assessment year up to the date of discontinuance MAY, at the discretion of the Assessing Officer, be charged to tax in that assessment year — the Assessing Officer may accelerate, and if he does not, the ordinary previous-year machinery applies. Section 176(6) makes the tax chargeable under the section additional to any tax chargeable under any other provision. And section 176(7) allows a notice under section 142(1)(i) or section 148 in a case where sub-section (1) applies to require a return in a period 'not being less than seven days' — which is the shortest compliance window in the Act and worth knowing before you assume the usual thirty. Whether a receipt caught by the deeming in s.176(4) can in fact be brought to charge, given that the head of income and the computation provisions have to be satisfied as well, is a separate and contested question; this library carries both sides of it. If it applies to you, the first step is this: Classify the activity first. If it was a business, you are in s.176(3A) and the reason for the discontinuance is irrelevant. If it was a profession, you are in s.176(4) and the discontinuance must have been on account of cessation by, or retirement or death of, the person carrying it on.
Section 176 has stood in the same words for a quarter of a century; the text below is identical in every departmental print consulted, the earliest of which is from 2000. It reads: '(1) Notwithstanding anything contained in section 4, where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year for that assessment year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that assessment year. (2) The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year. (3) Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days thereof. (3A) 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. (4) 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 aforesaid person had it been received before such discontinuance. (5) 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 clause (i) of sub-section (1) of section 142 and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under clause (i) of sub-section (1) of section 142. (6) The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act. (7) Where the provisions of sub-section (1) are applicable, any notice issued by the Assessing Officer under clause (i) of sub-section (1) of section 142 or section 148 in respect of any tax chargeable under any other provisions of this Act may, notwithstanding anything contained in clause (i) of sub-section (1) of section 142 or section 148, as the case may be, require the furnishing of the return by the person to whom the aforesaid notices are issued within such period, not being less than seven days, as the Assessing Officer may think proper.' The matter was decided on 1989-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Section 176 provides: a discretionary accelerated charge on the broken period up to the date of discontinuance (sub-section (1)); separate assessments for each completed previous year or part, at the rate or rates in force in that assessment year (sub-section (2)); a duty on any person discontinuing any business or profession to give the Assessing Officer notice within fifteen days (sub-section (3)); a deeming of any sum received after the discontinuance of a business as the income of the recipient, charged in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance (sub-section (3A)); the same deeming for a profession discontinued on account of the cessation of the profession by, or the retirement or death of, the person carrying it on (sub-section (4)); service of a section 142(1)(i)-type notice on the person to be assessed, on any person who was a partner of a firm at the time of discontinuance, or on the principal officer of a company (sub-section (5)); that the tax under the section is in addition to tax under any other provision (sub-section (6)); and that in a sub-section (1) case a notice under section 142(1)(i) or section 148 may require a return within a period not less than seven days (sub-section (7)).
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: "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 aforesaid person had it been received before such discontinuance."
It was decided by the CBDT Circulars & Instructions on 1989-04-01 and is reported as Income-tax Act, 1961, s.176, sub-sections (1) to (7), as printed on the Year 2024 (No. 2) departmental page. 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 176, section 176(1), section 176(2), section 176(3), section 176(3A), section 176(4), section 176(5), section 176(6), section 176(7), section 142(1), section 148, section 4, 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. Section 176 provides: a discretionary accelerated charge on the broken period up to the date of discontinuance (sub-section (1)); separate assessments for each completed previous year or part, at the rate or rates in force in that assessment year (sub-section (2)); a duty on any person discontinuing any business or profession to give the Assessing Officer notice within fifteen days (sub-section (3)); a deeming of any sum received after the discontinuance of a business as the income of the recipient, charged in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance (sub-section (3A)); the same deeming for a profession discontinued on account of the cessation of the profession by, or the retirement or death of, the person carrying it on (sub-section (4)); service of a section 142(1)(i)-type notice on the person to be assessed, on any person who was a partner of a firm at the time of discontinuance, or on the principal officer of a company (sub-section (5)); that the tax under the section is in addition to tax under any other provision (sub-section (6)); and that in a sub-section (1) case a notice under section 142(1)(i) or section 148 may require a return within a period not less than seven days (sub-section (7)). It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 176, section 176(1), section 176(2), section 176(3), section 176(3A), section 176(4), section 176(5), section 176(6), section 176(7), section 142(1), section 148, section 4 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. Test the 'would have been included' condition on the accounting method actually followed. The deeming only bites if the sum would have been included in the total income of the person concerned had it been received before the discontinuance — which is why the point arises almost entirely on cash-basis accounts. If you have just discontinued, give the Assessing Officer notice within fifteen days under s.176(3) and keep proof of the date of service; the section fixes fifteen days, not thirty. If the Assessing Officer proposes to charge the broken period in the same assessment year, check that he is exercising the discretion in s.176(1) and check the rating rule in s.176(2) — separate assessments, each at the rate in force in that assessment year. Watch the compliance period on any notice issued in a s.176(1) case: s.176(7) lets him fix a period not less than seven days, so do not calendar the usual timeline. On a firm, note that s.176(5) allows the notice to be served on any person who was a partner at the time of discontinuance, and on a company, on the principal officer. Before conceding a s.176(4) charge on professional arrears, read the two decisions in this library on whether the deeming can be worked at all — Commissioner of Income-tax v. Justice R.M. Datta and V. Parthasarathy v. Addl. Commissioner of Income-tax — which take different routes.
Still good law. Six consolidations of the section, spanning vintages from 2000 to 2025, print sub-sections (1) to (7) in the same words. That is the strongest evidence available here that the section has not been altered since the 1989 amendments footnoted on the older texts. It is not the same as reading a Finance Act, and no Finance Act text has been read. No text of a 2026 vintage has been located. One question on the section is judicially contested and is not settled here. Whether the deeming in sub-section (4) can be given effect where the recipient carried on no profession in the year of receipt is the subject of conflicting authority; see the two entries in this library on Commissioner of Income-tax v. Justice R.M. Datta and V. Parthasarathy v. Addl. Commissioner of Income-tax. Read both before advising on a post-discontinuance receipt of a profession. Two points on the text that go to every use of it. Sub-section (3A) and sub-section (4) are different provisions with different conditions: (3A) deems a post-discontinuance receipt of a discontinued BUSINESS and the reason for the discontinuance is irrelevant to it, while (4) deems a post-discontinuance receipt of a discontinued PROFESSION and applies only where the discontinuance was on account of cessation by, or the retirement or death of, the person carrying it on. And sub-section (3) alone carries the fifteen-day notice of discontinuance; it is not in sub-section (3A). For a tax year governed by the Income-tax Act 2025 the successor of s.176 should be identified; that correspondence has not been established here. 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.
ON THE TEXT AND ITS CORROBORATION. The section has been read in six consolidations, each printing the heading 'Discontinued business' and the Act name 'Income-tax Act, 1961' alongside its vintage, running from 2000 to 2025. All of them print sub-sections (3), (3A) and (4) word for word identically, and the fullest of them prints sub-sections (1) to (7) in sequence. No consolidation of a 2026 vintage has been located. ON THE DATES. The footnote apparatus was reachable only in the two oldest consolidations, of 2000 and 2009 vintage, where the latest commencement dates printed are 'Substituted for "sub-section (2) of section 139" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989' and 'Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976'. Which footnote marker attaches to which clause could not be established, so no particular sub-section is attributed to a particular amending Act. 'decided_on' is given as 1 April 1989, the latest commencement date printed anywhere in the section, and it is a commencement date and not a decision date. ON ONE FOOTNOTE THAT IS NOT PART OF THE SECTION. The 2000 and 2009 consolidations carry a footnote reading 'See also Instruction No. 703, dated 12-6-1974. For details, see Taxmann's Master Guide to Income-tax Act'. That is the editor's own cross-reference. No commentary was used as a source for this entry, and Instruction No. 703 has not been read. ON THE FIFTEEN-DAY NOTICE, which is the trap in ordinary practice. Section 176(3) requires any person discontinuing any business or profession to give the Assessing Officer notice of the discontinuance within fifteen days of it. The obligation is on the person discontinuing, the period runs from the discontinuance and not from the end of the year, and it applies to a profession as much as to a business - which s.176(4), with its narrower conditions, does not. A CORRECTION, recorded because the mistake produces bad advice. Section 176(2) is sometimes described as being about 'a profession discontinued on death', and s.176(3A) as a notice-of-discontinuance provision. On the text, neither is right. Section 176(2) is the rating and separate-assessment rule; s.176(3) alone carries the fifteen-day notice; s.176(3A) deems a post-discontinuance receipt of a discontinued BUSINESS; and s.176(4) deems a post-discontinuance receipt of a discontinued PROFESSION, and only where the discontinuance was on account of cessation by, or the retirement or death of, the person carrying it on. 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.
Section 176 provides: a discretionary accelerated charge on the broken period up to the date of discontinuance (sub-section (1)); separate assessments for each completed previous year or part, at the rate or rates in force in that assessment year (sub-section (2)); a duty on any person discontinuing any business or profession to give the Assessing Officer notice within fifteen days (sub-section (3)); a deeming of any sum received after the discontinuance of a business as the income of the recipient, charged in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance (sub-section (3A)); the same deeming for a profession discontinued on account of the cessation of the profession by, or the retirement or death of, the person carrying it on (sub-section (4)); service of a section 142(1)(i)-type notice on the person to be assessed, on any person who was a partner of a firm at the time of discontinuance, or on the principal officer of a company (sub-section (5)); that the tax under the section is in addition to tax under any other provision (sub-section (6)); and that in a sub-section (1) case a notice under section 142(1)(i) or section 148 may require a return within a period not less than seven days (sub-section (7)).
TaxSphere, “Statutory position — s.176: accelerated assessment on discontinuance, the fifteen-day notice in s.176(3), and the deeming of post-discontinuance receipts in s.176(3A) for a business and s.176(4) for a profession”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-176-discontinued-business-the-fifteen-day-notice-and-post-discontinuance-receipts/ (validity last checked 2026-09-08)
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I stopped practising only because I was appointed a judge, and I went back to the Bar when I retired. Surely that is a suspension and not a discontinuance, so section 176(4) cannot apply to fees I received while I was on the Bench?
I was an advocate on cash basis and stopped practising when I was appointed to the Bench. Fees for old work are still coming in. The Assessing Officer says section 176(4) makes them taxable. Is there an answer?
My father died and, years later, his firm's old fees kept coming in to us. Can the department tax those receipts as his income in our hands?
Can I go straight to the High Court against an income-tax order instead of filing the statutory appeal?
