Section 170 — Succession to Business Otherwise Than on Death
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part F of Chapter XV (Succession to business or profession). Successor to section 25(4) of the 1922 Act; sub-section (2A) (predecessor/successor on business reorganisation) inserted by the Finance Act, 2022.
Subject: Where a person carrying on a business or profession is succeeded by another otherwise than on death, the predecessor is assessed on the income up to the date of succession and the successor on the income thereafter; if the predecessor cannot be found, the successor is assessed; and tax due from the predecessor but unrecoverable from him may, in the circumstances specified, be recovered from the successor.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. The succession scheme
Section 170 allocates liability when a business or profession changes hands otherwise than on death. The basic rule (sub-sections (1) and (2)) splits the year at the date of succession: the predecessor is assessed on the income of the previous year up to the date of succession, and the successor on the income of the period after that date and on the income of subsequent years. Sub-section (3) protects the Revenue where the predecessor cannot be found, by assessing the successor; sub-section (4) allows tax assessed on the predecessor but not recoverable from him to be recovered from the successor, who is then entitled to be indemnified out of, or to retain, the predecessor's assets in his hands. Sub-section (2A), inserted by the Finance Act 2022, addresses business reorganisation and the assessment of the predecessor/successor where an order of a court or tribunal sanctions the reorganisation.
2. What is 'succession': the integrity-of-business test
The hallmark of a 'succession', as distinct from a sale of disjointed assets or a mere reconstitution, was settled in K.H. Chambers: there must be (i) a change of ownership, (ii) the substantial identity and continuity of the business preserved, and (iii) the whole business (not a fragment) devolving on the successor. The approach is one of substance over form, to be applied by viewing the facts in their natural perspective rather than legalistically (Saroj Aggarwal). A mere change in the constitution of a firm — partners retiring or being admitted while the same firm continues — is not a succession (A.W. Figgies); that situation is governed by the firm-reconstitution provisions, not section 170.
3. Tax attributes pass with the business
Where a business is transferred as a going concern with its assets and liabilities, tax attributes attaching to those assets and liabilities travel with them. Thus in T. Veerabhadra Rao the successor was allowed the bad-debt deduction on a debt taken over from the predecessor on which the predecessor (or the successor) had offered the interest to tax — the debt carried into the successor's hands its character for deduction purposes.
4. Succession by amalgamation; the non-existent predecessor
The most active modern battleground is succession by amalgamation. On amalgamation the transferor company ceases to exist as a juristic entity (Saraswati Industrial Syndicate). It follows that an assessment or notice issued in the name of the amalgamating company after it has ceased to exist is void — a substantive illegality not curable under section 292B and not cured by participation (Maruti Suzuki, approving Spice Infotainment). It was precisely to enable the Revenue to make a valid assessment of the predecessor's income following a court/tribunal-sanctioned reorganisation that section 170(2A) (and the modified-return machinery in section 170A) were introduced by the Finance Act 2022.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
170. (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,—
(a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession;
(b) the successor shall be assessed in respect of the income of the previous year after the date of succession.
(2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.
(2A) Notwithstanding anything contained in sub-sections (1) and (2), where there is succession, the 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 and all the provisions of this Act shall, so far as may be, apply accordingly.
Explanation.—For the purposes of this sub-section, the term "pendency" means the period commencing from the date of filing of application for such succession of business before the High Court or tribunal or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and ending with the date on which the order of such High Court or tribunal or such Adjudicating Authority, as the case may be, is received by the Principal Commissioner or the Commissioner.
(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid.
(4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section.
Explanation.—For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession. Effect of order of tribunal or court in respect of business reorganisation.
C. AUTHORITIES
Section 170 is well litigated. The 'what is succession' authorities, the tax-attribute authority and the amalgamation/non-existent-predecessor line are grouped below. All citations are web-verified; the A.W. Figgies citation has been corrected to 24 ITR 405.
Cluster A — What constitutes succession: the integrity-of-business test
CIT, Madras v. K.H. Chambers
Citation: (1965) 55 ITR 674 (SC)
Facts: A father handed over a continuing business to his son, who claimed succession relief.
Held: Succession requires a change of ownership, the substantial preservation of the integrity, identity and continuity of the business, and the devolution of the whole business (not a fragment) on the successor; a mere change of ownership of a continuing, substantially identical business is succession.
Relevance: The foundational test of 'succession' applied under section 170; distinguishes succession from a sale of disjointed assets.
Smt. Saroj Aggarwal v. CIT
Citation: (1985) 156 ITR 497 (SC)
Facts: On a partner's death the firm did not dissolve (the deed so provided) and the widow was promptly admitted; she claimed set-off of brought-forward losses as succeeding by inheritance.
Held: A legalistic approach must be avoided; viewed in their natural perspective, the facts (continuance of the firm, prompt admission of heirs) established succession by inheritance.
Relevance: Authoritative on the fact-driven, substance-over-form approach to identifying succession.
CIT v. A.W. Figgies & Co.
Citation: (1953) 24 ITR 405 (SC)
Facts: Reconstitution of a firm by a change of partners; whether this was succession or a mere change in constitution.
Held: For income-tax purposes a firm is a distinct assessable entity whose personality survives a mere change in constitution; reconstitution (retirement/admission of partners) is not, by itself, a succession — the same firm continues.
Relevance: Leading authority distinguishing succession (section 170) from mere reconstitution/change in constitution.
Cluster B — Tax consequences flowing from succession
CIT, A.P. v. T. Veerabhadra Rao, K. Koteswara Rao & Co.
Citation: (1985) 155 ITR 152 (SC)
Facts: A successor firm took over the predecessor's business with all assets and liabilities, including a debt on which interest had been offered to tax; it later wrote the debt off.
Held: Where a business with its assets and liabilities is transferred, a debt so taken over carries the same treatment in the successor's hands; the successor can claim the bad-debt deduction under section 36(1)(vii) read with section 36(2) though the debt originated with the predecessor.
Relevance: Establishes the continuity of tax attributes on succession of a business.
Cluster C — Succession by amalgamation; assessment of the non-existent predecessor
PCIT v. Maruti Suzuki India Ltd.
Citation: (2019) 416 ITR 613 (SC)
Facts: An amalgamating company (SPIL) merged into Maruti Suzuki w.e.f. 1-4-2012; the officer, though informed, issued a section 148 notice and framed the assessment in the name of the non-existent SPIL.
Held: An assessment/notice in the name of an amalgamating company that has ceased to exist on amalgamation is void; this is a substantive illegality not curable under section 292B, and participation creates no estoppel.
Relevance: The decision that prompted the Finance Act 2022 insertion of section 170(2A); defines the limits of assessing a predecessor after succession by amalgamation.
Saraswati Industrial Syndicate Ltd. v. CIT
Citation: (1990) 186 ITR 278 (SC)
Facts: Amalgamating company merged into the transferee; whether it survived for tax purposes.
Held: On amalgamation the amalgamating (transferor) company ceases to exist as a juristic entity, being blended into the transferee, and cannot thereafter be assessed.
Relevance: The bedrock authority on cessation of the predecessor on amalgamation, relied on in Maruti Suzuki.
Spice Infotainment Ltd. v. CIT
Citation: (2012) 247 CTR 500 (Del)
Facts: Assessment framed in the name of 'Spice', which had amalgamated and ceased to exist.
Held: An assessment in the name of a company dissolved on amalgamation is void and not a mere section 292B irregularity; framing assessment on a non-existent entity is a jurisdictional defect.
Relevance: The leading High-Court authority (approved in Maruti Suzuki) on succession-by-amalgamation and the predecessor's non-existence.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XV — LIABILITY IN SPECIAL CASES
Section 170 — Succession to Business Otherwise Than on Death
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part F of Chapter XV (Succession to business or profession). Successor to section 25(4) of the 1922 Act; sub-section (2A) (predecessor/successor on business reorganisation) inserted by the Finance Act, 2022.
Subject: Where a person carrying on a business or profession is succeeded by another otherwise than on death, the predecessor is assessed on the income up to the date of succession and the successor on the income thereafter; if the predecessor cannot be found, the successor is assessed; and tax due from the predecessor but unrecoverable from him may, in the circumstances specified, be recovered from the successor.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. The succession scheme
Section 170 allocates liability when a business or profession changes hands otherwise than on death. The basic rule (sub-sections (1) and (2)) splits the year at the date of succession: the predecessor is assessed on the income of the previous year up to the date of succession, and the successor on the income of the period after that date and on the income of subsequent years. Sub-section (3) protects the Revenue where the predecessor cannot be found, by assessing the successor; sub-section (4) allows tax assessed on the predecessor but not recoverable from him to be recovered from the successor, who is then entitled to be indemnified out of, or to retain, the predecessor's assets in his hands. Sub-section (2A), inserted by the Finance Act 2022, addresses business reorganisation and the assessment of the predecessor/successor where an order of a court or tribunal sanctions the reorganisation.
2. What is 'succession': the integrity-of-business test
The hallmark of a 'succession', as distinct from a sale of disjointed assets or a mere reconstitution, was settled in K.H. Chambers: there must be (i) a change of ownership, (ii) the substantial identity and continuity of the business preserved, and (iii) the whole business (not a fragment) devolving on the successor. The approach is one of substance over form, to be applied by viewing the facts in their natural perspective rather than legalistically (Saroj Aggarwal). A mere change in the constitution of a firm — partners retiring or being admitted while the same firm continues — is not a succession (A.W. Figgies); that situation is governed by the firm-reconstitution provisions, not section 170.
3. Tax attributes pass with the business
Where a business is transferred as a going concern with its assets and liabilities, tax attributes attaching to those assets and liabilities travel with them. Thus in T. Veerabhadra Rao the successor was allowed the bad-debt deduction on a debt taken over from the predecessor on which the predecessor (or the successor) had offered the interest to tax — the debt carried into the successor's hands its character for deduction purposes.
4. Succession by amalgamation; the non-existent predecessor
The most active modern battleground is succession by amalgamation. On amalgamation the transferor company ceases to exist as a juristic entity (Saraswati Industrial Syndicate). It follows that an assessment or notice issued in the name of the amalgamating company after it has ceased to exist is void — a substantive illegality not curable under section 292B and not cured by participation (Maruti Suzuki, approving Spice Infotainment). It was precisely to enable the Revenue to make a valid assessment of the predecessor's income following a court/tribunal-sanctioned reorganisation that section 170(2A) (and the modified-return machinery in section 170A) were introduced by the Finance Act 2022.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
170. (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,—
(a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession;
(b) the successor shall be assessed in respect of the income of the previous year after the date of succession.
(2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.
(2A) Notwithstanding anything contained in sub-sections (1) and (2), where there is succession, the 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 and all the provisions of this Act shall, so far as may be, apply accordingly.
Explanation.—For the purposes of this sub-section, the term "pendency" means the period commencing from the date of filing of application for such succession of business before the High Court or tribunal or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and ending with the date on which the order of such High Court or tribunal or such Adjudicating Authority, as the case may be, is received by the Principal Commissioner or the Commissioner.
(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Assessing Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid.
(4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section.
Explanation.—For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession. Effect of order of tribunal or court in respect of business reorganisation.
C. AUTHORITIES
Section 170 is well litigated. The 'what is succession' authorities, the tax-attribute authority and the amalgamation/non-existent-predecessor line are grouped below. All citations are web-verified; the A.W. Figgies citation has been corrected to 24 ITR 405.
Cluster A — What constitutes succession: the integrity-of-business test
CIT, Madras v. K.H. Chambers
Citation: (1965) 55 ITR 674 (SC)
Facts: A father handed over a continuing business to his son, who claimed succession relief.
Held: Succession requires a change of ownership, the substantial preservation of the integrity, identity and continuity of the business, and the devolution of the whole business (not a fragment) on the successor; a mere change of ownership of a continuing, substantially identical business is succession.
Relevance: The foundational test of 'succession' applied under section 170; distinguishes succession from a sale of disjointed assets.
Smt. Saroj Aggarwal v. CIT
Citation: (1985) 156 ITR 497 (SC)
Facts: On a partner's death the firm did not dissolve (the deed so provided) and the widow was promptly admitted; she claimed set-off of brought-forward losses as succeeding by inheritance.
Held: A legalistic approach must be avoided; viewed in their natural perspective, the facts (continuance of the firm, prompt admission of heirs) established succession by inheritance.
Relevance: Authoritative on the fact-driven, substance-over-form approach to identifying succession.
CIT v. A.W. Figgies & Co.
Citation: (1953) 24 ITR 405 (SC)
Facts: Reconstitution of a firm by a change of partners; whether this was succession or a mere change in constitution.
Held: For income-tax purposes a firm is a distinct assessable entity whose personality survives a mere change in constitution; reconstitution (retirement/admission of partners) is not, by itself, a succession — the same firm continues.
Relevance: Leading authority distinguishing succession (section 170) from mere reconstitution/change in constitution.
Cluster B — Tax consequences flowing from succession
CIT, A.P. v. T. Veerabhadra Rao, K. Koteswara Rao & Co.
Citation: (1985) 155 ITR 152 (SC)
Facts: A successor firm took over the predecessor's business with all assets and liabilities, including a debt on which interest had been offered to tax; it later wrote the debt off.
Held: Where a business with its assets and liabilities is transferred, a debt so taken over carries the same treatment in the successor's hands; the successor can claim the bad-debt deduction under section 36(1)(vii) read with section 36(2) though the debt originated with the predecessor.
Relevance: Establishes the continuity of tax attributes on succession of a business.
Cluster C — Succession by amalgamation; assessment of the non-existent predecessor
PCIT v. Maruti Suzuki India Ltd.
Citation: (2019) 416 ITR 613 (SC)
Facts: An amalgamating company (SPIL) merged into Maruti Suzuki w.e.f. 1-4-2012; the officer, though informed, issued a section 148 notice and framed the assessment in the name of the non-existent SPIL.
Held: An assessment/notice in the name of an amalgamating company that has ceased to exist on amalgamation is void; this is a substantive illegality not curable under section 292B, and participation creates no estoppel.
Relevance: The decision that prompted the Finance Act 2022 insertion of section 170(2A); defines the limits of assessing a predecessor after succession by amalgamation.
Saraswati Industrial Syndicate Ltd. v. CIT
Citation: (1990) 186 ITR 278 (SC)
Facts: Amalgamating company merged into the transferee; whether it survived for tax purposes.
Held: On amalgamation the amalgamating (transferor) company ceases to exist as a juristic entity, being blended into the transferee, and cannot thereafter be assessed.
Relevance: The bedrock authority on cessation of the predecessor on amalgamation, relied on in Maruti Suzuki.
Spice Infotainment Ltd. v. CIT
Citation: (2012) 247 CTR 500 (Del)
Facts: Assessment framed in the name of 'Spice', which had amalgamated and ceased to exist.
Held: An assessment in the name of a company dissolved on amalgamation is void and not a mere section 292B irregularity; framing assessment on a non-existent entity is a jurisdictional defect.
Relevance: The leading High-Court authority (approved in Maruti Suzuki) on succession-by-amalgamation and the predecessor's non-existence.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.