Liability of successor to business in respect of tax chargeable from the predecessor [Section 170] under Liability in Special Cases :

Where a person carrying on any business, profession, or vocation is succeeded to by another person, both the successor and the person who is succeeded to (hereinafter called the predecessor) shall be assessed in respect of the actual share to which he is separately entitled in his income, profits and gains of the previous year. Thus, the predecessor in business would be assessable in respect of the income of the year of succession upto the date of succession while the successor would be assessable in respect of the income of that year after the date of succession. Accordingly, the income of the year in which the succession takes place is to be apportioned between the predecessor and the successor with the share of each. The income must be computed separately and each must be granted the deductions and allowance applicable to him. The assessment on each of these persons must be separate and distinct.

However, where the predecessor cannot be found the assessment of the profits of the year on which the succession took place up to the date of succession and also of the one year preceding the year of succession should be made on the predecessor. Again, if the assessment has already been made on the predecessor for either or both of the years aforesaid, but the tax due in pursuance of each assessment cannot be recovered from the predecessor or any person, it shall be entitled to recover the full amount of tax paid by him from the predecessor.

Under this section the Assessing Officer is required to record a finding that the tax in respect of the income of the year of succession or the preceding year cannot be recovered from the predecessor, before seeking to recover such tax from the successor. The successor‘s liabilit y to tax arises also in respect of any gain (e.g., capital gains) accruing to the predecessor from the transfer of the business. The provisions of the section do not apply to cases of succession the death of the person carrying on a business. The successor, however, is not entitled to claim to carry forward and set off the losses incurred by his predecessor. He has no right to carry forward even the unabsorbed depreciation allowance of the years prior to his succession to the business. The predecessor also cannot carry forward his loss because the right of carry forward can be exercised only if the business in which the loss was incurred is in existence and continues to be carried on by the same person.