Section 322 — Company in Liquidation | ITA 2025

Section 322 — - COMPANY IN LIQUIDATION

Section 322 is the substantive equivalent of 1961 s. 178 -- the provision establishing TAX LIABILITY of a company UNDER LIQUIDATION (under Companies Act 2013 / IBC 2016) and DUTIES of the LIQUIDATOR. The provision ensures that tax dues are not lost during liquidation; liquidator must: (a) notify AO of liquidation; (b) set aside funds for tax dues; (c) take AO's clearance before distributing surplus to shareholders. Personal liability of liquidator for non-compliance. Critical in IBC era post-2016 where company liquidations are frequent; coordination with NCLT / IBC waterfall mechanics required.

Statutory text — Income-tax Act, 2025

Marginal note -- Company in liquidation

(1) Every person,—

(a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or

(b) who has been appointed the receiver of any assets of a company, (herein referred to as the liquidator), shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company.

(2) The Assessing Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company.

(3) The liquidator—

(a) shall not, without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Assessing Officer under sub-section (2); and

(b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands.

(4) The provisions of sub-section (3) shall not debar the liquidator from parting with such assets or properties for the purpose of—

(a) the payment of the tax payable by the company;

(b) making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation; or

(c) meeting such costs and expenses of the winding up of the company, as are in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, reasonable.

(5) If the liquidator fails to give the notice as per sub-section (1), or fails to set aside the amount as required by sub-section (3), or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay.

(6) For the purposes of sub-section (5), if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under that sub-section shall be to the extent of such amount.

(7) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally.

(8) The provisions of this section shall have effect irrespective of anything to the contrary contained in any other law in force, except the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016). 13.—Private companies Liability of directors of private company.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 322	INCOME-TAX ACT, 1961 -- s. 178
Sub-s. (1) -- Liquidator notice to AO within 30 days	1961 s. 178(1)
Sub-s. (2) -- AO determination of tax due	1961 s. 178(2)
Sub-s. (3) -- Liquidator setting aside funds	1961 s. 178(3)
Sub-s. (4) -- Personal liability of liquidator for non-compliance	1961 s. 178(4)
IBC 2016 priority interaction	1961 s. 178 read with IBC s. 53

STATUTORY ARCHITECTURE

LIQUIDATOR DUTIES: (I) NOTICE TO AO (sub-s. 1): liquidator must give written notice to AO of his appointment WITHIN 30 DAYS of appointment (typically NCLT order date for IBC liquidations). (II) AO DETERMINATION (sub-s. 2): AO determines tax dues / penalty / interest as on date of liquidation; communicates to liquidator. (III) FUND SETTING-ASIDE (sub-s. 3): liquidator must SET ASIDE funds equal to tax determined by AO; cannot distribute to shareholders / creditors without AO clearance. (IV) AO CONSENT (sub-s. 3): liquidator may distribute only with AO consent OR after paying / setting aside the tax. (V) PERSONAL LIABILITY (sub-s. 4): if liquidator parts with funds without setting aside tax, PERSONALLY LIABLE to extent of distribution to that extent. IBC INTERACTION: post 2016, IBC provides WATERFALL OF PRIORITY for distributions during liquidation: (a) Insolvency resolution costs / liquidation costs; (b) Workmen dues 24 months / secured creditors equally; (c) Wages / unpaid dues; (d) Financial creditors unsecured; (e) GOVERNMENT DUES (Crown debt) / unsecured creditors; (f) Any remaining surplus / equity. Income-tax under IBC s. 53 typically ranks as PRIORITY 5 (Government dues) -- LOWER than secured creditors. Practitioner: tax-recovery often constrained; coordinate with AO during liquidation.

CASE LAW

(i) ITO v. R.N. Aiyappu (Mad HC) -- liquidator's personal liability for non-notification. (ii) Companies Act 2013 / IBC 2016 prevailing in different scenarios -- pre-IBC liquidations under Companies Act; post-2016 mostly under IBC. (iii) Recent NCLAT / SC decisions on Government-dues priority in IBC.

PRACTITIONER NOTES

(i) IMMEDIATE NOTIFICATION -- 30-day window from liquidator appointment / NCLT order; document service. (ii) AO COORDINATION -- proactive interaction; tax-determination workflow. (iii) IBC PRIORITY -- understand waterfall; tax may not be fully recoverable depending on asset realisation. (iv) PERSONAL LIABILITY DEFENSE -- liquidator must demonstrate compliance with notification + reasonable funds set-aside; otherwise s. 322(4) personal liability. (v) DOCUMENTATION -- comprehensive records of all communications / asset realisations / distributions.

CROSS-REFERENCES

Section 270 -- Assessment (pre-liquidation).
Section 286 -- Time-limits.
Section 393 / Chapter XIX-B -- Recovery.
Companies Act 2013 -- Liquidation framework.
Insolvency and Bankruptcy Code 2016 -- IBC waterfall.
IBC s. 53 -- distribution priority.

← All sections (537)Act 2025 hub