Section 313 — Business Succession | ITA 2025

Section 313 — - SUCCESSION TO BUSINESS / PROFESSION OTHERWISE THAN ON DEATH

Section 313 is the substantive equivalent of 1961 s. 170 -- the special-assessment provision for cases where one person SUCCEEDS to business / profession of another otherwise than by death (e.g., sale of business / amalgamation / demerger / proprietorship-to-firm / firm-to-company / etc.). The provision establishes how income for the year of succession is split between PREDECESSOR and SUCCESSOR; effects on tax liabilities; AO's authority for separate / consolidated assessments. Critical for M&A / business-transfer planning -- preserves tax continuity while clarifying year-of-transfer split.

Statutory text — Income-tax Act, 2025

Marginal note -- Succession to business or profession otherwise than on death

313.

(1) Where a person carrying on any business or profession (hereinafter referred to as the predecessor) has been succeeded therein by any other person (hereinafter 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 tax 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 tax year after the date of succession.

(2) Irrespective of anything contained in sub-section (1), when the predecessor can- not be found, the assessment of the income of the tax year in which the succession took place up to the date of succession and of the tax 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.

(3) Irrespective of 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.

(4) When any sum payable under this section in respect of the income of such business or profession assessed on the predecessor,—

(a) for the tax year in which the succession took place up to the date of succession; or

(b) for the tax year preceding the year in which the succession took place, 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.

(5) Without prejudice to the provisions of this section, where any business or profession carried on by a Hindu undivided family is succeeded to, and simultane- ously 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 315.

(6) For the purposes of this section,—

(a) “income” includes any gain accruing from the transfer, in any manner, of the business or profession as a result of the succession; and

(b) “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 insol- vency resolution by the Adjudicating Authority as defined in section 5(1) 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, is received by the jurisdictional Principal Com- missioner or the Commissioner. Effect of order of tribunal or court in respect of business reorganisation.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 313	INCOME-TAX ACT, 1961 -- s. 170
Sub-s. (1) -- Predecessor / successor income split for succession year	1961 s. 170(1)
Sub-s. (2) -- Predecessor's tax liability up to succession date	1961 s. 170(2)
Sub-s. (3) -- Successor's liability where predecessor not found	1961 s. 170(3)
Sub-s. (4) -- Joint and several liability	1961 s. 170(4)
Sub-s. (5)/(6) -- Consequential adjustments / appeal	1961 s. 170(5)/(6)

STATUTORY ARCHITECTURE

YEAR OF SUCCESSION SPLIT (sub-s. 1): Income for the year of succession is split: (a) UPTO succession date: predecessor's income; (b) FROM succession date: successor's income; Each assessed separately for that year. PREDECESSOR'S LIABILITY (sub-s. 2): predecessor remains liable for tax / interest / penalty up to succession date irrespective of business transfer. SUCCESSOR'S LIABILITY (sub-s. 3): if predecessor cannot be found / collected, AO may recover from successor; successor recovery limited to value of assets received. JOINT AND SEVERAL LIABILITY (sub-s. 4): both predecessor and successor jointly liable for relevant period dues. Procedural (sub-s. 5/6): comprehensive consequential adjustments; appellate framework. TYPICAL SCENARIOS: (a) PROPRIETORSHIP-TO-FIRM/COMPANY: business sold or transferred via succession; (b) FIRM RESTRUCTURING: change in constitution (s. 327 / 1961 s. 187); (c) AMALGAMATION/DEMERGER: predecessor-co's pre-amalgamation assessments preserved; (d) BUSINESS SALE: outgoing-incoming business owner separation; (e) DEATH/RETIREMENT pathway separately under s. 312 / 1961 s. 168 (executor).

PRACTITIONER NOTES

(i) SUCCESSION DOCUMENTATION -- precise succession date; transfer documentation; book-entries reflecting separation. (ii) PRE-SUCCESSION TAX DUES -- predecessor's settlement of pre-transfer dues critical to avoid successor exposure. (iii) ASSET-VALUE LIMIT -- successor's liability capped at assets received; document fair-value of assets. (iv) M&A INTEGRATION -- s. 313 applies in non-tax-neutral M&A; for tax-neutral (s. 70) transfers, distinct framework. (v) APPELLATE COORDINATION -- joint-and-several liability requires coordinated defence.

CROSS-REFERENCES

Section 70(1)(zd)/(ze)/(zf) -- Tax-neutral firm/company conversions.
Section 312 -- Executor (death-succession).
Section 327-330 -- Firm constitution / dissolution.
Section 393 / Chapter XIX-B -- Recovery.

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