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TMI BlogEnforcement and Recovery of Tax on Accreted Income : Clause 352(8) & (9) of the Income Tax Bill, 2025 Vs. Section 115TF of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in default and the extent of their liability. These provisions are critical in ensuring the effectiveness of the tax regime for NPOs, particularly when such entities deviate from their intended charitable purpose or undergo structural changes such as dissolution, merger, or conversion. Section 115TF of the Income-tax Act, 1961, introduced by the Finance Act, 2016, and subsequently amended, contains analogous provisions regarding the liability and recovery of tax on accreted income, particularly in cases where the trust or institution fails to pay the tax due u/s 115TD. The present commentary undertakes a detailed analysis of Clause 352(8) & (9), followed by a comparative evaluation with Section 115TF, and discusses the practical, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be assessee in default: (a) the specified person and principal officer or the trustee of such specified person; (b) the person to whom any asset forming part of the computation of accreted income under sub-section (3) has been transferred, where the tax on accreted income is payable under the cases specified in sub-section (5) (Table: Sl. No. 9)." This provision operates in two parts: * General Liability: The specified person (i.e., the NPO/trust) and its principal officer or trustee are deemed to be assessees in default if they fail to pay the tax on accreted income. This triggers the application of the entire machinery of the Income Tax Act for recovery, including attachment of property, garnishee proceedings, and other en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiple Assessees in Default: The provision contemplates joint and several liability of the NPO, its principal officer/trustee, and, in certain cases, the transferee. This multi-pronged approach is intended to prevent evasion through asset dissipation or transfer. * Scope of "Asset" and "Capability of Meeting Liability": The phrase "to the extent to which the asset received by him is capable of meeting the liability" may give rise to interpretative questions, particularly where assets have depreciated, been alienated, or are otherwise encumbered. The provision appears to contemplate a tracing mechanism, but practical enforcement may require further rules or judicial clarification. * Specificity to Dissolution Cases: The transferee liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers, and sub-section (2) extending liability to transferees in cases covered by section 115TD(1)(c) (i.e., failure to transfer assets upon dissolution). Practical Implications * For Non-Profit Organisations: These provisions create a strong disincentive against non-compliance with the rules governing tax exemption, registration, and asset transfers. NPOs must ensure that, upon dissolution or loss of registration, assets are properly transferred to eligible entities, or else face a substantial tax liability at the maximum marginal rate. * For Trustees and Principal Officers: The deeming provisions make officers personally liable as assessees in default, exposing them to the full range of recovery proceedings. This underlines the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s liability is limited to the value of the asset received and its capability to meet the liability. Scope of Application Applies to all cases of accreted income tax liability as per Clause 352(5), but transferee liability is only for dissolution cases. Applies to all cases of accreted income tax liability as per section 115TD, but transferee liability is only for dissolution cases. Procedural Provisions All provisions of the Act for collection and recovery apply. Explicit mention of principal officer/trustee as liable. All provisions of the Act for collection and recovery apply. Explicit mention of principal officer/trustee as liable. Terminology Uses "specified person" as defined in the Bill; aligns with modernised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability. * Terminological Clarity: The 2025 Bill consistently uses "specified person, principal officer or trustee," reflecting a modern and inclusive approach to organisational forms. Ambiguities and Issues in Interpretation * Asset Tracing and Enforcement: The practical application of the limitation "to the extent to which the asset received...is capable of meeting the liability" may require further rules, especially where assets have changed form, depreciated, or been encumbered. * Overlap with Other Laws: In cases of dissolution, merger, or winding up, other laws (such as state trust laws or company law) may also regulate asset transfers. Coordination and precedence between tax recovery and other creditors may be a source of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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