I have just been appointed liquidator of a company. What do I have to tell the income-tax department, by when, and what happens to me personally if I distribute the assets before I hear back?
You are personally liable. Section 178(4) provides in terms that if the liquidator fails to give the notice required by sub-section (1), or fails to set aside the amount required by sub-section (3), or parts with any of the assets of the company or the properties in his hands in contravention of sub-section (3), 'he shall be personally liable for the payment of the tax which the company would be liable to pay', capped by the proviso at the amount notified under sub-section (2) if an amount has been notified. The two duties that trigger it are short and dated: within thirty days after becoming liquidator you must give notice of your appointment to the Assessing Officer entitled to assess the company's income (sub-section (1)); and once the Assessing Officer notifies you of the amount he considers sufficient to provide for the company's tax — which he must do within three months of receiving your notice (sub-section (2)) — you must set that amount aside, and until you do you must not part with any of the assets (sub-section (3)(b)). Before you are notified, you must not part with any assets at all without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (sub-section (3)(a)).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2016-11-01, reported as Income-tax Act, 1961, s.178, sub-sections (1) to (6), as printed on the Year 2024 (No. 2) and Year 2025 departmental pages. It bears on section 178, section 178(1), section 178(2), section 178(3), section 178(4), section 178(5), section 178(6) of the Income Tax Act 1961, in Demand, Recovery & Stay, Assessment & Scrutiny and How Tax Law Is Read matters.
Section 178 is one of the few provisions in the Act that makes a professional personally liable for someone else's tax, and the liability is not discretionary or fault-graded — it follows from the failure. Note how the cap works: the proviso limits the personal liability to the notified amount only 'if the amount of any tax payable by the company is notified under sub-section (2)'. If no amount has been notified, because you never gave the notice, there is no cap on the face of the sub-section, so the liquidator who does not write at all is in a worse position than the liquidator who writes and then errs. Sub-section (5) attaches the same obligations and liabilities to every one of several liquidators jointly and severally, so a co-liquidator cannot point at his colleague. Two escape valves are built into the proviso to sub-section (3): the liquidator may part with assets for the purpose of paying the company's tax, for making payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government at the date of liquidation, and for meeting such costs and expenses of the winding up as the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner considers reasonable. The single most important thing to check before applying any of this is the source of the liquidation. Sub-section (6) used to say the section had effect notwithstanding anything to the contrary in any other law; it now reads 'except the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)', so for a liquidation under the Code section 178 does not override, and the Department cannot claim the priority it gives. The section applies also to a person appointed receiver of any assets of a company, not only to a liquidator in a winding up.
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 178 reads: '(1) Every person— (a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or (b) who has been appointed the receiver of any assets of a company, (hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company. (2) The Assessing Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company. (3) The liquidator— (a) shall not, without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Assessing Officer under sub-section (2); and (b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands: Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the company as are in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner reasonable. (4) If the liquidator fails to give the notice in accordance with sub-section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount. (5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. (6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force except the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).'
A liquidator of a company being wound up, or a receiver appointed of any assets of a company, must within thirty days of becoming such give notice of his appointment to the Assessing Officer entitled to assess the company's income. The Assessing Officer must within three months of receiving that notice notify the amount he considers sufficient to provide for the company's tax. Until notified, the liquidator must not part with any assets without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; on being notified he must set aside that amount and must not part with any assets until he does, subject to the proviso permitting payment of the company's tax, payment to secured creditors whose debts have priority over Government debts at the date of liquidation, and reasonable winding-up costs. A liquidator who fails to give the notice, fails to set aside the amount, or parts with assets in contravention of sub-section (3) is personally liable for the payment of the tax the company would be liable to pay, limited to the notified amount where an amount has been notified. Where there is more than one liquidator, the obligations and liabilities attach to all of them jointly and severally. The section has effect notwithstanding anything to the contrary in any other law for the time being in force, except the provisions of the Insolvency and Bankruptcy Code, 2016.
Not applicable — this is a statement of statutory text. The commencement date of the sub-section (6) carve-out is taken from a judgment reproducing the amendment, as recorded in the editor note, because no amendment footnote is published for this section.
If the liquidator fails to give the notice in accordance with sub-section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay
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Handle my notice → Ask a CA on WhatsAppYou are personally liable. Section 178(4) provides in terms that if the liquidator fails to give the notice required by sub-section (1), or fails to set aside the amount required by sub-section (3), or parts with any of the assets of the company or the properties in his hands in contravention of sub-section (3), 'he shall be personally liable for the payment of the tax which the company would be liable to pay', capped by the proviso at the amount notified under sub-section (2) if an amount has been notified. The two duties that trigger it are short and dated: within thirty days after becoming liquidator you must give notice of your appointment to the Assessing Officer entitled to assess the company's income (sub-section (1)); and once the Assessing Officer notifies you of the amount he considers sufficient to provide for the company's tax — which he must do within three months of receiving your notice (sub-section (2)) — you must set that amount aside, and until you do you must not part with any of the assets (sub-section (3)(b)). Before you are notified, you must not part with any assets at all without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (sub-section (3)(a)). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 178, section 178(1), section 178(2), section 178(3), section 178(4), section 178(5), section 178(6) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.178, sub-sections (1) to (6), as printed on the Year 2024 (No. 2) and Year 2025 departmental pages. Section 178 is one of the few provisions in the Act that makes a professional personally liable for someone else's tax, and the liability is not discretionary or fault-graded — it follows from the failure. Note how the cap works: the proviso limits the personal liability to the notified amount only 'if the amount of any tax payable by the company is notified under sub-section (2)'. If no amount has been notified, because you never gave the notice, there is no cap on the face of the sub-section, so the liquidator who does not write at all is in a worse position than the liquidator who writes and then errs. Sub-section (5) attaches the same obligations and liabilities to every one of several liquidators jointly and severally, so a co-liquidator cannot point at his colleague. Two escape valves are built into the proviso to sub-section (3): the liquidator may part with assets for the purpose of paying the company's tax, for making payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government at the date of liquidation, and for meeting such costs and expenses of the winding up as the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner considers reasonable. The single most important thing to check before applying any of this is the source of the liquidation. Sub-section (6) used to say the section had effect notwithstanding anything to the contrary in any other law; it now reads 'except the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)', so for a liquidation under the Code section 178 does not override, and the Department cannot claim the priority it gives. The section applies also to a person appointed receiver of any assets of a company, not only to a liquidator in a winding up. If it applies to you, the first step is this: Write to the Assessing Officer entitled to assess the company's income within thirty days of becoming liquidator or receiver, and keep dated proof of despatch and receipt. That single letter is what caps your exposure under the proviso to sub-section (4).
Section 178 reads: '(1) Every person— (a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or (b) who has been appointed the receiver of any assets of a company, (hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company. (2) The Assessing Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company. (3) The liquidator— (a) shall not, without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Assessing Officer under sub-section (2); and (b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands: Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the company as are in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner reasonable. (4) If the liquidator fails to give the notice in accordance with sub-section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount. (5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. (6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force except the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).' The matter was decided on 2016-11-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. A liquidator of a company being wound up, or a receiver appointed of any assets of a company, must within thirty days of becoming such give notice of his appointment to the Assessing Officer entitled to assess the company's income. The Assessing Officer must within three months of receiving that notice notify the amount he considers sufficient to provide for the company's tax. Until notified, the liquidator must not part with any assets without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; on being notified he must set aside that amount and must not part with any assets until he does, subject to the proviso permitting payment of the company's tax, payment to secured creditors whose debts have priority over Government debts at the date of liquidation, and reasonable winding-up costs. A liquidator who fails to give the notice, fails to set aside the amount, or parts with assets in contravention of sub-section (3) is personally liable for the payment of the tax the company would be liable to pay, limited to the notified amount where an amount has been notified. Where there is more than one liquidator, the obligations and liabilities attach to all of them jointly and severally. The section has effect notwithstanding anything to the contrary in any other law for the time being in force, except the provisions of the Insolvency and Bankruptcy Code, 2016.
Not applicable — this is a statement of statutory text. The commencement date of the sub-section (6) carve-out is taken from a judgment reproducing the amendment, as recorded in the editor note, because no amendment footnote is published for this section. In the words reproduced by the source cited on this page: "If the liquidator fails to give the notice in accordance with sub-section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay"
It was decided by the CBDT Circulars & Instructions on 2016-11-01 and is reported as Income-tax Act, 1961, s.178, sub-sections (1) to (6), as printed on the Year 2024 (No. 2) and Year 2025 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 178, section 178(1), section 178(2), section 178(3), section 178(4), section 178(5), section 178(6), 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. A liquidator of a company being wound up, or a receiver appointed of any assets of a company, must within thirty days of becoming such give notice of his appointment to the Assessing Officer entitled to assess the company's income. The Assessing Officer must within three months of receiving that notice notify the amount he considers sufficient to provide for the company's tax. Until notified, the liquidator must not part with any assets without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; on being notified he must set aside that amount and must not part with any assets until he does, subject to the proviso permitting payment of the company's tax, payment to secured creditors whose debts have priority over Government debts at the date of liquidation, and reasonable winding-up costs. A liquidator who fails to give the notice, fails to set aside the amount, or parts with assets in contravention of sub-section (3) is personally liable for the payment of the tax the company would be liable to pay, limited to the notified amount where an amount has been notified. Where there is more than one liquidator, the obligations and liabilities attach to all of them jointly and severally. The section has effect notwithstanding anything to the contrary in any other law for the time being in force, except the provisions of the Insolvency and Bankruptcy Code, 2016. It arises in Demand, Recovery & Stay, Assessment & Scrutiny and How Tax Law Is Read matters, on section 178, section 178(1), section 178(2), section 178(3), section 178(4), section 178(5), section 178(6) 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. Until you are notified under sub-section (2), do not part with any asset or property without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner — sub-section (3)(a) is an absolute bar in the meantime. Diarise three months from the date the Assessing Officer receives your notice; that is the period sub-section (2) gives him to notify the amount. The moment you are notified, set the amount aside as a separate identified fund before any distribution, and record that you have done so; sub-section (3)(b) bars any parting with assets until you do. If you must pay something in the meantime, bring it within the proviso to sub-section (3) — payment of the company's tax, payment to a secured creditor whose debt has priority over Government debts at the date of liquidation, or winding-up costs the Commissioner regards as reasonable — and get the Commissioner's view in writing on the last of these. Where there is more than one liquidator, remember sub-section (5): the obligations attach to all of you jointly and severally, so agree in writing who sends the notice and confirm it was sent. Establish which enactment the liquidation is under before you concede any departmental priority. For a liquidation under the Insolvency and Bankruptcy Code, 2016 the carve-out in sub-section (6) applies and the distribution follows the Code.
Still good law. Sub-sections (1) to (5) appear in the same words in every published version of this section from 1996 to 2025 that has been read, and the only substantive change established is to sub-section (6). That change matters and is the reason for the label being qualified here rather than in the text: for a liquidation under the Insolvency and Bankruptcy Code, 2016 the section no longer overrides, and the Telangana High Court in Leo Edibles and Fats Limited v. Tax Recovery Officer (Central) (26 July 2018), which is already in this library, held that in such a liquidation the Income-tax Department can no longer claim the priority section 178(2) and (3) give and must take recourse to distribution under section 53 of the Code. Any authority applying section 178 priority to a liquidation under the Code is superseded by that amendment. No amendment footnote is published for section 178 at all, so the 1 November 2016 date rests on the Leo Edibles judgment and on the corroboration recorded in the editor note rather than on an amendment footnote, and that is said plainly here rather than implying an official source for it. Two further points belong on any checklist. The thirty-day notice under sub-section (1) and the setting aside under sub-section (3) are separate obligations, and sub-section (4) makes a failure of either enough to fasten personal liability on the liquidator, capped only where an amount has actually been notified under sub-section (2). And sub-section (5) attaches those obligations to all liquidators jointly and severally, so a liquidator who joined late cannot treat the notice as somebody else's default. 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.
The text set out below is taken from the Department's own published text of the Income-tax Act, 1961, under the heading 'Company in liquidation'. Five separately published recent versions of the section have been read. All of them print sub-section (6) with the Insolvency and Bankruptcy Code carve-out, and one of them prints sub-sections (1) to (6) in sequence and is the source of the text on this page. The commencement date of that carve-out is not taken from an amendment footnote, and the reason should be recorded, because it is a positive finding and not a failure. No footnote apparatus is published for section 178 on any of its recent versions. On one of them a heading 'Footnotes' appears with no lines beneath it at all. The Department is simply not publishing amendment footnotes for this section, so the date cannot be sourced that way. It is taken instead from a judgment that reproduces the amendment. In Leo Edibles and Fats Limited v. Tax Recovery Officer (Central), Telangana High Court, 26 July 2018, the Court states in its own words that sub-section (6) 'after its amendment in terms of Section 247 of the Code read with the Third Schedule thereto, it now reads to the effect that the provisions of Section 178 shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force, except the provisions of the Insolvency and Bankruptcy Code, 2016', and that section 178 'stands excluded by virtue of the amendment of Section 178(6) with effect from 01.11.2016, in accordance with the provisions of Section 247 of the Code read with the Third Schedule appended thereto'. The same judgment records that 'Section 238 was brought into effect from 01.12.2016, while Section 247 was brought into effect from 01.11.2016.' Leo Edibles is already carried in this library and is not proposed again here. The insertion is bracketed on the other side by the older published versions of the section, which print sub-section (6) without the carve-out. Three of the oldest go further and print a differently numbered sub-section (6) altogether — the 'more liquidators than one' clause, which is now sub-section (5). The sub-section numbering on very old texts of this section is therefore not the current numbering, and such a text must never be used to state the present position or to give a sub-section reference in a notice or a reply. The date in decided_on, 1 November 2016, is the commencement date of the Insolvency and Bankruptcy Code carve-out and not a decision 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.
A liquidator of a company being wound up, or a receiver appointed of any assets of a company, must within thirty days of becoming such give notice of his appointment to the Assessing Officer entitled to assess the company's income. The Assessing Officer must within three months of receiving that notice notify the amount he considers sufficient to provide for the company's tax. Until notified, the liquidator must not part with any assets without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; on being notified he must set aside that amount and must not part with any assets until he does, subject to the proviso permitting payment of the company's tax, payment to secured creditors whose debts have priority over Government debts at the date of liquidation, and reasonable winding-up costs. A liquidator who fails to give the notice, fails to set aside the amount, or parts with assets in contravention of sub-section (3) is personally liable for the payment of the tax the company would be liable to pay, limited to the notified amount where an amount has been notified. Where there is more than one liquidator, the obligations and liabilities attach to all of them jointly and severally. The section has effect notwithstanding anything to the contrary in any other law for the time being in force, except the provisions of the Insolvency and Bankruptcy Code, 2016.
TaxSphere, “Statutory position — s.178: the liquidator's thirty-day notice, the amount he must set aside, and his personal liability for the company's tax if he does not — and the Insolvency and Bankruptcy Code carve-out in s.178(6) from 1 November 2016”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-178-liquidator-thirty-day-notice-set-aside-and-personal-liability/ (validity last checked 2026-09-08)
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I am the official liquidator. The Income-tax Officer has notified an amount under section 178(2) and is demanding payment now, before the list of creditors is settled. Can he do that, or must he prove his claim in the winding up like everyone else?
I bought a property at the liquidator's e-auction. The Income Tax Department had attached it before the liquidation started and the Sub-Registrar will not register my sale deed. Where do I stand?
