Section 276A — Failure to comply with the provisions of sub-sections (1) and (3) of section 178
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live in form but SUNSET for new proceedings — second proviso (inserted by Finance Act, 2023) bars initiation on or after 1 April 2023.
Finance Act, 2026: Not amended by the Finance Act, 2026.
Mechanism: Penalises a liquidator who fails to give notice of appointment under s.178(1), or to set aside the amount intimated under s.178(3), or who parts with assets in contravention — protecting the revenue's claim in winding up.
Litigation profile: Sparse — no direct reported merits prosecution; governed by the company-liquidation jurisprudence on section 178.
A. COMMENTARY
Scheme — the liquidator's tax duties
Section 178 imposes duties on the liquidator of a company in winding up: to give notice of his appointment to the Assessing Officer within 30 days (s.178(1)), and, on being intimated the amount to be set aside, not to part with the company's assets until that amount is provided for (s.178(3)). Section 276A is the penal sanction for breach of those duties — failure to give notice, failure to set aside the intimated amount, or parting with assets in contravention. It protects the revenue's place in the queue of a company's creditors on liquidation.
Sunset for new prosecutions
Although section 276A remains on the statute book and applies to past defaults, the second proviso (inserted by the Finance Act, 2023, with effect from 1 April 2023) provides that 'no proceeding shall be initiated under this section on or after the 1st day of April, 2023.' The provision is therefore closed for fresh prosecutions: it is part of the policy of decriminalising defaults that are adequately met by the civil personal-liability of the liquidator under section 178(4). Practitioners should treat 276A as effectively spent for any default sought to be prosecuted from 1 April 2023, while remaining alive to the civil consequences under section 178.
Even where prosecution is barred, the liquidator who breaches section 178 is 'personally liable' for the tax which the company would have been liable to pay (s.178(4)). The civil and the (now sunset) criminal consequences are distinct; the IBC, 2016 waterfall and the moratorium also bear on how far section 178 can operate where insolvency proceedings supervene.
B. STATUTORY TEXT (verbatim — pre-Finance Act, 2026 text)
Text reproduced verbatim from the bare Act; the section is not amended by the Finance Act, 2026. Note the second proviso barring initiation on or after 1 April 2023.
Failure to comply with the provisions of sub-sections (1) and (3) of section 178.
276A. If a person —
(i) fails to give the notice in accordance with sub-section (1) of section 178; or
(ii) fails to set aside the amount as required by sub-section (3) of that section; or
(iii) parts with any of the assets of the company or the properties in his hands in contravention of the provisions of the aforesaid sub-section,
he shall be punishable with rigorous imprisonment for a term which may extend to two years :
Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months:
Provided further that no proceeding shall be initiated under this section on or after the 1st day of April, 2023.
C. AUTHORITIES
There is no reported merits decision prosecuting a liquidator under section 276A (candour rule). The section is understood through the civil jurisprudence on a liquidator's obligations under section 178 and the priority of tax dues in winding up.
Cognate authority — liquidator's duties and priority of tax in winding up
Imperial Chit Funds (P) Ltd. v. ITO (1996) 219 ITR 498 (SC)
Court/Year Supreme Court, 1996.
Holding The income-tax department is a 'secured creditor' to the extent of the amount the liquidator is required to set aside under section 178; affirms the protective object that section 276A enforces.
S.V. Kondaskar v. V.M. Deshpande (1972) 83 ITR 685 (SC)
Court/Year Supreme Court, 1972.
Holding Relationship between assessment proceedings and the winding-up court; the liquidator's statutory tax duties operate subject to the companies-court regime — context for section 178/276A.
CHAPTER XXII — OFFENCES AND PROSECUTIONS
Section 276A — Failure to comply with the provisions of sub-sections (1) and (3) of section 178
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live in form but SUNSET for new proceedings — second proviso (inserted by Finance Act, 2023) bars initiation on or after 1 April 2023.
Finance Act, 2026: Not amended by the Finance Act, 2026.
Mechanism: Penalises a liquidator who fails to give notice of appointment under s.178(1), or to set aside the amount intimated under s.178(3), or who parts with assets in contravention — protecting the revenue's claim in winding up.
Litigation profile: Sparse — no direct reported merits prosecution; governed by the company-liquidation jurisprudence on section 178.
A. COMMENTARY
Scheme — the liquidator's tax duties
Section 178 imposes duties on the liquidator of a company in winding up: to give notice of his appointment to the Assessing Officer within 30 days (s.178(1)), and, on being intimated the amount to be set aside, not to part with the company's assets until that amount is provided for (s.178(3)). Section 276A is the penal sanction for breach of those duties — failure to give notice, failure to set aside the intimated amount, or parting with assets in contravention. It protects the revenue's place in the queue of a company's creditors on liquidation.
Sunset for new prosecutions
Although section 276A remains on the statute book and applies to past defaults, the second proviso (inserted by the Finance Act, 2023, with effect from 1 April 2023) provides that 'no proceeding shall be initiated under this section on or after the 1st day of April, 2023.' The provision is therefore closed for fresh prosecutions: it is part of the policy of decriminalising defaults that are adequately met by the civil personal-liability of the liquidator under section 178(4). Practitioners should treat 276A as effectively spent for any default sought to be prosecuted from 1 April 2023, while remaining alive to the civil consequences under section 178.
Relationship with section 178(4) personal liability
Even where prosecution is barred, the liquidator who breaches section 178 is 'personally liable' for the tax which the company would have been liable to pay (s.178(4)). The civil and the (now sunset) criminal consequences are distinct; the IBC, 2016 waterfall and the moratorium also bear on how far section 178 can operate where insolvency proceedings supervene.
B. STATUTORY TEXT (verbatim — pre-Finance Act, 2026 text)
Text reproduced verbatim from the bare Act; the section is not amended by the Finance Act, 2026. Note the second proviso barring initiation on or after 1 April 2023.
Failure to comply with the provisions of sub-sections (1) and (3) of section 178.
276A. If a person —
(i) fails to give the notice in accordance with sub-section (1) of section 178; or
(ii) fails to set aside the amount as required by sub-section (3) of that section; or
(iii) parts with any of the assets of the company or the properties in his hands in contravention of the provisions of the aforesaid sub-section,
he shall be punishable with rigorous imprisonment for a term which may extend to two years :
Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months:
Provided further that no proceeding shall be initiated under this section on or after the 1st day of April, 2023.
C. AUTHORITIES
There is no reported merits decision prosecuting a liquidator under section 276A (candour rule). The section is understood through the civil jurisprudence on a liquidator's obligations under section 178 and the priority of tax dues in winding up.
Cognate authority — liquidator's duties and priority of tax in winding up
Imperial Chit Funds (P) Ltd. v. ITO (1996) 219 ITR 498 (SC)
Court/Year Supreme Court, 1996.
Holding The income-tax department is a 'secured creditor' to the extent of the amount the liquidator is required to set aside under section 178; affirms the protective object that section 276A enforces.
S.V. Kondaskar v. V.M. Deshpande (1972) 83 ITR 685 (SC)
Court/Year Supreme Court, 1972.
Holding Relationship between assessment proceedings and the winding-up court; the liquidator's statutory tax duties operate subject to the companies-court regime — context for section 178/276A.