Section 170

Section 170 — the law in short

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

• PCIT v Mahagun Realtors P Ltd Supreme CourtHelps department
  Is an assessment on an amalgamated company always void?
  No. Corporate death on amalgamation does not by itself invalidate an assessment — it depends on the terms of the amalgamation and the facts, including whether the department was told and how you conducted yourself. Maruti Suzuki was distinguished.
• PCIT v Maruti Suzuki India Ltd Supreme CourtHelps taxpayer
  The notice names a company that has already merged into another. Does taking part in the proceedings fix that?
  No. Once a company amalgamates it ceases to exist, so a notice in its name is a jurisdictional illegality, not a clerical slip. Section 292BB cures defects in service — it cannot supply jurisdiction, and participation is not an estoppel.
• CIT v Empire Estate — a firm dissolved by the death of a partner is succeeded, not reconstituted, so there are two assessments Supreme CourtHelps taxpayer
  A partner died mid-year, the deed said nothing about the firm continuing, and the survivors carried on the business under a fresh deed. The officer has clubbed the whole year into one assessment. Can he?
  No. The Supreme Court held that where the partnership deed contains no provision for the firm continuing on the death of a partner, the firm stands dissolved by force of s.42(c) of the Indian Partnership Act 1932; the case is then not one of a change in the constitution of the firm and falls outside s.187, and where the surviving partners continue the business in partnership there is a succession of one firm by another, which attracts s.188 and separate assessments on the predecessor and the successor firm. Two returns and two assessments, not one.
• International Hospital Ltd v DCIT High CourtHelps taxpayerNo later treatment found
  The department is now citing Mahagun Realtors to say an assessment on the amalgamating company is curable. Has the Supreme Court moved away from Maruti Suzuki?
  On the Delhi High Court's considered view in this batch, no. Mahagun Realtors turned on the conduct of that assessee — who suppressed the amalgamation at search, filed a return in the amalgamating company's name recording 'not applicable' against business reorganisation, and litigated throughout in that name — and did not dilute or strike a discordant chord with Maruti Suzuki. Where the successor did tell the department of the merger and the notice or order still went out in the dead company's name, the defect remains fatal.
• Mohmmad Zamir Khan v ACIT High CourtHelps departmentNo later treatment found
  My years are before June 2013. Can the department still say the Explanation to s.179 makes me liable for the company's interest and penalty?
  The Bombay High Court says yes. It held that the Explanation added to s.179 with effect from 1 June 2013 came in only to remove the doubt created by the earlier decisions, that it is therefore clarificatory, and that on Gold Coin a clarificatory amendment operates retrospectively - so directors were liable for the company's penalty and interest for years as far back as 1995-96.
• Spice Entertainment Ltd v Commissioner High CourtHelps taxpayer
  The assessment order is in the name of a company that had already amalgamated and ceased to exist. The department says s.292B cures it because we participated. Is the order void?
  It is void. Framing an assessment against a non-existing entity goes to the root of the matter: it is a jurisdictional defect, not a procedural irregularity, and s.292B cannot cure it. Participation by the amalgamated company makes no difference, because there is no estoppel against law.
• DCIT v Archroma India P Ltd ITATCuts both waysSuperseded by amendment
  I bought a business on slump sale. Can I depreciate the assets at the price I paid?
  No. A slump sale of an undertaking as a going concern is a succession to business otherwise than on death within s.170, so the proviso to s.32(1) applies and depreciation on the assets taken over is computed on the transferor's written down value, not on the buyer's allocation of the purchase price.
• ACIT v Celerity Power LLP ITATHelps taxpayerNo later treatment found
  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.170A as substituted from 1 April 2023: the successor's modified return within six months of the month of the order, in Form ITR-A under rule 12AD, and what the Assessing Officer must then do CBDT Circulars & InstructionsCuts both ways
  The NCLT has just sanctioned our merger, and it applies to two years for which returns were already filed and one of which is already assessed. How do I get those years re-done, how long have I got, and in what form?
  Section 170A, as substituted with effect from 1 April 2023, gives the successor a modified return. Where, before the date of an order of a High Court or tribunal or an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 in a business reorganisation, a return has been furnished under section 139 by an entity to which the order applies for an assessment year relevant to a previous year to which the order applies, the successor shall furnish a modified return within six months from the end of the month in which the order was issued, in the prescribed form and manner, in accordance with and limited to that order. Sub-section (2) then tells the Assessing Officer what to do: if the assessment or reassessment for that year is already complete when the modified return is filed, he passes an order modifying the total income already determined; if it is pending, he passes an order assessing or reassessing the total income in accordance with the reorganisation order and taking the modified return into account. Rule 12AD prescribes Form ITR-A, to be furnished electronically under digital signature.
• 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 — sections 187, 188, 188A and 189: one assessment on the firm or two CBDT Circulars & InstructionsCuts both ways
  Partners left and joined during the year, and one of them died. Will the department make one assessment on the firm for the whole year or two separate assessments?
  One assessment if it is a change in constitution under section 187, two if it is a succession under section 188. Section 187 applies where partners cease or are admitted but at least one pre-change partner continues, or where all the partners continue with a change in their shares; the assessment is then made on the firm as constituted at the time of making the assessment. The dividing line is the proviso to section 187(2): where the firm is dissolved on the death of a partner, clause (a) does not apply, so the case falls to section 188 and separate assessments are made on the predecessor and successor firms in accordance with section 170.
• 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.