Section 115TF — Case Laws & Commentary

CHAPTER XII-EB - SPECIAL PROVISIONS RELATING TO TAX ON ACCRETED INCOME OF CERTAIN TRUSTS AND INSTITUTIONS

Section 115TF — When specified person is deemed to be assessee in default

Case Laws & Commentary - Income-tax Act, 1961 (as amended by the Finance Act, 2026) - bharattax.co Treatise

Provision: Deems the principal officer/trustee and the specified person to be an “assessee in default” on non-payment of the accreted-income tax, engaging the full recovery machinery of the Act; and, in a dissolution case, extends deemed-default liability to a transferee of the assets, capped at the value of the asset received.

Operative window: Inserted, with sections 115TD and 115TE, by the Finance Act, 2016 with effect from 1 June 2016; the Explanation aligns “specified person” with section 115TD. No subsequent change of substance.

Present status under FA 2026: Unchanged. The Finance Act, 2026 makes no amendment to section 115TF.

Reading note: Section 115TF is the deemed-default and recovery leg of the exit-tax code, the analogue of section 115-Q (DDT), section 115TC (securitisation) and section 115T (income-distribution tax). No direct authority exists; the candour rule applies. The section is illuminated by the general law on “assessee in default” and on liability limited to the assets received.

A. SECTION COMMENTARY

A.1 The deemed default — sub-section (1)

Sub-section (1) provides that if the principal officer or trustee and the specified person do not pay the accreted-income tax in accordance with section 115TD, “he or it shall be deemed to be an assessee in default in respect of the amount of tax payable” and “all the provisions of this Act for the collection and recovery of income-tax shall apply.” The deeming is the doorway to the recovery code: once default status attaches, the Revenue may proceed under sections 220 to 232 and the Second Schedule — demand under section 156, further interest under section 220(2), penalty under section 221, and recovery by Tax Recovery Officer — against the defaulting entity and office-holders. The provision adds no new recovery power; it imports the existing machinery by reference, exactly as the cognate sections 115-Q, 115TC and 115T do for their chapters.

A.2 Transferee liability on dissolution — sub-section (2) and its cap

Sub-section (2) addresses the practical risk that, in a dissolution case under section 115TD(1)(c), the assets that should have funded the exit tax have already been distributed away. It deems “the person to whom any asset forming part of the computation of accreted income… has been transferred” to be an assessee in default in respect of the tax and interest, and applies the recovery machinery to that transferee. The proviso supplies the essential limitation: the transferee's liability is “limited to the extent to which the asset received by him is capable of meeting the liability.” This is the familiar principle of representative or derivative liability — the recipient answers only to the value of what he received, never beyond it — the same ceiling that governs a legal representative under section 159(4) and the recovery of a company's dues from those who received its assets. The sub-section prevents the exit tax from being defeated by simply emptying the trust before the demand, while keeping the transferee's exposure proportionate to his receipt.

A.3 Reach and definitions

The Explanation imports the section 115TD definition of “specified person,” so section 115TF's default mechanism is co-extensive with the charge and the interest. Read together, sections 115TD, 115TE and 115TF form a closed three-section code — charge, interest, default-and-recovery — mirroring the architecture Parliament has used repeatedly for entity-level additional taxes. Section 115TF is the enforcement backstop that makes the exit tax collectible even where the charitable corpus has moved on.

B. STATUTORY POSITION (verbatim operative text)

Section 115TF, Income-tax Act, 1961 (Chapter XII-EB), as it stands on the statute book:

115TF. (1) If any principal officer or the trustee of the specified person and the specified person does not pay tax on accreted income in accordance with the provisions of section 115TD, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply.

(2) Notwithstanding anything contained in sub-section (1), in a case where the tax on accreted income is payable under the circumstances referred to in clause (c) of sub-section (1) of section 115TD, the person to whom any asset forming part of the computation of accreted income under sub-section (2) thereof has been transferred, shall be deemed to be an assessee in default in respect of such tax and interest thereon and all the provisions of this Act for the collection and recovery of income-tax shall apply:

Provided that the liability of the person referred to in this sub-section shall be limited to the extent to which the asset received by him is capable of meeting the liability.

Explanation.—For the purposes of this section, “specified person” shall have the same meaning as assigned to in clause (iia) of the Explanation to section 115TD.

C. AUTHORITIES

Candour note: there is no reported decision on section 115TF. The section imports the general recovery code and applies the settled principles of “assessee in default” and asset-limited derivative liability. The authorities below are stated on principle and by cognate analogy, with the relationship to section 115TF made explicit.

Cluster C-1 : “Assessee in default” and the engagement of the recovery machinery (sub-section (1))

CIT v. Eli Lilly & Co. (India) (P) Ltd., (2009) 312 ITR 225 / 178 Taxman 505 (SC).

Principle: A person who is statutorily obliged to pay over tax and fails to do so is an “assessee in default,” and the machinery provisions for collection and recovery of tax apply to him; the default status is the gateway through which the recovery provisions of the Act, including interest, operate against the defaulter.

Application to s.115TF: Section 115TF(1) deems the principal officer or trustee and the specified person to be an “assessee in default” on non-payment of the accreted-income tax, and applies “all the provisions of this Act for the collection and recovery of income-tax.” Eli Lilly explains the legal content of that deeming — it draws in the whole recovery code (sections 220 to 232, including section 220(2) interest and Schedule II) against the defaulter. Cited on principle, there being no direct authority on section 115TF.

Status: Supreme Court. Authority on “assessee in default” and the engagement of the recovery machinery; cognate to section 115TF(1), not a decision upon it.

Bijni Dooars Tea Co. Ltd. v. Union of India (Calcutta High Court) [additional-tax / interest-and-default machinery].

Principle: Where a special chapter imposes an additional income-tax on an entity together with companion interest and deemed-default provisions, those companion provisions are part of an integrated, self-contained recovery code; the interest and default consequences operate automatically on non-payment of the principal additional tax and are to be read with the general recovery machinery of the Act.

Application to s.115TF: Section 115TF is the deemed-default leg of exactly such a three-section code (sections 115TD-115TF), built on the same template as the dividend-distribution tax (sections 115-O to 115-Q) and the securitisation and income-distribution taxes. The Chapter XII-D line of authority on the interest-and-default companions is the closest cognate to section 115TF, and supports reading sub-sections 115TF(1) and 115TF(2) as automatic recovery provisions triggered by non-payment. Cited as a cognate analogue.

Status: High Court. Cognate authority on the interest/deemed-default machinery of an additional-tax chapter; not a decision on section 115TF (which has, as yet, no direct authority).

Cluster C-2 : The due-date and validity questions that precede any default (cross-reference)

A deemed default under section 115TF(1) presupposes a valid charge under section 115TD and a missed due date under section 115TD(5). The cancellation-validity and timing authorities therefore stand anterior to section 115TF as well, and are cross-referenced here from Cluster C-1 of the section 115TD note.

Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd. v. CIT, (2018) 403 ITR 1 / 253 Taxman 480 / 301 CTR 153 / 163 DTR 49 (SC).

Principle: An express power to cancel a registration granted under section 12A was conferred on the Commissioner for the first time by the insertion of sub-section (3) in section 12AA by the Finance (No. 2) Act, 2004 with effect from 1 October 2004. Until that date the Commissioner had no power to cancel, withdraw or recall a registration once granted; a substantive power of cancellation cannot be read into the statute by implication, and the 2004 amendment is prospective, not retrospective.

Application to Chapter XII-EB: The whole of section 115TD(3)(i) is keyed to a cancellation of registration or approval; and the Explanation fixes the “date of conversion” as the date of the order cancelling the registration. A cancellation that is itself without jurisdiction or beyond power can therefore furnish no foundation for the accreted-income charge — no valid cancellation, no deemed conversion, no specified date, no charge. This Supreme Court authority is the source of the discipline that the validity and the precise date of the cancellation order are anterior questions to any levy under section 115TD.

Status: Supreme Court. Authority on the source and prospectivity of the power to cancel registration under section 12AA(3); decided before Chapter XII-EB fell for consideration, but directly governs the trigger in section 115TD(3)(i).

M.M. Patel Charitable Trust v. CIT (Exemptions) (ITAT Pune, ITA No. 1130/PUN/2024, order dated 21 February 2025).

Principle: The concept of “specified violation” in section 12AB(4), and the power thereunder to cancel a registration, were introduced only with effect from 1 April 2022; they cannot be invoked to cancel a registration retrospectively for earlier years (there, AYs 2019-20 to 2021-22). A cancellation purporting to operate before the provision existed is without authority of law and is liable to be quashed, and the registration restored.

Application to Chapter XII-EB: Directly material to the date and the validity of the conversion under section 115TD. Because the “date of conversion” (and hence the specified date on which the accreted income is frozen and the fourteen-day clock in section 115TD(5) starts) is the date of the cancellation order, a cancellation that is invalid — or that cannot in law take effect for the year claimed — cannot fix a specified date or sustain the exit tax. The decision shows the first line of defence to a section 115TD demand: attack the cancellation that is said to constitute the conversion.

Status: ITAT Pune; cancellation quashed, registration restored. Tribunal-level decision on the reach of section 12AB(4); cited for its bearing on the timing and validity of the section 115TD(3)(i) trigger, not as a decision construing section 115TD.

Cluster C-3 : Compensatory interest carried into recovery (context)

Where default attracts further interest under the recovery code (section 220(2)) in addition to section 115TE, its character is compensatory on the settled authorities below.

CIT v. Anjum M.H. Ghaswala, (2001) 252 ITR 1 / 119 Taxman 352 (SC) (Constitution Bench).

Principle: The levy of statutory interest for delayed payment of tax is mandatory and compensatory in nature; where the statute provides for interest in mandatory terms, the authority has no discretion to waive or reduce it save as the statute itself permits. Interest follows automatically once the conditions for its levy are satisfied.

Application to s.115TE: Section 115TE imposes interest in mandatory terms (“shall be liable to pay simple interest at the rate of one per cent for every month or part thereof”) for failure to pay the accreted-income tax within the fourteen days allowed by section 115TD(5). Ghaswala supplies the governing characterisation: the interest is automatic and compensatory, accrues by operation of law from the day after the due date, and is not dependent on any further finding or exercise of discretion. Cited on principle, there being no direct authority on section 115TE.

Status: Supreme Court (Constitution Bench). Foundational authority on the mandatory and compensatory character of statutory interest; cognate to, not a decision on, section 115TE.

Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced verbatim from the Income-tax Act, 1961. Citations stated as reported; tribunal and stay-stage orders are flagged as such. This material is for professional reference and is not legal advice.