Sections 284 and 285 of Income Tax Act 1961: Discontinued Business and Liaison Office

Section 284 deals with service of an income-tax notice where an assessment is to be made after discontinuance of a business or profession under Section 176. Section 285 deals with the prescribed statement to be furnished by a non-resident having a liaison office in India.

Applicable-law note: Section 285 was amended by the Finance (No. 2) Act, 2024 with effect from 1 April 2025 so that the filing period is prescribed by the Income-tax Rules instead of being fixed in the section itself. For evidence-law questions arising before 1 July 2024, this article refers to the Indian Evidence Act, 1872 and the Information Technology Act, 2000, subject to the special provisions of income-tax law.

Section 284 - Service of notice in the case of discontinued business

Section 284 applies where an assessment is to be made under Section 176 of the Income Tax Act, 1961. Section 176 contains special provisions relating to a business or profession that has been discontinued and certain related situations.

Who may be served?

The Assessing Officer may serve the notice on the person whose income is to be assessed. The section also specifies recipients for particular forms of business organisation:

Firm or association of persons: any person who was a member of the firm or association at the time of discontinuance.
Company: the principal officer of the company.

Contents and effect of the notice

The notice may contain all or any of the requirements that may be included in the return-related notice referred to by Section 284. The Income Tax Act then applies, so far as may be, as if the notice were issued under that return provision. The object is to preserve an effective assessment procedure even though the underlying business has ceased.

Meaning of principal officer

The expression "principal officer" is defined in Section 2(35) of the Income Tax Act. In relation to a company, it includes specified managerial persons and may also include a person connected with management or administration whom the Assessing Officer has notified of the intention to treat as the principal officer.

Section 285 - Statement by a non-resident having liaison office

Section 285 applies to every non-resident having a liaison office in India set up in accordance with the applicable Reserve Bank of India framework under the Foreign Exchange Management Act, 1999. The non-resident must prepare and deliver, or cause to be delivered, a prescribed statement concerning the liaison office's activities in the relevant financial year to the Assessing Officer having jurisdiction.

Meaning of liaison office

A liaison office is an office established in India by a person resident outside India under the foreign-exchange regulatory framework for permitted liaison or representative activities. Its permitted functions and conditions are governed by the applicable FEMA and Reserve Bank of India framework.

Time limit - important amendment from 1 April 2025

The earlier text of Section 285 required the statement within sixty days from the end of the financial year. The Finance (No. 2) Act, 2024 amended the provision with effect from 1 April 2025 so that the statement is to be furnished within the period prescribed by the rules. Accordingly, the applicable Income-tax Rules and prescribed form should be checked for the relevant year rather than relying on the former sixty-day period.

Form and particulars

The statement must be furnished in the prescribed form and contain the prescribed particulars regarding the activities of the liaison office. Historically, the reporting framework has used Form No. 49C. The current rule and form applicable to the relevant year should be verified before filing.

Penalty for failure to furnish the statement

From 1 April 2025, Section 271GC provides a specific penalty framework for failure to furnish the statement required under Section 285 within the prescribed period. Section 273B provides reasonable-cause protection for specified penalty provisions, including the Section 271GC framework. The facts, period of default and applicable statutory text should be checked before determining penalty exposure.

Sections 284 and 285 - Key differences

Section 284	Section 285
Concerns service of notice after discontinuance of business.	Concerns annual reporting by a non-resident having an Indian liaison office.
Operates where assessment is to be made under Section 176.	Operates where the liaison office is set up under the applicable RBI and FEMA framework.
Identifies persons on whom the notice may be served.	Requires a statement in the prescribed form, particulars and period.
Procedural provision supporting assessment after discontinuance.	Information-reporting obligation with a specific penalty framework for default from 1 April 2025.

Evidence law before Bharatiya Sakshya Adhiniyam, 2023

For disputes arising before 1 July 2024, proof of paper and electronic documents was generally governed by the Indian Evidence Act, 1872 together with the Information Technology Act, 2000, subject to the special provisions of the Income Tax Act and Income-tax Rules. In a Section 284 matter, relevant evidence may include records showing discontinuance, constitution of the firm or AOP, membership at the relevant time, status of the principal officer, notice records and proof of service.

For Section 285, relevant records may include RBI or authorised-dealer approvals, FEMA records, the liaison-office registration and activity documents, the prescribed statement, filing acknowledgement and electronic filing records.

Income-tax Act 2025 and transition

The Income-tax Act, 2025 came into force on 1 April 2026. For any proceeding, notice or reporting obligation around the transition, identify the relevant tax year, date of discontinuance, date of notice, financial year of liaison-office activity and applicable savings or transition provisions before applying the corresponding provision of the new Act.

Official references

Important: For Section 284, verify the Section 176 assessment context, legal status of the discontinued entity, correct recipient and service records. For Section 285, verify the current prescribed period, form, jurisdiction and RBI or FEMA status for the relevant financial year.