Section 170(2)

Section 170(2) — the law in short

What the courts have decided on section 170(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ACIT v Celerity Power LLP ITATHelps taxpayerValidity unconfirmed
  My company converted into an LLP and never met all the s.47(xiiib) conditions. The AO has taxed the capital gain in the LLP's hands under s.47A(4). Can he do that in the very year of conversion?
  No. s.47A(4) is a withdrawal provision: it operates only to take back an exemption that was actually availed under s.47(xiiib), and cannot be used to test eligibility in the year of the conversion itself. Where the conditions were never satisfied there is a transfer, but the gain is chargeable under s.45 read with s.5 in the hands of the transferor company, not deemed into the successor LLP by s.47A(4) — though the LLP remains exposed as a successor under s.170.
• Statutory position — s.170(2A), in force from 1 April 2022: an assessment or proceeding made on the predecessor during the pendency of a succession is deemed to have been made on the successor CBDT Circulars & InstructionsCuts both ways
  Our merger was pending before the NCLT and the Assessing Officer went on assessing the transferor company. The scheme has now been sanctioned. Is that assessment void because it was made on a company that has since ceased to exist, or has something changed in the law?
  Something has changed, and the date matters. Sub-section (2A) was inserted in section 170 with effect from 1 April 2022 and provides that, notwithstanding sub-sections (1) and (2), where there is succession, an 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. Its own Explanation defines 'pendency' as running from the date of filing of the application for the succession before the High Court or tribunal, or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, and ending with the date on which the order of that High Court, tribunal or Adjudicating Authority is received by the Principal Commissioner or the Commissioner.
• Statutory position — s.170: the predecessor is assessed to the date of succession, s.170(2) where the predecessor cannot be found, and s.170(3) recovery of his tax from the successor CBDT Circulars & InstructionsCuts both ways
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.