Business reorganizations are becoming increasingly common in India, whether due to mergers, demergers, amalgamations, or court-driven restructurings. These reorganizations bring legal clarity but also create unique tax challenges. One such challenge is the filing of income tax returns after the reorganization takes effect.
To address this, the government introduced Section 170A of the Income Tax Act, 1961, through the Finance Act, 2022. This section specifically provides for filing of revised return only by SUCCESSOR entity in cases where a business has undergone reorganization.
In simple words, if a company has merged or split after an order of a tribunal or court in respect of business reorganisation, it is not the original entity but the successor company that is responsible for filing the revised return. This ensures proper compliance & avoids double taxation or disputes.
What is Section 170A of Income Tax Act?
Section 170A mandates successors in business reorganizations to file revised returns when a business has been restructured through a tribunal or court order.
For example, suppose two companies merge in FY 2024–25. The amalgamated company (successor entity) must file a revised return of income reflecting the reorganization. The predecessor company is no longer required to file a new return because legally, it ceases to exist after the merger."
This provision ensures that the tax department deals with the entity that continues after the reorganization, rather than chasing a company that has dissolved. It is a step toward greater efficiency in handling complex tax situations arising from mergers & acquisitions.
Why Was Section 170A Introduced?
Earlier, there was confusion over who should file returns post-reorganization. Both predecessor & successor entities sometimes filed returns, which led to duplication, litigation, and tax notices.
The CBDT clarified through Section 170A that only the successor entity would be responsible for revised returns. This provision:
- Brings legal certainty in cases of mergers/demergers
- Reduces disputes between taxpayers & the Income Tax Department
- Aligns with the principle that a dissolved company cannot continue compliance obligations
- Ensures smooth transition after business reorganization
By placing responsibility on the successor, Section 170A eliminates unnecessary complexity.
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Filing of Revised Return by Successor Entity
The key point under Section 170A is that it provides for filing of revised Return only by SUCCESSOR entity.
Let’s say:
- Company A merges into Company B.
- Before the merger, Company A filed its income tax return for FY 2024–25.
- After the tribunal approves the merger, Company B (the successor) is required to file a revised return of income reflecting both A’s and B’s combined incomes.
This revised return has to be filed within the time allowed under Section 139(5), i.e., before the end of the relevant assessment year or completion of assessment, whichever is earlier.
Effect of Order of Tribunal or Court in Respect of Business Reorganisation
Another important aspect is the effect of order of tribunal or court in respect of business reorganisation.
When the National Company Law Tribunal (NCLT) or another competent court passes an order approving a merger, demerger, or business restructuring, the effective date of reorganization becomes binding for tax purposes as well.
This means:
- The successor must consider all incomes, expenses, assets, & liabilities of the predecessor entity as per the tribunal order.
- Tax returns filed earlier by the predecessor become irrelevant, as the successor now takes over.
- Assessments, appeals, or proceedings against the predecessor can also be continued against the successor.
Thus, Section 170A works in harmony with the tribunal’s order to ensure tax compliance is in line with business reality.
Practical Example of Section 170A
Suppose XYZ Ltd. merges with ABC Ltd. effective 1st January 2025, based on an NCLT order.
- XYZ Ltd. had already filed its income tax return for FY 2024–25, showing profits till December 2024.
- After the order, ABC Ltd. (the successor) is required to file a revised return under Section 170A. This revised return will reflect XYZ Ltd.’s income up to the merger date along with ABC Ltd.’s own income.
This ensures one consolidated return is available for tax assessment, avoiding confusion & litigation.
Importance of Section 170A in Business Reorganizations
Section 170A plays a crucial role in modern corporate taxation because:
- Corporate restructuring is common in today’s business environment.
- Tax authorities need a clear mechanism to deal with reorganizations.
- Successor entities often inherit liabilities and benefits of the predecessor, and tax returns must reflect this.
- It avoids double taxation, duplication of compliance, and unnecessary litigation.
By mandating revised return filing by the successor, the law ensures smooth compliance and accountability.
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Common Questions on Section 170A
- Who can file revised returns under Section 170A?
Only the successor entity after a business reorganization can file the revised return.
- What if the predecessor already filed a return?
That return will be revised by the successor, as per tribunal/court order.
- Is there a time limit for filing?
Yes, the revised return must be filed within the time limit of Section 139(5).
- Can losses of the predecessor be carried forward?
Yes, subject to conditions under the Act & tribunal’s approval, the successor can carry forward such losses.
- What happens to pending assessments of the predecessor?
They will continue against the successor, as the law treats the successor as inheriting the obligations of the predecessor."
Conclusion
Section 170A of Income Tax Act is a forward-looking provision that simplifies compliance in cases of business reorganization. It mandates successors in business reorganizations to take responsibility for filing revised returns, ensuring that tax authorities deal with one consolidated entity post-merger or demerger.
By aligning tax compliance with the effect of order of tribunal or court in respect of business reorganisation, the section ensures fairness, transparency, and efficiency.
If your company has recently undergone a merger, demerger, or restructuring, it’s important to comply with Section 170A to avoid tax notices & penalties.
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