Liability of Legal Representative of a Deceased Person [Section 159]

Death is inevitable and so are the taxes. We live in a country where a person’s obligation to pay taxes does not cease even after his/her demise. Even after death, a person cannot be absolved of his tax liability. If the income earned by the deceased during the year up to the date of his demise falls into the income-tax bracket, then the tax liability is required to be discharged on his behalf by the person as specified under the Income-tax Act.

Benjamin Franklin has rightly said that “In this world, nothing is certain except death and taxes”.

Upon death of a person, the legal heirs of such deceased person are required to pay the tax dues and may be subjected to interest and/or penalty in case of non-payment of the tax due and/or not filing the income tax return of the deceased.

Applicable Provisions of the Income Tax Act, 1961

The provisions of Section 159 of the Income Tax Act, 1961 are applicable to the legal heir/representatives. Section 2(29) of the Income Tax Act of 1961 stipulates that the meaning of legal representative assigned to it in Clause (11) of Section 2 of the Code of Civil Procedure 1908 would apply to the Income Tax Act, 1961. Section 2 (11) of the Code of Civil Procedure 1908 stipulates that a legal representative means a person who in law represents the estate of a deceased person and includes any person who intermeddles with the estate of the deceased. It also includes a party who sues or is sued in a representative character on whom the estate devolves on the death of the party so suing or sued.

When a person dies, the assessment of his income pertaining to the period prior to his death would be pending. Courts held in the past that an assessment cannot be made on a dead person and, if so made, would be a nullity in the eyes of law. In order to overcome this conundrum, section 159 was inserted in the Income-tax Act, 1961 to enable assessment of income of a person who was alive during the relevant financial year but had died before filing the return of income or before the income was assessed.

Hindu Undivided Family (HUF) - Section 159 applicable

HUF is a legal entity and not a nature personal or living person who can die and hence cannot be regarded as deceased person. Section 159 and 168 are applicable only to a natural person. Further, on the death of Karta of HUF, the individual holding position of Karta dies and not the HUF. On the death of Karta of HUF, it cannot be said that family also died, nor the Karta can leave a Will in respect of properties held by HUF. The surviving member of the HUF have right under the Hindu law and under law of succession.

Liability of a Legal Representative in case of death of a person [Section 159(1)]

Section 159(1) provides that the legal representatives shall be liable to pay any sum which the deceased would have been liable to pay, had he not died, in the same manner and to the same extent as the deceased. The legal heirs are responsible for the payment of taxes, including interest and penalty due to deceased up to the date of death.

If a person dies intestate i.e., without writing a will, the estate left behind by him devolves on his legal heirs as per the law. However, if he made a will and an executor is being appointed, then the deceased person’s estate is taxed in the hands of the executor.

Text of Section 159(1)

159. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.

Assessment Proceedings against the Deceased [Section 159(2)]

In view of the provisions of Section 159(2) of the Income Tax Act, 1961 any assessment and reassessment proceedings under Section 143(2) or Section 147 against the deceased can be continued by impleading the legal representatives of the deceased assessee.

Section 159(2)(a) provides for continuation of proceedings against the legal representatives when initiated against the assessee when he was alive.

While Section 159(2)(b) permits proceedings to be initiated against the legal representatives as regards all proceedings which could have been taken against the deceased if he had survived.

Section 159(2)(b) provides that for the purpose of making assessment including reassessment etc., of the deceased, any proceedings, which could have been taken against the deceased if he had survived, may be taken against the legal representative and all the provisions of the Act shall apply accordingly.

Text of Section 159(2)

(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-section (1),—

(a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased;

(b)  any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and

(c)  all the provisions of this Act shall apply accordingly.

Legal representative of the deceased shall for the purpose of the Act be deemed to be an assessee [Section 159(3)]

Sub-section 3 of Section 159 provides that the legal representative of the deceased shall for the purpose of the Act be deemed to be an assessee. Thus, a legal representative is deemed to be an assessee for the purposes of the Act by virtue of section 159(3).

Text of Section 159(3)

(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.

Personal Liability of Legal Representative [Section 159(4)]

Section 159(4) of the Income Tax Act, 1961 states that where legal representative creates a charge on or disposes of or parts with any asset of the estate of the deceased, while the liability for tax on income of the deceased remains undischarged, the legal representative shall be personally liable for any tax payable by him in his capacity as legal representative. However, such liability is limited to the value of assets charged, sold or parted with. Note: in this case personal liability of legal representative shall be limited to only tax payable and not for interest or penalty charges.

Text of Section 159(5)

(5) The provisions of sub-section (2) of section 161, section 162, and section 167, shall, so far as may be and to the extent to which they are not inconsistent with the provisions of this section, apply in relation to a legal representative.

Legal heirs liability is limited to the assets they inherit [Section 159(6)]

The amount for paying the tax has to go out from the deceased’s estate. Liability of the legal representative is limited to the extent the estate is capable of meeting the liability and it does not extend to the personal assets of the legal representative.  The legal heir is not responsible for paying taxes from his own pocket with respect to inherited assets to which they do not have access. In other words, the liability of the legal heir would be limited to the assets of the deceased which are or might come into his possession.

For example, if a person receives Rs. 20,00,000 as his share from his father’s estate and his father’s tax liability was Rs. 25,00,000, the former cannot be made liable to pay more than Rs. 20,00,000. The liability of the legal heir shall be limited to the value of the asset charged, disposed of, or parted with.

If, however, the legal representative has disposed of any assets of the estate or creates charge thereon, then he may become personally liable. In such cases also, the liability will be limited to the extent of the value of the assets disposed of or charged.

Text of Section 159(6)

(6) The liability of a legal representative under this section shall, subject to the provisions of sub-section (4) and sub-section (5), be limited to the extent to which the estate is capable of meeting the liability.

Legal Heir Registration

Legal Heir Registration in e-Filing User should register as a Legal Heir to e-File on behalf of the deceased. Deceased person’s PAN and Legal Heir’s PAN should be registered in the e-Filing portal. If Deceased person PAN is not registered in the portal then the Legal Heir can register on behalf of the deceased person (This feature is provided for Individual user only) Steps involved in Legal Heir Registration – New Request

Step 1: Login to the Income Tax e-Filing Portal with your user ID and password. (User Id – PAN)

Step 2: Click Authorized Partners > Register as Representative Assessee.

Step 3 – Select Request type and Request Category – New Request and Add Legal Heir Request

Step 4 - Click on submit

Step 5 - Select the Type of Request – New Request

Step 6 - Enter the details of Deceased

· PAN

· Date of Birth

· Surname

· Middle Name

· First Name

Step 7 – Select the files to upload

Step 8 – Attach a Zip File with the below scanned documents

· Copy of the Death Certificate

· Copy of PAN card of the deceased

· Self-attested PAN card copy and

· Legal Heir Certificate Or Affidavit in presence of a Notary Public

Step  -     Click Submit Note: Following documents will be accepted as Legal Heir certificate.

· The legal heir certificate issued by court of law

· The legal heir certificate issued by the Local revenue authorities.

· The certificate of surviving family members issued by the local revenue authorities

· The registered will

· The Family pension certificate issued by the State/Central government.

Approval Process

Step 1 - Legal Heir New request will be sent to the e-Filing Administrator.

Step 2 - The e-Filing Administrator will verify the request and approve / reject as applicable.

After approval

Login of deceased is auto disabled and login in LH is enabled for both as self and as LH

Sometime LH login is not immediately enabled, so please wait for some time or raise grievance to request enabling of LH login.

Documents to be Uploaded

While registering as a legal heir of the deceased person on the incometax portal, the legal representative or executor is required to upload scanned copy of the following documents in a zip file, size of which shall not exceed 1MB:

·          Copy of Death Certificate

·          Copy of PAN card of the deceased person

·          Copy of PAN card of the legal heir

·          Copy of Legal Heir Certificate

Following documents are accepted as Legal Heir Certificate:

·        The legal heir certificate issued by the court of law

·        The legal heir certificate issued by the local revenue authorities

·        The surviving members certificate issued by the local revenue authorities

·        The registered Will

·        The family pension certificate issued by the State/Central Government

·        Letter issued by the banking or Financial Institution in their letter head, with official seal and signature mentioning the particulars of nominee or joint account holder to the account of the deceased at the time demise.

NOTE

A legal representative gets assessed in the PAN of the deceased, but in a representative capacity.

Surrendering of PAN Card of the deceased person

PAN is an important identification document therefore legal heirs should only after completion of all the necessary tasks such as filing of income-tax returns, closing bank accounts of the deceased and transferring assets, surrender the PAN Card of the deceased person. For this, they need to write an application to the Assessing Officer under whose jurisdiction PAN is registered. The letter should contain the reasons for surrender, name, PAN, date of birth of the deceased and a copy of death certificate.

Residential status of legal representatives of the deceased

The residential status of the legal representatives of the deceased shall be decided according to the residential status of the deceased person during the year in which his death took place. Therefore, income up to the date of death shall be assessable under section 159 of the Act on the legal representatives of the deceased. However, from the date of death till completion of administration of the estate and distribution of the property, it shall be assessable under section 168 of the Act in the hands of the executor or administrator.

Income of deceased person

All the income which is accrued or received from beginning of the financial year till the date of demise will be considered as the income of the deceased person. Further, tax on any income accrued or received from the assets that are inherited from the deceased will be borne by the legal heir himself. Further after receiving the inheritance, any income accrued or received from the asset will be considered as the legal heir’s own income.

Capital Gain Implications

As per Section 47 of the Income Tax Act, 1961, the transfer of capital asset under will shall not be regarded as ‘transfer’ and hence, no capital gains arise. Otherwise, subsequently if the legal heirs sell the inherited property, the amount will be charged to tax under the head Capital Gains as long term or short term Capital Gain depending upon the period of holding. For the purpose of ascertaining the holding period, the period of holding of deceased shall also be considered and accordingly benefit of indexation will be available.

Effect of transfer of capital asset intestate (death without will)

It is to be understood that transfer of assets on death is not actually transfer but transmission indeed. There is no consideration for the same. Hence, no capital gains shall arise in case of transfer by testate or intestate. For the recipient, the assets received are capital receipts and not income.

Section 56(2)(x) not apply

Section 56(2)(x), however, charges tax on receipt of assets without payment of adequate consideration. Fifth Proviso to Section 56(2)(x) thereto exempts receipt by way of will or by way of inheritance and therefore, such receipts are exempt in the hands of the legatee. However, any income earned from the inherited property will be chargeable to tax in the hands of the owner i.e., the legal heirs. The cost of acquisition shall be the cost to the previous owner and the period of holding shall include the holding period of the previous owner.

Carry Forward and Set Off of Losses by Legal heirs of a deceased

The underlying general principal is that the right of carry forward and set off loss is confined only to the person, who has actually suffered the loss and not others, Section 78(2) of the Act recognises an exception. That enables the legal representatives of a deceased person succeeding to the business of the deceased by inheritance and carrying on the business in such capacity to claim the right of carry forward and set off of loss. Before the benefit of s. 78(2) of the Act can be availed of, it is necessary to establish succession to the business or profession of one person by another by inheritance. If such succession is by a mode other than inheritance, then section 78(2) may not apply.

 

Legal heirs of a deceased-proprietor enters into partnership and carries on the same business in the same premises under the same trade name, there is succession by inheritance as contemplated in section 78(2) and assessee-firm is entitled to carry-forward and set-off of the deceased’s business loss against its income for subsequent years

Madhukant M. Mehta was running a proprietary concern, carrying on the business of speculation in shares, cotton and other commodities. He died on 23.03.1964, leaving behind his widow, a son and a daughter. On 22.04.1964, the three heirs of Madhukant M. Mehta entered into a partnership and executed a partnership deed wherein they agreed to carry on the said business of speculation under the same trade name. In its assessments, the assessee-firm claimed that it was entitled to carry-forward and set-off of the loss incurred by the deceased in his business against its income on the ground that they had succeeded by inheritance to the business of speculation carried on by the deceased. The ITO disallowed such set-off on the ground that there was no succession to the business of the deceased. The AAC rejected the assessee’s appeal, but on further appeal, the Tribunal allowed the set-off. The Tribunal held that succession by inheritance within the meaning of section 78(2) had occurred. The Tribunal also rejected the contention of the revenue that on account of the provisions of section 75(2), the assessee was not entitled to have the impugned loss carried-forward and set-off since the loss was that of the deceased and not its own. The High Court accepting the findings of the Tribunal, upheld the order of the Tribunal. On appeal :

Held : Having regard to the finding recorded by the Tribunal after taking into consideration the facts and circumstances, that the partners, as heirs, had succeeded to the business of the deceased, which finding had been accepted by the High Court no ground was made out for interference with the impugned judgment of the High Court. (Related Assessment years : 1965-66 to 1971-72) – [CIT v. Madhukant M. Mehta (2001) 247 ITR 805 : 166 CTR 393 : (2002) 124 Taxman 130 (SC)]

A firm consisted of two partners - On death of one partner said firm was dissolved and surviving partner together with assessee, who was the deceased partner’s wife, executed a fresh deed of partnership - Deceased partner was survived by two children besides assessee – Assessee’s interest in new partnership was not a case of succession by inheritance entitling her to claim carry forward and set off of losses incurred by her husband in earlier partnership - Tribunal was right in concluding that the assessee was not entitled to claim set off of the impugned business loss

Carry forward and set off of loss in case of succession to business by inheritance - A and B formed a partnership firm on 22.07.1945 by a deed of partnership. After A's death on 19.02.1972, his wife, the assessee, and B executed a fresh partnership deed on 23.02.1972 which, after referring to the death of A, stated that the earlier partnership was dissolved. The deceased partner had also a son and a daughter as heirs. The capital contribution of the assessee in the new partnership was stated to be the amount which stood to the credit of her deceased husband in the capital account of the firm as on the date of his death. As ‘A’ had incurred a loss of  Rs. 2,01,344 in the assessment years 1969-70 to 1972-73, the assessee claimed carry forward and set off of that loss in her assessment for 1973-74 on the ground that she had succeeded to the business of her husband by inheritance. The claim was not accepted by the ITO but on appeal, the AAC allowed the set off taking the view that section 78(2) was applicable. The Tribunal, however, restored the ITO’s order. On reference:

Held : Section 78(2) recognises an exception to the general principle that the right of carry forward and set off of loss is confined only to the person who has actually suffered the loss and not others. This exception enables the legal representatives of a deceased person succeeding to the business of the deceased by inheritance and carrying on the business in such capacity to claim the right of carry forward and set off of loss. Before the said benefit can be availed of it is necessary to establish succession to the business or profession of one person by another by inheritance. If such succession is by a mode other than inheritance, then section 78(2) may not apply.

In the instant case, the assessee could not project a claim that she had become entitled to the entirety of her deceased husband's interest in the partnership by inheritance when she had a son and a daughter who would also be Class I heirs along with her, under the Hindu Succession Act, 1956. It could not, therefore, be assumed that she had succeeded to the interest of her deceased husband in the partnership. At least as regards two-third share in the interest of the deceased in the partnership constituted under the terms of the partnership deed of 22.07.1945, the assessee could not claim to have succeeded to that interest of her husband. Further, the legal impact of the provisions of the Indian Partnership Act, 1932, would also render the claim of the assessee as one not based on any inheritance but relatable only to a contract. On the death of the assessee’s husband, the partnership stood automatically dissolved as it consisted of only two persons and there was no partnership which survived thereafter and into which a third party including the heirs of a deceased partner could be introduced. Moreover, the partnership deed of 23.02.1972 proceeded on the basis that the earlier partnership had been dissolved, and the assessee was taken as a partner after referring to and accepting the dissolution of that partnership. There was, therefore, no question of the assessee having succeeded to the interest of her husband by inheritance. Therefore, the Tribunal was right in concluding that the assessee was not entitled to claim set off of the impugned business loss. – [Smt. S. Parvathammal v. CIT (1987) 163 ITR 161 : (1984)  43 CTR 71 : (1985) 23 Taxman 219 (Mad.)]

Consequences if the Legal Representative is Taxable

For the purpose of making an assessment or reassessment of the income of the deceased and for the purpose of levying any sum in the hands of the legal representatives, the following procedure shall apply;

(i)    Any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from that stage;  

(ii)  Any proceedings, which could have been taken against the deceased if he had survived, may be taken against the legal representative;  

(iii)   All provisions of the Act shall apply accordingly;

(iv)    As per provisions of Section 159(3), the legal representative of the deceased shall be considered as deemed assessee;

For purpose of Act, legal representative of deceased assessee would be deemed to be an assessee

Subsequent to death of original assessee, appellant, as a legal heir of deceased assessee, filed return of income. Assessment was completed in name of deceased assessee. On appeal, Tribunal set aside assessment on ground that order passed against a dead person was a nullity and restored matter to Assessing Officer for passing de novo assessment order on right person. For purpose of Act, legal representative of deceased would be deemed to be an assessee as per section 159(3) and, therefore, Tribunal was justified in remanding matter to Assessing Officer for de novo assessment order on legal representative of deceased assessee. However, we clarify that the Assessing Officer has to pass denovo assessment order on the legal representatives of the deceased assessee in accordance with law. With this clarification, the appeal filed by the assessee stands dismissed. [In favour of revenue] – [Rudra Gouda v. ACIT, Bellari (2018) 93 taxmann.com 333 (Karn.)]

Legal representatives  

definition of the word legal representative is provided in Section 2(29) of the Income-tax Act, 1961. Section 2(29) of the Act adopts definition from the section 2(11) of the Code of Civil Procedure, 1908: ‘Legal representative’ means a person who in law represents the estate of a deceased person and includes any person who inter-meddles with the estate of the deceased and where a party sues or is sued in a representative character, the person on whom the estate devolves on the death of the party so suing or sued. The term legal representative includes an heir, executors, administrator or other legal representative.

It is important to note here that a legal representative assessed under this section 2(29) of the Act is different from a representative assessee to whom section 160 to 167 of the Act applies. A legal representative does not fall within any of the categories of representative assessee enumerated in section 160 of the Act.

The legislative history of the term ‘legal representative’ corresponds to section 24B of the Income-tax Act, 1922 which was as follows:

Section 24B: Tax of deceased person payable by representative:

Where a person dies, his executor, administrator or other legal representative shall be liable to pay out of the estate of the deceased person to the extent to which the estate is capable of meeting the charge of tax assessed as payable by such person, or any tax which would have been payable by him under this Act if he had not died.

The aforesaid section remained unchanged since its enactment till 1961. The above language made legal representative liable only for the tax assessed on, or payable by, deceased and casts no personal liabilities on the legal representative and did not deal step by step with the various stages of proceedings at the time of death.

The Income-tax Act, 1961 split up the charge of tax on the legal representative of the deceased assessee into two section, i.e. Section 159 and Section 168. These sections are redrafted provisions relating to the assessment of legal representative of the deceased persons contained in section 24B of Income-tax Act, 1922.

Provisions of Section 159 of the Income-tax Act, 1961 enables assessment being made and levy taxes on the income earned by the person who was alive during a previous year but died before the assessment proceedings could be completed. Death of a person does not relinquish him from the tax liability, his legal representative shall be obliged to pay any tax which the person would have paid had he been alive. This section is a machinery section and cannot be construed as to impose a tax liability on legal representative.

Legal heirs need to file returns for deceased

When a person dies, apart from his/her assets and liabilities, other things too get transferred to his legal heirs. It also includes the responsibility to file the last income-tax return on behalf of the deceased for income earned till the date of death and pay the taxes on the income so returned.

As per the law, in the case of a deceased person who has expired during the year, the responsibility for filing the return till the date of death shall be that of the legal heir. If a person dies intestate i.e., without writing a will, the estate left behind by him devolves on his legal heirs as per the law. However, if he made a will and an executor is being appointed, then the deceased person’s estate is taxed in the hands of the executor.

Any income earned after the date of death is taxable in the hands of the legal heir or executor of the deceased’s estate till the time assets under the estate are distributed to the legal heir/s. The returns have to be filed as if the deceased had not died, in the same manner and extent as the deceased did.

For Example, if Mr A dies on 10.12.2021 and is survived by his son say Mr B, the income tax return with respect to Financial Year 2021-22 (Assessment Year 2022-23) would be filed as follows:

(a)  The ITR for income from the beginning of the financial year i.e. 01.04.2021 to 10.12.2021 would

       be filed by Mr. B as legal heir of Mr. A.

 

(b)   The ITR for any income accruing or arising on or after 10.12.2021 would be filed separately by  

       the executor of the estate. The liability of the executor to file the return is only until the legal

       transfers are carried out. Once the assets are distributed, the legal heir would be liable to file the tax

       return

How many Returns are to be filed ?

In the event of death of a person, two income-tax returns are to be filed by the legal heir of the deceased. First return is to be filed by the legal heir for the period starting from the first day of the financial year to the date of death of the assessee. The second return is to be filed by the executor of the will of deceased person for the income earned by the deceased from the date of death to the end of the financial year. The executor shall obtain the PAN of the estate as well before filing of return. It is to be noted that if the total income of the legal heir, including the deceased person's income, exceeds Rs. 50 Lakhs, then the legal heir needs to provide details of all the assets held by him at the end of the financial year in Schedule AL-1 of the income-tax return.

Manner of computation of total income and filing of Income tax return of Deceased Person

Income of the deceased person for the purpose of computation can be categorized into following two:

(i)           Income earned from 1st April till date of his death; and

(ii)         Income earned after his date of death.

A bare perusal of the provision of section 159 indicates that where a person dies, his legal representative shall be, inter alia, liable to pay tax on the income of the deceased in the same manner as the deceased would have paid if he had not died. Any proceedings taken against the deceased before his death shall be continued against the legal representative and, further, any proceedings which could have been taken against the deceased if he had survived may also be taken against the legal representative. The crux of the matter is that legal representative is, inter alia, liable to pay tax in respect of income of the deceased from the beginning of the year up to the date of his death.

When one reads section 159 in juxtaposition to section 168, the position which emerges is that whereas the income earned by the deceased up to the date of his death is chargeable to tax in the hands of legal representative and thereupon income arising from the estate of the deceased after the date of his death up to the date of complete distribution is chargeable to tax in the hands of executors on year to year basis. Thus, income of a deceased for the year of his death is bifurcated into two parts, viz., up to the date of his death which is taxed in the hands of legal representatives and from the date of his death till the year ending or up to the date of complete distribution to the beneficiaries, whichever is earlier, in the hands of the executors.

Legal provisions can be summarised as under:

 

Sr. No.	Particulars	Tax treatment
1	Income arising to and received by the deceased during his lifetime	Would be assessed in the hands of the legal representative under section 159
2	Income arising to and received by the legal representative from the date of death	(i)  In case where estate need to be administered –       would be taxed in the hands estate under section         168 (ii) In case of where assets are directly inherited –       would be taxed on their hands
3	Income arisen in the hands of deceased but received after his death by the legal representative	It would be assessed in the hands of legal representative under section 159 along with the other income of the deceased which is received before the end of the accounting year in which he died
4	In case of person carrying on business / profession is discontinued due to his death	Any sum received after the discontinuance would be taxed as the income of recipient, in the year of receipt under section 176(3A)/(4)

 

Period of filing of return of Income

In case of demise of assessee, two return of income is required to be filed in the year of demise

The period and score of filing of return of income is as under:

Sr. No.	ROI	Scope of income	Onus of tax payment & filing of ROI
1	ROI - 1	Income arising between April 1 XXXX and up to the date of demise .	Legal Representative
2	ROI - 2	Income accruing to the deceased between from date of demise and March 31, XXXX	Testate Demise - Executor(s) of the estate; Intestate Demise – Legal heirs

Provisions of section 159 do not extend to tax liability of the estate of a deceased person beyond the previous year in which that person dies

Section 159 of the Income-tax Act, 1961 [Corresponding to section 24B of the Indian Income-tax Act, 1922] - Deceased, who was one of three partners of firm of solicitors which kept its accounts on cash basis, died on 07.07.1949 and outstandings of firm in respect of work done prior to 07.07.1949 which were realised during five years relevant to assessment years 1950-51 to 1954-55 were divided between those partners and certain sums of money were paid out to heirs and legal representative of deceased. Legal personality of deceased assessee, which ordinarily ceased after his death, is extended by section 24B for duration of entire previous year in course of which he died so that income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year becomes assessable to income tax in relevant assessment year. Thus, legal representatives by fiction of law, become assessee but that fiction cannot be extended beyond object for which it is extended.

Any income received in the year subsequent to the previous or the account year cannot be called income received by the person deceased. The provisions of section 24B do not extend to tax liability of the estate of a deceased person beyond the previous or the account year in which that person dies.

In the instant case, the amounts which were sought to be taxed and which had been held not to be liable to tax were those which were not received in the previous year and were therefore not liable to tax in the several years of assessment. It could not be said that they were income which might be deemed by fiction to have been received by the dead person and therefore they were not liable to be taxed as income of the deceased and were not liable to be taxed in the hands of the heirs and legal representatives who could not be deemed to be assessees for the purpose of assessment in regard to those years.

In view of aforesaid, section 24B did not authorise levy of tax on receipts by legal representatives of deceased person in years of assessment to succeeding years of account being previous year in which such person died. [In favour of assessee] (Related Assessment years : 1950-51 to 1954-55) - [CIT v. Amarchand N. Shroff (1963) 48 ITR 59 (SC)] 

Income earned before the date of death

The income-tax return will be required to be filed as if the deceased had not died in the same manner and extent as the deceased did for income earned before the death. The legal representatives of the deceased person are liable file return of income and pay advance tax instalments, self-assessment tax, interest etc., for the period starting from the April 1st of the financial year up to the date of the death.

However, the liability of the legal representative shall be limited to the estate dwelled upon him, ie, he is not required to pay anything out of his pocket. Income-tax return shall be filed in the PAN of the deceased person, however under the capacity of legal representative.

Income earned after the date of death

Income earned after the date of death – income accruing on the estate of the deceased is taxable in the hands of executor under section 168 of the Act. However, section 168 is applicable only in case where there is a Will (Testate death).

Income earned by deceased up to date of his death is chargeable to tax in hands of legal representative and thereupon income arising from estate of deceased after date of his death up to date of complete distribution, is chargeable to tax in hands of executors on year to year basis

Section 159, read with section 168, of the Income-tax Act, 1961 - Legal representatives (Taxability of income) - In view of provisions of section 159, read with section 168, income earned by deceased up to date of his death is chargeable to tax in hands of legal representative and thereupon income arising from estate of deceased after date of his death up to date of complete distribution, is chargeable to tax in hands of executors on year to year basis. (Related Assessment year : 1992-93) – [B. D. Gupta & Sons v. ITO (2015) 70 SOT 16 : 60 taxmann.com 38 (ITAT Delhi)]

Assessee, having succeeded to her husband’s business of sole selling agents on his death, received certain amount as refund of sales tax from a firm which had recovered sales tax from assessee's husband - ITO brought to tax said receipt under section 41(1) - Act does not contain any provision making a successor in business or legal representative of an assessee to whom an allowance has been already granted, liable to tax under section 41(1) in respect of amount remitted and received by successor or legal representative - Therefore, in instant case, assessee’s husband having died, revenue could not tax amount in question under section 41(1)

The assessee carried on business as sole selling agent of a firm. The assessee had succeeded to the said business after the death of her husband. The said firm had earlier recovered certain amount of sales tax from the assessee’s husband. On appeal filed by said firm, however, the Assistant Commissioner of Sales Tax remitted the sum so recovered by the firm. Consequently, the firm refunded that amount to the assessee. During the relevant accounting period, the ITO sought to tax this amount under section 41(1) after rejecting the assessee’s contention that the income, if at all, was the income of her deceased husband and not her income. On second appeal, the Tribunal held that the assessee was not liable to pay tax on that amount since the allowance or deduction in question had been obtained by a different assessee namely, her husband. On reference, the High Court affirmed the Tribunal’s decision. On appeal before the Supreme Court :

Under the general law if a trading liability has been allowed as a business expenditure and if this liability is remitted in any subsequent year, the amount remitted cannot be taxed as income of the year of the remission nor can the account for the year in which the liability was allowed be reopened or adjusted. Section 41(1) was enacted to supersede this principle but this section could apply only to the assessee. In the instant case if the husband of the assessee had been alive and had received the amount which had been remitted during his lifetime, he would certainly have been liable to pay tax under the provisions of section 41(1). But the husband having died and his widow being the 'assessee' she could not possibly be brought within the section. The Act does not contain any provision making a successor in business or the legal representative of an assessee to whom an allowance has already been granted, liable to tax under section 41(1) in respect of the amount remitted and received by the successor or the legal representative. The assessee within section 41(1), having died, the revenue could not take any advantage of its provisions. The High Court rightly observed that the question whether the amount was liable to tax as the personal income of the assessee did not arise in the instant case in which the sole point to be decided was whether that amount was assessable in the assessee’s hands under section 41(1). Therefore, the amount in question was not liable to tax under section 41(1). [In favour of assessee] Assessment year 1962-63 -– [CIT v. Hukumchand Mohanlal (1971) 82 ITR 624 (SC)]

In case of an intestate death (i.e. there is no valid Will)

In case of an intestate death (i.e. there is no valid Will) of a person, the estate of the deceased falls into the hand of legal heir as per the law of succession, who would be the legal representatives and liable under section 159 of the Act. Estates of persons dying intestate can also be subjected to administration and administration can be granted to the persons specified in section 218 or section 219 of the Indian Succession Act. Letters of administration, as provided in section 220 of that Act, entitle the administrator to all rights belonging to the intestate as effectually as if the administration had been granted at the moment of his death.

One ‘B’ having acquired immovable properties out of his own funds, died intestate without executing any will, no HUF consisting of his family members came into existence after his death and, thus, income earned from aforesaid properties could not be brought to tax in hands of assessee-HUF

One ‘B’ earned income from house property and running sports business. He died intestate and litigation cropped up amongst family members of ‘B’ on question of distribution of his properties. High Court held that immovable properties and sports business were acquired by ‘B’ with his own funds and not with funds of HUF. High Court determined undisputed share of all family members at 60 per cent. One ‘R’, a family member of ‘B’, filed return for year under consideration declaring remaining 40 per cent of income in hands of assessee-HUF. Assessing Officer, however, taxed 100 per cent of income as income of HUF. Since properties belonged separately to ‘B’ before his death and he died intestate without executing any will, no HUF ever came into existence. Therefore, impugned order directing income to be taxed in hands of assessee-HUF, was not sustainable. [In favour of assessee] (Related Assessment year : 1992-93) – [B. D. Gupta & Sons v. ITO (2015) 70 SOT 16 : 60 taxmann.com 38 (ITAT Delhi)]

In case of a testate death (where valid Will is created before the death) income earned after the date of death shall be taxable under section 168 of the Act in the hands of the Executor / Administrator 

Section 168 deals with the income of the undistributed estate of a deceased person. This section is intended to apply only to income from estate of persons who have died testate. It is made chargeable to tax in the hands of the executors. Such income is to be assessed separately from the date of death of the deceased person to the date of complete distribution of his estate to the beneficiaries. The income is to be assessed in the hands of the executors, excluding therefrom any income of any specific legatee during the previous year. Income so excluded is to be included in the total income of such specific legatee for that year. - [CIT v. P. Manonmani (2000) 245 ITR 48 : 164 CTR 139 : (2001) 114 Taxman 750 (Mad.)]

Assessment proceedings against a dead person

On the death of an assessee, the legal representative of the deceased is deemed to be an assessee. All the proceedings taken against the deceased before his death are deemed to have been taken against the legal representative and would continue against the legal representative. Similarly, any proceedings, though not commenced, but could have been initiated against the deceased, had he survived, can be taken against the legal representative. The liability of the legal representative would be confined to the extent to which the estate of the deceased is capable of meeting the liability.

After issue of notice under section 143(2) assessee dies and assessment completed in the name of legal representatives without issue of notice

Where a notice under section 143(2) has been issued to the assessee and subsequently he dies, the Assessing Officer cannot complete the assessment merely by passing the assessment order in the name of the legal representatives. The Assessing Officer is required to issue fresh notices under section 143(2) r.w.s. 159(2) to the legal representatives of the deceased, if the same is not barred by limitation of time. In the absence of issue of proper notice, whole proceedings are liable to be quashed on the grounds of violation of principle of natural justice.

After expiry of assessee, a notice was issued to one ‘S’ under section 142(1) and assessment was completed making certain addition to taxable income of deceased assessee, in view of fact that there was no evidence on record showing that ‘S’ was legal heir of deceased assessee, impugned addition was to be deleted

For relevant year, deceased assessee filed return declaring certain taxable income. After his death, a notice under section 142(1) was issued to ‘S’ i.e. alleged legal heir of deceased assessee - Subsequently, assessment was made in name of ‘S’ making certain addition to income of deceased assessee. It was noted that there was no evidence on record showing that ‘S’ was legal heir of deceased assessee. Moreover, deceased assessee had executed a will declaring that all his immovable and movable properties would devolve on trust and nothing of his estate devolved on ‘S’ i.e. alleged legal heir. In view of aforesaid, ‘S’ could not be regarded as legal heir of deceased assessee and, therefore, impugned addition made by Assessing Officer was not sustainable. [In favour of assessee] (Related Assessment year : 2014-15) – [ITO v. Rathindranath Bhattacharya (2019) 179 ITD 349 : 110 taxmann.com 302 (ITAT Kolkata)]

Assessing Officer passed an assessment order after death of assessee without issuing notice under section 159 to any of legal representatives - Order passed by Assessing Officer was null and Assessing Officer was to be directed to comply with section 159 for passing appropriate orders of assessment after due notice to legal representative of deceased assessee

One Dalumal Shyamumal was an assessee. For the assessment year 1990-91, the Assessing Officer passed an assessment order on 24.02.1993 under section 143(3) of the Act. It is not in dispute that assessee had expired prior to passing of the assessment order. It is also not in dispute that Assessing Officer had the knowledge of the death because a letter to that effect was sent to Assessing Officer on 11.07.1991 i.e. much prior to passing of order on 24.02.1993. It is also not in dispute that no notice as contemplated under section 159 of the Income-tax Act was sent to any of the legal representatives of assessee. In a case where an assessee dies pending any assessment proceedings, the provisions of section 159 of the Act gets attracted. It is the duty of Assessing Officer to ensure compliance of sub-section (2) of section 159 before any orders are passed. In our opinion, the Tribunal while deciding the appeal ought to have taken note of section 159 ibid and should have accordingly, remanded the case to Assessing Officer for ensuring compliance of section 159 for passing appropriate orders of assessment after due notice to legal representative of deceased assessee. Indeed, once the assessment order is held to be a nullity then in such event consequential direction as contemplated under section 159 of the Act should have been given to Assessing Officer so that proper assessment order could be passed. In this view of the matter, we answer the question against the Revenue. (Re;ated Assessment year : 1990-91) - [CIT v. Dalumal Shyanumal (2005) 276 ITR 62 : 194 CTR 362 : 144 Taxman 151 (MP)]

Assessment on a legal representative without notice to all the representatives is a procedural irregularity

It was held that where after death of an individual “B”, “J” one of his ten legal representatives filed returns and notice was issued to “J” under Sections 142(1) and 143(2) and he complied with it and the assessment was duly computed, omission to service notice to all legal representative of “B” was only an irregularity and not a nullity. – [CIT v. Jai Prakash Singh (1996) 219 ITR 737 : 85 Taxman 407 (SC)]

Procedural omissions will not nullify assessment, if legal repre­sentatives voluntarily take part in proceedings

Section 159, which merely prescribes the method for making assessment of tax in a special case, does not bear upon the initial jurisdiction of the taxing authority but deals with matters incidental to it. If the assessing authority, in the exercise of his jurisdiction, omits to take one or more of the various procedural steps therein laid down or in taking any or such steps commits an error or even deviates from the statutory mandate, the assessment would be null and void only if the omission, error or breach, as the case may be, is so fundamental as could not be waived because it affects inherent jurisdiction. If, however, the legal representative (which term includes plurality of persons) is present before the taxing authority in some capacity or voluntarily appears in the proceeding without service of notice or, upon service of notice not addressed to him but to the deceased assessee, does not object to the continuance of the proceeding against the deceased person and is heard by the ITO in regard to the tax liability of the deceased and invites an assessment on merits, such a legal representative must be taken to have exercised the option of abandoning the technical plea that the proceeding had not been continued against him, although, in substance and reality, it had been so continued. If and when an assessment order is consequently made in such proceeding in the name of the deceased assessee, even that would not be a nullity qua the legal representative, not only because he was afforded a full opportunity of being heard in respect of it but also because he, having not raised an objection at the appropriate time with regard to the continuance of the assessment proceeding against the deceased-person, must be taken to have known the inevitable outcome of the assessment being in the name of the deceased and to have opted to treat such an assessment as having been made as the legal representative against him and to have waived any objection as to its nullity on the said ground. Such an exercise of option on his part is not against public policy or public morality because the waiver is of a statutory provision which is conceived not in public interest but in the interest of the legal representative. It is obvious, therefore, that under such circumstances, the contravention of the relevant statutory provision would be a mere irregularity - maybe a gross irregularity - but not a nullity.

If the legal representative (which term includes plurality of persons) is present before the taxing authority in some capacity or voluntarily appears in the proceeding without service of notice or upon service not addressed to him but to the deceased assessee, and does not object to the continuance of the proceeding against the deceased person, and is heard by the ITO in regard to the tax liability of the deceased and invites an assessment on merits, such a legal representative must be taken to have exercised the option of abandoning the technical plea that the proceeding has not been continued against him although in substance and reality it has been so continued. It would not be open to him to take up a plea at the appellate stage, as a last resort and as an after-thought, that the proceeding taken and the assessment order made against the deceased are a nullity. – [CIT v. Sumantbhai C. Munshaw (1981) 128 ITR 142 : 5 Taxman 27 (Guj.)]

Legal representative must be specified by name

The petitioner in this case is Sahasrangshu Kanta Acharya who is one of the two sons of the late Maharaj Kumar Sitagshu Kanta Acharya of Mymensingh, who died on or about June, 5, 1952, leaving him surviving the said two sons and his widow, Srimati Reba Acharya. In 1952, the Court of Wards took charge of the management of the estate and in July, 1955, the estate was released. On or about July 29, 1955, August 27, 1955, and October 22, 1955, assessment of income-tax was made for the years 1952-53, 1953-54 and 1954-55 respectively. The assessment orders are annexure “A”, “A-1” and “A-2” to the petition. The point to be noted is the peculiar fashion in which the assessment orders were made. The name of the assessee was given as "successor-in-interest to the late Maharaj Kumar Sitangshu Kanta Acharya Bahadur." No name was given there either of any executor or administrator or legal representative. 

In an assessment made on the legal representative, the name of such legal repre­sentative must be specified. It will not suffice to describe him as “successor-in-interest”. Merely because a legal representative accepts the notice of demand it would not validate an assessment made on the legal representative describing him as “successor-in-interest” of a dead person without specifying his name. That being so, these assessment orders and certificate proceedings taken thereon cannot be supported and must be quashed. The result, therefore, is that this rule is made absolute and the impugned assessment orders being annexures “A”, “A-1” and “A-2” to the petition, all the certificates issue on the basis thereof and the certificate proceedings are all quashed by a writ in the nature of certiorari.  – [Sahas ­rangshu Kanta Acharya v. Collector of Malda (1963) 47 ITR 754 (Cal.)]

Search and seizure proceedings against a dead person

Search warrant issued under section 132 in the name of a dead person is invalid and void ab initio. No valid assessment can be made on strength of such an invalid search warrant. But where search warrant was issued against a dissolved firm as well as against other persons, the search could not have been held as invalid. Therefore, from this it follows that if search warrant includes name or names of live persons, in addition to the name of dead person, then search will not be held illegal. Thus, in a case of dissolved firm if search warrant was issued in the name of firm as well as assessee and his wife, search will be valid.

In terms of provision of section 159, proceedings can be continued against legal representative of deceased assessee only if same have already been started during lifetime of assessee - Therefore, where search proceedings were initiated after death of assessee, Assessing Officer was not justified in framing assessments on basis of said proceedings

The assessee died on 02.02.1990. Thereupon, a search under section 132 was conducted against the assessee on 16.09.1990. Pursuant to search proceedings, an assessment was framed wherein certain additions were made under section 69B. The legal representative of the assessee challenged the validity of said assessment on the ground that assessment could not be framed on a dead person.

There was no dispute to the fact that the assessee had already died on 02.02.1990 and the search was conducted thereafter on 13.09.1990. In such a situation, it was to be held that no assessment could be framed on a dead person because under section 159 proceedings could be continued against the legal representative of the deceased assessee only if the same had already been started during the lifetime of the assessee. In the instant case, since the assessee had already died on 02.02.1990 and the search was conducted after his death on 13.09.1990, no valid assessment could be framed on the deceased person. Another plea raised by the revenue was that section 159(2) was applicable as per which any proceeding which could have been taken against the deceased, if he had survived, might be taken against assessee’s legal representatives. Section 159(2) is subject to sub-section (1)(a) that any proceedings taken against the deceased person before his death shall be deemed to have been taken against the legal representatives and may be continued against the legal representatives from the stage at which it stood on the date of the death of the deceased. It can be said that no proceedings were taken against the assessee before his death, as the search took place after about 7 months of the death of the assessee, therefore, sub-section (2) of section 159 was not applicable to the instant appeal. Since in the instant case proceedings were initiated after the death of the assessee, the Assessing Officer was not justified in framing the assessments. Therefore, the assessments were to be set aside. Resultantly, appeal filed by the legal representative of the assessee (deceased) was to be allowed. [In favour of assessee] (Related Assessment years : 1989-90 and 1990-91) – [Late Smt. Laxmibai Karanpuria v. ACIT (2011) 135 TTJ 123 : 130 ITD 40 : (2010) 7 taxmann.com 113 (ITAT Indore)]

Reassessment Proceedings

In the case of reassessment of the deceased person, the reassessment notice must be issued to the executor who have been appointed under the will left by the deceased or legal representative. In case of deceased dies intestate and the administrators in his capacity as a legal representative. Reassessment relates to income which is alleged to have been received by the deceased during his lifetime before his death as alleged to have escaped assessment. Therefore, said legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died in the like manner and to the same extent as the deceased.

Sub-clause (a) of clause (2) of section 159 states any proceedings taken against the deceased before his death shall be deemed to have been taken against the legal representative. Reassessment relates to the income which is alleged to have been received by the deceased while he was alive and have escaped assessment. Therefore, said legal representative / executors shall be liable to pay any sum which the deceased person would be liable to pay in the like manner and to the same extent as the deceased.

Section 159(2)(b) would require a separate notice to be issued under section 148 within time prescribed under section 149(1)(b) as against legal representatives directly and if such proceedings are initiated beyond time prescribed under section 149(1)(b), such proceedings would not be valid

There is no dispute as regards the general proposition that proceedings against an assessee would continue even after his death as against his legal representatives and there would be no abatement of such proceedings. However, in the present case, the question is as regards the initiation of proceedings under section 148 vis-a-vis the legal representatives of the deceased. As noticed earlier, notice issued at the first instance on 28.03.2018 is as regards Kurkal and at that point of time, the said assessee was dead. Upon being informed that Kurkal had died, the department has issued notice to the legal representatives on 19.11.2018 and on 21.12.2018 under section 142 and hence, in effect, there was no notice to the petitioners with respect to the initiation of proceedings for reassessment under section 148. The proceedings under section 142 being a part of the reassessment proceedings, the starting point for initiation of proceedings under section 148 is issuance of notice, which notice to be valid is required to be issued within the time prescribed under section 149(1)(b). Notice issued against Kurkal being against a dead person, at the very inception would not be a tenable notice for initiation of proceedings under section 148 as regards the legal representatives insofar as any proceedings against the legal representatives are to be governed by section 159. While section 159(2)(a) provides for continuation of proceedings against the legal representatives when initiated against the assessee when he was alive. Clearly section 159(2)(b) would require a separate notice to be issued under section 148 within the time prescribed under section 149(1)(b) as against the legal representatives directly and if such proceedings are initiated beyond the time prescribed under section 149(1)(b), such proceedings would not be valid [In favour of assessee] (Related Assessment year : 2011-12) – [Mrs. Vanitha Gopal Shetty v. ACIT (2021) 129 taxmann.com 163 (Karn.)]

Reopening notice under section 148 issued against a dead person would be a nullity and; proceedings pursuant to a reopening notice issued to a dead person could not be continued against legal representatives

Reopening notice issued against a dead person would be a nullity. Proceedings pursuant to reopening notice under section 148 issued to a dead person could not be continued against legal representatives. Applicant in response to reopening notice issued in name of assessee i.e., his dead father had informed Assessing Officer about demise of his father, it could not be said that applicant had participated in reassessment proceedings. [In favour of assessee] (Related Assessment year : 2011-12) – [Urmilaben Anirudhhasinhji Jadejav. ITO (2020) 420 ITR 226 : 273 Taxman 481 : 117 taxmann.com 504 (Guj.)]

In view of the provisions of section 159(2)(b) it is permissible for the AO to issue a fresh notice under section 148 of the Act against the legal representative, provided that the same is not barred by limitation; he, however, cannot continue the proceedings on the basis of an invalid notice issued under section 148 of the Act to the dead assessee

Original assessee, namely Jayantilal Harilal Patel   died on 24.06.2015. AO issued a notice under section 148 in name of Jayantilal Hailal Patel to reopen assessment. Petitioner being heir and legal representative of Jayantilal Hailal Patel  informed AO that Jayantilal Hailal Patel  had already expired and, therefore, notice in his name was not valid. He also enclosed death certificate. AO disposed of objections raised by petitioner stating that since original assessee’s son-legal heir had received notice and replied to it, he had participated in proceedings and, thus, defect in issue of notice was automatically cured as per provisions of section 292B. Accordingly, Assessing Officer continued with reassessment proceedings against Jayantilal Hailal Patel. On writ allowing the petition the Court held that merely  because in response to notice issued against Jayantilal Hailal Patel  petitioner had informed Assessing Officer about death of assessee and asked him to drop proceedings, it could not, by any stretch of imagination, be construed as petitioner having participated in proceedings and therefore, provisions of section 292B would not be attracted. Accordingly the  issued under section 148 was to be treated as invalid. The Court has however observed that AO can issue fresh notice in the name of legal representative if it is not barred by the limitation. (Related Assessment year : 2011-12) - [Chandreshbhai Jayantibhai Patel v. ITO (2019) 413 ITR 276 :  308 CTR 737 : 261 Taxman 137 : 177 DTR 451 (Guj.)]

Reopening notice issued in name of a dead person would not be a valid notice

Notice issued under section 148 in name of a dead person would not be a valid notice.  Original assessee, namely, BHM died on 26.05.2017. Assessing Officer issued a reopening notice under section 148 in name of BHM on ground that on basis of information in Annual Information Return (AIR), it was found that said deceased assessee had sold one immovable property amounting to Rs. 82.89 lakhs but did not file any income tax return, thus, income to said extent had escaped assessment due to failure of BHM to submit her return of income.  Petitioner being heir and legal representative of BHM contended that BHM had already expired and, therefore, impugned notice in name of BHM was not valid. Impugned notice issued under section 148 against BHM was to be quashed and set aside. [In favour of assessee] (Related Assessment year : 2012-13) - [Bharti Harendra Modi v. ITO, Vadodara  (2019) 266 Taxman 314 : 109 taxmann.com 389 (Guj.)]

Initiation of reassessment proceedings, in absence of service of notices under section 148 on all LRs of deceased assessee was bad in law, being void ab initio

Deceased assessee was survived by two sons and one daughter as her Legal Representatives (LRs).  After expiry of assessee, proceedings were initiated under section 148. Assessing Officer, however, issued notice to only one son ‘P’ who participated in reassessment proceedings. Subsequently, ‘P’ raised an objection before Commissioner (Appeals) that since notice was not served on all legal representatives, reassessment proceedings were invalid. Commissioner (Appeals) rejected said objection holding that once ‘P’ voluntarily participated in reassessment proceedings, he could not take a stand at appellate stage that notice was not served upon all legal heirs. Rights and interest of LRs in estate of deceased cannot be taken away without giving them a proper opportunity of defending their rights and interest, in accordance with natural justice principle of audi alterem partem. Therefore, initiation of reassessment proceedings, in absence of service of notices under section 148 on all LRs of deceased assessee was bad in law, being void ab initio. [In favour of assessee] (Related Assessment year : 2008-09) – [Shanta Kapoor v. ACIT, Agra (2018) 93 taxmann.com 226 (ITAT Agra)]

Recovery proceedings

Recovery proceedings is already pending against the deceased at the time of the death, the recovery can be continued in the hands of legal representative vide rule 85 of schedule II of the Income-tax Act, 1961.

In the case of S. P. Adampariya v. ITO the view taken that the Tax Recovery Officer is empowered to continue recovery proceedings against legal representative of defaulter from stage at which it was left on death of defaulter and in said proceedings all provisions of Second Schedule would apply as if legal representative is defaulter.

Refund of excess tax paid by the Deceased

As the legal heir is held liable to pay tax on behalf of the deceased, on the same lines he will also be entitled to claim any refund due to the deceased. In other words, the legal representative of the deceased assessee is liable to receive the refund of the deceased in the same manner as he is liable to pay for any taxes. All he/she is required to do is to fill up the details of joint bank account while filing the income-tax return of the deceased person. If there is no joint account, then bank details of the legal heir shall be given. After the completion of the verification process by the jurisdictional Assessing Officer, refund will be issued. In order to dispense off with the verification process and claim of refund without any hassle, it is advisable not to close the primary bank account of the deceased person if any refund is to be claimed.

Refund due to legal representative in his individual capacity cannot be adjusted against arrears of tax of deceased father

Section 159, read with section 240, of the Income-tax Act, 1961 and article 226 of the Constitution of India - Legal representative - The petitioner was assessed under section 143(3) and on orders by the Commissioner (Appeals), he became entitled to receive certain amount by way of refund. This became final and no further appeals were preferred. When the petitioner applied for refund, the Assessing Officer declined to refund the amount due, on the ground that since the department had to recover Rs. 37.49 lakhs from the deceased father of the petitioner and since the petitioner had become or was a legal representative of his father under section 159(4), the same was to be adjusted against the dues of his late father. The petitioner thereupon filed the instant petition against the order/letter of the Assessing Officer.

 

Held : The Assessing Officer was not right in adjusting the refund amount payable to the petitioner against the outstanding dues of his late father by relying on section 159(4). The refund which had became payable to the petitioner was out of his personal case having no connection or/and nexus with that of the case of his late father. It was not the case of department that the refund which had became payable to the petitioner did not belong to petitioner but in fact belonged to his late father which the petitioner was now claiming in his capacity as legal representative of his late father.

In order to make the petitioner liable to pay the outstanding dues of his late father, it was necessary rather obligatory upon the revenue (Income-tax Department) to first prove that what was being paid or payable to the petitioner by the department was in fact the dues of his late father, secondly, the department was also entitled to recover the outstanding dues of petitioner’s late father only out of an estate belonging to petitioner’s late father which had devolved upon the petitioner as a legal representative. In other words, the department could only recover the outstanding dues of late father of petitioner out of the assets belonging to late father which by virtue of law of inheritance or by testamentary succession had gone in the hands of petitioner, i.e., son.

Neither it was the case of department nor efforts were made to show that the refund which the petitioner was claiming belonged to his father. On the other hand, it clearly appeared that what was being claimed by the petitioner was his own money out of his individual assessment case having no connection with the assets of his father. In view of aforesaid discussion, the petition succeeded and was allowed. However, it is made clear that the department is always free to recover the outstanding dues standing in the name of late Dayalji Mulji Bagadia, the father of petitioner, out of any property, movable or immovable, belonging to Dayalji Mulji and now devolved on any of his legal representatives including the petitioner. (Related Assessment years : 1986-87 and 1988-89 to 1992-93) – [Hasmukhlal v. ITO (2001) 251 ITR 511 : 168 CTR 474 : 117 Taxman 231 (MP)]

Income-tax refund can be received when it was claimed / it was ordered and thereafter only it can be received. Any interest on the said income-tax refund shall be treated as income of the legal representative / heir in their individual capacity and not as in their legal representative capacity 

Petitioners, as legal heirs, received income by way of interest on refund of amount deposited by their father, the original assessee. Father ‘P’ had passed away in 1990 and refund was received in accounting year 1994-95.  Petitioners contended that as per provisions of section 159, it could not be treated as their income and it was income of original assessee. Legal fiction under section 159 is only restricted for purpose of completing assessment proceedings for that year and any income received before death of original assessee and paid subsequent to his death to his heirs, but paid in same year, should be treated as income of assessee and legal representatives will be assessed on behalf of original assessee. Since, in instant case, interest on refund did not accrue before death of assessee and refund was availed only when it was ordered and it could be received only subsequently. The fiction could not be extended beyond what it was intended. It was then submitted that on the basis of equity, this interest should have been treated as income of the deceased. As it is well-known, tax and equity are strangers. Hence, income received by the petitioners as interest on refund of the amount deposited by the father, the original assessee, was to be treated as income of the petitioners. (Related Assessment year : 1995-96) -  [P.V. Chandran v. CIT (2001) 248 ITR 761 : 165 CTR 172 : 114 Taxman 599 (Ker.)]

Appeal proceedings in respect of dead person

An aggrieved person can file an appeal before CIT(A) against the order of the AO. If during the appeal proceedings the appellant dies, then appeal can be continued by his legal heirs. If on the other hand appeal was filed by the assessee when he was alive but during pendency of appeal before CIT(A) the appellant dies and CIT(A) decides the matter in favour of the deceased, then in the appeal if revenue makes the deceased as respondent then Tribunal is justified in holding such an appeal as nullity. If the order is passed by the Commissioner (Appeals) in the name of dead person, then the matter requireds re-adjudication by CIT(A)

Similarly, if tribunal disposes of an appeal on the assumption that deceased was alive which assumption was factually erroneous, then impugned order passed by Tribunal is to be set aside and legal representatives are to be substituted in place of deceased-assessee and fresh hearing to be done by the Tribunal.

Both revenue as well as assessee failed to file revised Form 36 by bringing on record legal heirs of deceased, appeal filed by them was to be abated as appeals cannot continue for or against a dead person

Appeals were filled by revenue as well as assessee against assessment orders. During hearing it was informed to Court that assessee had expired and therefore he will not be able to argue matter and time was sought to bring on record Legal Heirs, death certificate and revised Form 36. However, despite grant of various opportunities, neither legal hairs were brought on record nor revised Form 36 were filled by revenue and on behalf of assessee. A court notice was also issued, however none appeared on behalf of assessee. It is mandatory to file revised Form 36 after death of assessee, as appeals cannot continue for or against a dead person. However, despite knowing legal requirement by both sides, needful was not done in matter. Therefore, appeals filled by revenue/assessee shall stand abated, however, liberty was to be granted to both parties to file application for revival along with revised Form 36 in accordance with law. (Related Assessment years : 2003-04 to 2009-10) – [ACIT, Gwalior, M.P. v. Chironji Lal Shivhare (2021) 189 ITD 69 : 127 taxmann.com 645 (ITAT Agra)]

Since order was passed by Commissioner (Appeals) in name of dead person, matter was to be remanded to files of Commissioner (Appeals) for re-adjudication.

Section 159, read with section 2(29), of the Income-tax Act, 1961 and section 2(11) of the Code of Civil Procedure, 1908 - During course of assessment before Commissioner (Appeals), assessee breathed his (appellant) last breath - Said appeal was dismissed by Commissioner (Appeals). Assessee’s son being legal heir of assessee approached Tribunal. Tribunal held that appellant had not succeeded to estate of deceased and, consequently, he could not be termed as legal representative of deceased for purpose of proceedings under Act. Thus, appeal was held as legally not maintainable.

It is seen from Section 2(29) of the Income Tax Act, 1961 legal representative is defined to have the meaning assigned to it in clause (11) of section 2 of the Code of the Civil Procedure, 1908. Section 2(11) of Code of Civil Procedure, read with section 2 (29) of the Income Tax Act, states that 'legal representative' means a person who in law represents the estate of a deceased person and includes any person who intermediary with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued.

A reading of the ‘Will’ left by the deceased shows that the deceased had appointed his sons as executors of ‘Will’ and proceedings have been initiated before the Bombay High Court for probating the 'Will'. In the background of section 159 of the Income Tax Act, when the deceased had appointed the appellants-sons of deceased as the executors the said executors were competent enough to represent the estate of the deceased. The trust was created by the deceased only under the ‘Will’'. Since the deceased assessee was not alive on the date when the order of the Commissioner (Appeals) was made and that order cannot stand in the name of a dead person, in fitness of things the order of Tribunal needs to be set aside, so too the order of the Commissioner (Appeals). Since the assessment order had been passed prior to the date of the death of the deceased, further filing of the appeal by the deceased assessee was rightly done by the assessee. Accordingly, the orders of Commissioner (Appeals) and the Tribunal were set aside and the matter is remanded to the files of Commissioner (Appeals). The present appellant is hereby directed to take necessary steps to file a petition, bring the facts before the Commissioner (Appeals) so on to enable the Commissioner (Appeals) to pass orders on the right person representing the estate of the deceased. Thereafter, it is open to the executors to pursue the appeal remedy, if they are so advised, before the Income Tax Appellate Tribunal. [In favour of assessee] – [Ramesh M Mehta v. ACIT (2014) 222 Taxman 142 :  41 taxmann.com 76 (Mad.)]

Penalty Proceedings

The legal representatives of the deceased are liable to pay penalty on behalf of the deceased assessee pursuant to the provisions of Section 159(1). As per the terms of the Section legal representatives shall be liable to pay “any sum” which the deceased is liable to pay had he not died. “Any sum” here includes not only tax but also interest and penalty.

As per settled law, notice for reopening of assessment against a dead person is invalid. The fact that the Assessing Officer was not informed of the death before issue of notice is irrelevant. Consequently, the section 148 notice is set aside and order of assessment stands annulled

Petitioner was widow of ‘S’. For reopening of assessment, Assessing Officer issued a notice under section 148, dated 27.03.2018, in name of her late husband. Petitioner informed revenue department that she was widow and legal heir of deceased ‘S’, but Assessing Officer issued a notice under section 142(1). It was found that petitioner produced death certificate before revenue authorities, which indicated that her husband died on 14.10.2016. There are several judgments of different High Courts holding that the notice or reopening of assessment is invalid in law. A reference in this respect can be made to a decision of Gujarat High Court in the case of Chandreshbhai Jayantibhai Patel v. ITO (2019) 413 ITR 276 : 261 Taxman 137 : 101 taxmann.com 362 (Guj.). As also the decision of Madras High Court in the case of Alamelu Veerappan v. ITO (2018) 257 Taxman 72 : 95 taxmann.com 155 (Mad.). It is not necessary to refer to all the judgments on the point. Since impugned notice of reopening of assessment was issued against a dead person, same was invalid and was to be set aside along with assessment order. [In favour of assessee] (Related Assessment year : 2011-12) – [ Rupa Shyamsundar Dhumatkar v. ACIT (2020) 420 ITR 256 : 275 Taxman 453 : 120 taxmann.com 323 (Bom.)]

Unless penalty proceedings are concluded against a living assessee, legal heirs cannot be held liable to face those proceedings or pay any sum determined as penalty payable under section 271(1)(c) 

Section 271(1)(c), read with section 159 - For concealment of income (Legal representative) - Since the provisions of Section 271(1)(c) of the Act depend upon the guilty animus or mens rea on the part of the assessee concerned, naturally, as legal representative, the wife cannot be held liable to defend those penalty proceedings or be held guilty of any mens rea on the part of the husband. Therefore, unless the penalty proceedings are concluded against a living assessee, the legal heirs cannot be held liable to face those proceedings or pay any sum determined as penalty payable under section 271(1)(c) of the Act. [In favour of assessee] – [CIT v. S. Gowri (2020) 417 ITR 45 : 116 taxmann.com 764 (Mad.)]

Return filed by the deceased but penalty levied on the legal representatives - Penalty can be levied only on that person who has concealed the particulars of income or filed inaccurate particulars of income. Penalty was not levied on the same person - no penal proceedings had been initiated against assessee, when he was alive and, moreover, assessment had not been done in hands of legal representative, penalty could not be levied on legal representative

In the case before us, the assessee expired during the pendency of quantum appeal before this Tribunal and the legal representative withdrew the appeal. Now the legal representative of the deceased assessee claims before this Tribunal that they could not trace out any papers and they are not able to explain why the undisclosed income determined by the Assessing Officer exceeded the undisclosed income disclosed by the assessee in the return. The fact remains that the deceased assessee has disclosed the cost of acquisition of land in the VDI Scheme to the extent of Rs.18,41,238/-. The seized material, which was identified during the course of search operation, disclosed the investment to the extent of Rs.71,48,000/-. Therefore, the investment made by the deceased assessee is very much available before the assessing authority even before the date of search. Therefore, the deceased assessee may be in a better position to explain why Rs.18,41,238/- was disclosed in the VDI Scheme, 1997, when the actual investment was identified at Rs.71,48,000/-.

This Tribunal is of the considered opinion that the legal representative of the deceased assessee is handicapped because they could not trace out any papers after the expiry of the assessee. This impediment faced by the legal representative cannot be taken advantage by the Revenue authorities. This Tribunal is of the considered opinion that the power to levy penalty under Section 158BFA(2) of the Act is one thing and exercising of that power is entirely different. This Tribunal is of the considered opinion that the power to levy penalty has to be exercised judiciously. Therefore, mere withdrawal of the appeal pending before this Tribunal by legal representative cannot be presumed that the assessee could not explain the difference between the returned income and assessed income. This Tribunal finds that Punjab & Haryana High Court in CIT v. Tikka Ram through L/H Smt. Munni Devi (2008) 8 DTR 174, a copy of which is filed by the assessee, found that since the legal representative was ignorant of the source of impugned investment and was not in a position to explain the same, they accepted the notice issued by the Assessing Officer under Section 148 of the Act. Therefore, the disclosure made by the legal representative is a bonafide and voluntary. Hence, the penalty cannot be levied at all. This principle was laid down by Punjab & Haryana High Court in a proceeding for levying penalty under Section 271(1)(c) of the Act. This Tribunal is of the considered opinion that the same principle is equally applicable in respect of penalty levied under Section 158BFA(2) of the Act. Therefore, merely because the legal representative withdrew the appeal pending before this Tribunal after the expiry of the assessee Shri K.C.G. Verghese and the legal representative is not in a position to explain the source of investment, this Tribunal is of the considered opinion that that cannot be a reason for levying penalty under Section 158BFA(2) of the Act. This Tribunal is of the considered opinion that it is not a fit case for levy of penalty under Section 158BFA(2) of the Act. Accordingly, the orders of the lower authorities are set aside and the penalty levied under Section 158BFA(2) of the Act is deleted. – [CIT v. Late Dr. K.C.G.Verghese Rep By L/H Shri Anand Jacob Verghese – Date of Judgement : 20.02.2018(Mad.)]

Assessee dies after issue of notice of Penalty

Where the penalty proceedings are pending against the deceased assessee, same can be continued by impleading the legal representatives of the deceased in view of clause (a) of Section 159 (2) of the Income Tax Act.

On death of assessee, legal heirs should be issued fresh notice - If during the pendency of the penalty proceedings, assessee dies and no fresh notice is issued to the legal representatives, the penalty order passed will not be sustainable in view of the violation of principles of natural justice.

Whether where during pendency of penalty proceedings assessee died and, thereupon Assessing Officer without issuing a fresh notice to legal heir of deceased-assessee passed a penalty order, order so passed was not sustainable being violative of principles of natural justice - Held, yes - Assessee filed revised return wherein he disclosed a gift of Rs. one lakh received from one 'B' - Assessee's case was that though sum of Rs. 1 lakh was given by way of gift by 'B', when he was asked to give in writing for income tax purpose, he showed his inability to furnish details and hence assessee surrendered amount in revised return - Assessing Officer took a view that assessee had filed revised return because Investigation wing had already started investigation in many cases in respect of assessee. However, Assessing Officer had not brought any material on record to indicate that revenue was aware of non-genuineness of gift received by assessee. Further, Assessing Officer had not made any effort to prove either by obtaining statement from donor or otherwise, that gift was not genuine. It was not a case of furnishing inaccurate particulars of income. Pursuant to the majority view, the penalty under section 271(l)(c) of the Income-tax Act, 1961 is not leviable. Therefore, the order of the ld. CIT(A) confirming the penalty levied under section 271(l)(c) of the Act is set aside and the penalty levied under section 271(l)(c) of the Act is deleted. [In favour of assessee] (Related Assessment year : 2001-02) – [Jai Narain Upadhyay v. ACIT (2012) 148 TTJ 539 : 137 ITD 241 : 23 taxmann.com 242 (ITAT Lucknow) (TM)]

Any sum referred to in section 159(1) does not include penalty proceeding son legal representative under section 159(2) and, therefore, penalty imposed on legal heir is not justified

It is undisputed fact that the assessee expired on 22.11.2010. In this case, the assessment was completed on 17.12.2008 and penalty was imposed on 01.03.2011. It means that after the death of assessee. The case law referred by the assessee particularly the decision of Mumbai ITAT Bench in the case of Bhagwansingh Shriramsingh L/H Dinesh Bhawan Singh v. ITO (2006) 9 SOT 73 (URO) (ITAT Mumbai) is squarely applicable as any sum referred in Section159(1) does not include the penalty proceedings on the legal representative under section 159(2) of the Act. Therefore, penalty imposed on legal heir is not justified. Accordingly, we reverse the order of the ld CIT(A). [In favour of assessee] (Related Assessment year : 2006-07) – [Srikishan Agarwal v. DCIT, Sikar (2017) 88 taxmann.com 380 (2016) 48 ITR(T) 548 (ITAT Jaipur)]

Assessee dies before issue of notice of Penalty

In cases where no notice have been issued, penalty proceedings cannot be initiated against the deceased assessee. It is for the purpose of assessment of the deceased assessee and not for penalty purposes, that any proceedings which could have been taken against the deceased, had he survived, may be taken against the legal representatives. The proceedings under section 159(2)(b) do not include penalty proceedings.

Penalty proceedings can not be initiated under section 271(1)(c) against legal representatives for default committed by deceased-assessee, by taking recourse to section 159(2)(b)

The Assessing Officer imposed penalty on legal representative of deceased assessee under section 271(1)(c) by holding that as per section 159, penalty proceedings can be initiated against legal heir for default committed by deceased-assessee. On appeal, the Commissioner (Appeals) deleted the penalty. On revenue’s appeal :

It is for the purpose of assessment of the deceased-assessee and not for penalty purposes, that any proceedings which could have been taken against the deceased, had he survived, may be taken against the legal representatives [as has been provided in section 159(2)(b)]. The department had tried to make out a case that since section 159(1) uses the phrase ‘any sum’ and not the phrase ‘any tax’, the legal heir, in such a circumstance, is liable for the initiation of penalty proceedings for the act committed by the deceased-assessee. This is a palpable misconception of law. It has been time and again judiciously noticed that the Legislature chooses its words with utmost care and caution. In section 159, there is no mention of penalty proceedings. It is amply clear that proceedings under section 159(2)(b) do not include penalty proceedings. The department had not been able to effectively controvert this settled position. Therefore, the grievance of the department was ill-founded. It was, thus, rejected. As a result, the order of the Commissioner (Appeals) being well-reasoned, was to be maintained. [In favour of assessee] (Related Assessment year : 2001-02) – [ITO, Meerut v. V. P. Sharma (2006) 154 Taxman 34 (ITAT Delhi)]

Prosecution proceedings against a dead person

Prosecution proceedings under chapter XXII of the Income Tax Act, 1961 cannot be initiated against the legal representatives of the deceased assessee.

The provision of section 159 of the Act does not enables initiating prosecution proceedings against legal representative for offence committed by deceased. The prosecution for any offence like tax evasion would abate with the death of the deceased. The sections 159(6), 189(3) and 189(5) make it clear that they relate to the penalty imposable by the authorities of income-tax falling under Chapter XXI from section 271 and do not relate to the prosecution and offences falling under Chapter XXII from section 275A.

There cannot be an assessment of a non-existent person. Therefore, question of launching of prosecution against him will not arise. Where the person who is accused is not alive or dies during the prosecution proceedings the proceedings cannot be continued. Where the partnership business was wound up and the firm was dissolved and a public notice in the Government Gazette was issued declaring that accused ceased to be a partner in the firm, prosecution could not be sustained against the partner. But where the partner of the firm or the director of the company was actively involved in the affairs of the firm/company then prosecution can continue against them, even though the firm/company may be defunct.

Notice issued under section 153C against dead person is unenforceable in law; in such case revenue cannot contend that as they have no knowledge about death of assessee, they are entitled to plead that notice is not defective

Original assessee, namely ‘B’, passed away on 23.04.2017. Assessing Officer issued a notice under section 153C in name of ‘B’ on 29.03.2019 with regard to proceedings for assessment years 2011-12 to 2017-18. After receiving said notice legal heir informed Assessing Officer that his father, B had passed away and requested to drop proceedings as notice was issued to a dead person. Assessing Officer rejected objections raised by legal heir on ground that no information was provided about demise of B and even after his death income-tax returns were filed in name of B for assessment years 2017-18 to 2019-20. A notice issued under section 153C of the Act in the name of a dead person is void and cannot be saved by section 292B. The fact that the AO did not have knowledge of the death at the time of issuing the notice is immaterial as even when subsequently the fact of the death was informed to the AO there was substantial period of time within which a fresh notice could have been issued in the name of the legal heir, but that exercise was not done.  Issue of notice on dead assessee and consequent proceedings would be without jurisdiction and null and void. [In favour of assessee] (Related Assessment years : 2011-12 to 2017-18) – [CIT v. Bhupendra Bhikhalal Desai (2021) 283 Taxman 189 : 131 taxmann.com 40 (SC)]

 

Legal heirs of the deceased assessee are under no obligation to inform the income-tax department about the death of taxpayer - Notice under section 148 issued to deceased person is not valid - Not a curable defect- Existence of alternative remedy is not an absolute bar to issue of writ – Notice and order passed was quashed as without jurisdiction

The assessee, MPK, expired on December 21, 2018. A notice dated 31.03.2019 under section 148 was issued in his name. An assessment order was passed in the name of one of his legal representatives on 27.12.2019. On a writ petition to quash the notice and consequential proceedings.  Allowing the petition the Court held that the notice dated 31.03.2019, under Section 148 of the Act was issued to the deceased-assessee after the date of his death, December 21, 2018 and thus inevitably the notice could never have been served upon him. Consequently, the jurisdictional requirement under Section 148 of the Act, of service of notice was not fulfilled. Issuance of notice upon a dead person and non-service of notice does not come under the ambit of mistake, defect or omission. Consequently, Section 292B of the Act does not apply. Section 292BB is applicable to an assessee and not to the legal representatives. Section 159 of the Act applies to a situation where proceedings are initiated or are pending against the assessee when he is alive and after his death the legal representative steps into the shoes of the deceased-assessee. There is no statutory requirement imposing an obligation upon legal heirs to intimate the death of the assessee. An alternative statutory remedy does not operate as a bar to maintainability of a writ petition where the order or notice or proceedings are wholly without jurisdiction. If the Assessing Officer had no jurisdiction to initiate assessment proceedings, the mere fact that subsequent orders have been passed would not render the challenge to jurisdiction infructuous.( Referred  Whirlpool Corporation v. Registrar of Trade Marks (1998) 8 SCC  1,  PCIT v. Maruti Suzuki India Ltd (2019) 416 ITR 613 (SC) Sudha Prasad (Smt ) v. CCIT (2005) 275 ITR 135 (Jharkhand) distinguished. The notice dated 31.03.2019 and all consequential orders and proceedings passed or initiated pursuant thereto including orders dated 21.11.2019 and 27.12.2019 were quashed. (Related Assessment year : 2012-13) – [Savita Kapila Legal Heir of late Shri Mohinder Paul Kapila v. ACIT (2020) 426 ITR 502 : 316 CTR 465 : 273 Taxman 148 : 192 DTR 73 (Del)]

Reopening notice under section 148 issued against a dead person would be a nullity and; proceedings pursuant to a reopening notice issued to a dead person could not be continued against legal representatives

Reopening notice issued against a dead person would be a nullity. Proceedings pursuant to reopening notice under section 148 issued to a dead person could not be continued against legal representatives. Where applicant in response to reopening notice issued in name of assessee i.e., his dead father had informed Assessing Officer about demise of his father, it could not be said that applicant had participated in reassessment proceedings. In the result, this writ-application succeeds and is hereby allowed. The impugned notice is hereby quashed and set-aside. All consequential proceedings taken up pursuant to such notice also stand terminated. Rule made absolute. [In favour of assessee] (Related Assessment year : 2011-12) – [Urmilaben Anirudhhasinhji Jadeja v. ITO (2020) 420 ITR 226 : 273 Taxman 481 : 117 taxmann.com 504 (Guj.)]

Reopening notice issued in name of a dead person would not be a valid notice

A notice issued under section 148 in name of a dead person would not be a valid notice. Original assessee, namely, BHM died on 26.05.2017. Assessing Officer issued a reopening notice under section 148 in name of BHM on ground that on basis of information in Annual Information Return (AIR), it was found that said deceased assessee had sold one immovable property amounting to Rs. 82.89 lakhs but did not file any income tax return, thus, income to said extent had escaped assessment due to failure of BHM to submit her return of income.  Petitioner being heir and legal representative of BHM contended that BHM had already expired and, therefore, impugned notice in name of BHM was not valid. Impugned notice issued under section 148 against BHM was to be quashed and set aside. [In favour of assessee] (Related Assessment year : 2012-13) – [Bharti Harendra Modi v. ITO, Vadodara (2019) 266 Taxman 314 : 109 taxmann.com 389 (Guj.)]

When no inheritance, provisions of section 159 not attracted

Liability of a legal representative under Act is limited to extent to which estate is capable of meeting said liability. Therefore, where assessee did not inherit anything from his father and, moreover, he had nothing to do with his father’s bank account, impugned assessment order passed under section 144, read with section 147, on ground that there were huge deposits in said account in relevant year prior to death of his father, was not sustainable and, thus, same deserved to be set aside. [In favour of assessee] - [C. Naveen Kumar v. ITO (2019) 266 Taxman 74 : 108 taxmann.com 219 (Mad.)]

After expiry of assessee, a notice was issued to one ‘S’ under section 142(1) and assessment was completed making certain addition to taxable income of deceased assessee, in view of fact that there was no evidence on record showing that ‘S’ was legal heir of deceased assessee, impugned addition was to be deleted

For relevant year, deceased assessee filed return declaring certain taxable income. After his death, a notice under section 142(1) was issued to ‘S’ i.e. alleged legal heir of deceased assessee. Subsequently, assessment was made in name of 'S' making certain addition to income of deceased assessee. It was noted that there was no evidence on record showing that ‘S’ was legal heir of deceased assessee.  Moreover, deceased assessee had executed a will declaring that all his immovable and movable properties would devolve on trust and nothing of his estate devolved on ‘S’ i.e. alleged legal heir. In view of aforesaid, ‘S’ could not be regarded as legal heir of deceased assessee and, therefore, impugned addition made by Assessing Officer was not sustainable. [In favour of assessee] (Related Assessment year : 2014-15) – [ITO v. Rathindranath Bhattacharya (2019) 179 ITD 349 : 110 taxmann.com 302 (ITAT Kolkata)]

There is no obligation on the part of the legal representatives of a deceased assessee to intimate the death of the assessee or take steps to cancel the PAN registration. A notice issued in the name of a dead person is unenforceable in law. The fact that the Revenue had no knowledge about the death of the assessee does not change the law. The defect is fatal and is not curable u/s 292B. The legal representatives are liable u/s 159 only if proceedings have already been initiated when the assessee was alive and are continued against the legal heirs

The assessee was the wife of the ‘S’, who died on 26.01.2010. She received a notice dated 30.03.2017 addressed to her late husband. In the said notice, it was stated that certain income of ‘S’ escaped assessment. The assessee sent a reply pointing out that her husband had already died and enclosed a copy of the death certificate to establish the said fact. The assessee was, however, informed that she should submit all the documents pertaining to her husband's assessment including the details of bank account statements etc. The assessee filed instant petition contending that the impugned notice was void and unenforceable in law, as it had been issued to a dead person.

Held : The issue, which falls for consideration, is as to whether the impugned notice under section 148 in the name of the dead person is enforceable in law and the subsidiary issue being as to whether the assessee, being the wife of the said ‘S’, can be compelled to participate in the proceedings and respond to the impugned notice. The fact that the ‘S’ died on 26.01.2010 is not in dispute. If this fact is not disputed, then the notice issued in the name of the dead person is unenforceable in the eye of law. The department seeks to justify their stand by contending that they were not intimated about the death of the assessee, that the legal heirs did not take any steps to cancel the PAN registration in the name of the assessee and that therefore, the department was justified in directing the assessee to cooperate in the proceedings pursuant to the impugned notice.

The settled legal principle being that a notice issued in the name of the dead person is unenforceable in law. If such is the legal position, would the revenue be justified in contending that they, having no knowledge about the death of the assessee, are entitled to plead that the notice is not defective. The answer to the question should be definitely against the revenue.

Admittedly, the limitation period for issuance of notice for reopening expired on 31.03.2017. The impugned notice was issued on 30.03.2017 in the name of the dead person. On being intimated about the death, the department sent the notice to the assessee - his spouse to participate in the proceedings. This notice was well beyond the period of limitation, as it has been issued after 31.03.2017. The problem sans complicated facts, a notice issued beyond the period of limitation, i.e., 31.03.2017 is a nullity, unenforceable in law and without jurisdiction. Thus, merely because the department was not intimated about the death of the assessee, that cannot, by itself, extend the period of limitation prescribed under the Statute. Nothing has been placed on record by the revenue to show that there is a statutory obligation on the part of the legal representative of the deceased to immediately intimate the death of the assessee or take steps to cancel the PAN registration.

In such circumstances, the question would be as to whether section 159 would get attracted. The answer to this question would be in the negative, as the proceedings under section 159 can be invoked only if the proceedings have already been initiated when the assessee was alive and was permitted for the proceedings to be continued as against the legal heirs. The factual position in the instant case being otherwise, the provisions of section 159 have no application.

The revenue seeks to bring their case under section 292B to state that the defect is a curable defect and on that ground, the impugned notice cannot be declared as invalid. The language employed in section 292B is categorical and clear. The notice has to be, in substance and effect, in conformity with or according to the intent and purpose of the Act. Undoubtedly, the issue relating to limitation is not a curable defect for the revenue to invoke section 292B. For all the above reasons, the impugned notice is wholly without jurisdiction and cannot be enforced against the assessee. Accordingly, the writ petition is allowed. [In favour of assessee] (Related Assessment year : 2010-11) – [Alamelu Veerappan v. ITO (2018) 257 Taxman 72 : 95 taxmann.com 155 (Mad.)]

For purpose of Act, legal representative of deceased assessee would be deemed to be an assessee

Subsequent to death of original assessee, appellant, as a legal heir of deceased assessee, filed return of income. Assessment was completed in name of deceased assessee. On appeal, Tribunal set aside assessment on ground that order passed against a dead person was a nullity and restored matter to Assessing Officer for passing de novo assessment order on right person. For purpose of Act, legal representative of deceased would be deemed to be an assessee as per section 159(3) and, therefore, Tribunal was justified in remanding matter to Assessing Officer for de novo assessment order on legal representative of deceased assessee. [In favour of revenue] – [Rudra Gouda v. ACIT, Bellari (2018) 93 taxmann.com 333 (Karn.)]

Income earned by deceased up to date of his death is chargeable to tax in hands of legal representative and thereupon income arising from estate of deceased after date of his death up to date of complete distribution, is chargeable to tax in hands of executors on year to year basis

Legal representatives (Taxability of income) - In view of provisions of section 159, read with section 168, income earned by deceased up to date of his death is chargeable to tax in hands of legal representative and thereupon income arising from estate of deceased after date of his death up to date of complete distribution, is chargeable to tax in hands of executors on year to year basis. (Related Assessment year : 1992-93) – [B. D. Gupta & Sons v. ITO (2015) 70 SOT 16 : 60 taxmann.com 38 (ITAT Delhi)]

All the legal representatives are not brought on record. Any such omission or defect may render the order made irregular depending upon the nature of the provision not complied with, but certainly not void or illegal

After death of one 'B' who had not filed returns for assessment years 1965-66 to 1967-68, J, one of his ten legal representatives, filed returns for aforesaid assessment years disclosing B's income. Assessing Officer issued notice to J under sections 142(1) and 143(2) and J complied with same. Assessment orders were made mentioning names of all ten legal representatives as assesses. On appeal, J contended for first time that inasmuch as all legal representatives of B were not given notice of assessment proceedings, assessments made were illegal and void. AAC rejected J’s contention holding that completing assessment without serving notice upon all legal representatives was only an irregularity and set aside assessment orders, to be made afresh after notice to all legal representatives. Tribunal affirmed that view. However, High Court held that in absence of service of notice to all legal representatives, assessment made upon them was a nullity and not merely irregular and, therefore, it set aside direction of AAC.

Held : The High Court was not right in holding in these circumstances that the assessment orders made were null and void. They were not. At worst, they were defective proceedings or irregular proceedings, as had been rightly held by the AAC and the Tribunal. The principle emerging from the decision in Estate of Late Rangalal Jajodia v. CIT (1971) 79 ITR 505 (SC), is that an omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax, where such liability is created by distinct substantive provisions. Any such omission or defect may render the order made irregular depending upon the nature of the provision not complied with, but certainly not void or illegal. The appeals were, accordingly, allowed and the judgment of the High Court was set aside. [In favour of revenue] (Related Assessment years : 1965-66 to 1967-68) – [CIT v. Jai Prakash Singh (1996) 219 ITR 737 : 132 VTR 262 : 85 Taxman 407 (SC)]

Principle under Order 22, rule 6 of the Civil Procedure Code that if death occurs between conclusion of hearing and pronouncement of judgment, judgment may in such case be pronounced notwithstanding death and shall have same force and effect as if it had been pronounced before death took place, should be extended in a proceeding under Income-tax Act on the ground of policy of law - It would at best be a defect which could be corrected - Assessment order made without notice to legal representative is not null and void where death of assessee occurs between conclusion of hearing and making of assessment

For the assessment year 1974-75, while completing the assessee's assessment, the Assessing Officer concluded the hearing on 11.02.1980. The assessee ‘R’ expired on 27.02.1980. On 06.03.1980, a letter of the assessee’s advocate dated 29.02.1980 informing of the death of the assessee was delivered to the office of the Assessing Officer. However, the assessment order was made on 13.03.1980 without notice to the legal heir or legal representative of the assessee. It was contended before the Assessing Officer that no assessment could be made without issuing notice to the legal representative of the assessee. The Assessing Officer, however, rejected the contention. On appeal, the Commissioner (Appeals) held that the assessment made by the AO was null and void. The Tribunal allowed the appeal and set aside the order of the Commissioner (Appeals) with an observation that the Assessing Officer may remove the defect by issuing notice to all the legal representatives of the deceased and bring them on record. On reference:

In terms of section 159 of the Income-tax Act in a proceeding taken against the deceased before his death, a notice is required to be issued to the legal representative to have his say before making the assessment order, as the legal representative is an assessee by operation of law from the stage of death. However, the Income-tax Act does not provide abatement of assessment proceeding under the Act like abatement of suit under the Code of Civil Procedure.

Under Order 22, rule 6 of Code of Civil Procedure, if death occurs between the conclusion of hearing and pronouncement of judgment, judgment may in such case be pronounced notwithstanding the death and shall have the same force and effect as if it had been pronounced before the death took place. The principle underlying rule 6 is founded on public policy, for, time taken by an authority or Court for doing a thing which is incumbent on it shall not cause prejudice to the parties. As such the general principle underlying rule 6 should be extended in a proceeding under the Act on the ground of policy of law. In view of the above, the Tribunal was correct in law in setting aside the order of the Commissioner (Appeals) and directing the Assessing Officer to remove the defect by issuing notice to all the legal representatives of the deceased and bringing them on record. Also the Tribunal was correct in holding that non-issue of notices to legal representatives of the deceased assessee ‘R' did not invalidate the assessment order passed by the IAC and that at best it was a defect which was liable to be corrected and as such it was not a case fit for cancellation of the assessment. [In favour of the revenue] (Related Assessment year : 1974-75) - [Md. Zafrulla, Legal Representative of Md. Rafiulla v. CIT (1994) 72 Taxman 231 (Gau.)]

Notice issued to only one legal representative when there are other legal representatives, is not sufficient to provide a complete representation of interest of deceased and therefore assessment made in such a case would not bind the estate of the deceased

The assessee died on 10.02.1969 leaving behind his widow R, and three sons, G, P and C. After his death the estate duty return was filed by P and C (the petitioners). In an affidavit filed the wife of the assessee stated that her husband had left certain cash, on the basis of aforesaid statement, the ITO felt that the income of the assessee had escaped the assessment. He, therefore, issued notice under section 148 to P and a nil return was filed. However, the ITO revised the assessment and raised a demand which was upheld by the Tribunal. On the basis of the certificate issued by the ITO, the TRO, being the respondent, issued an order of attachment of properties owned by the petitioner. On writ:

In the instant case, it could never be inferred that P projected himself as a legal representative representing also the case of the petitioners before the ITO for the simple reason that the petitioner did take part in the estate duty proceedings and was one of the signatories to the return filed therein. This fact was well known to the department and more so because the proceedings of the escaped assessment were commenced on the basis of the affidavit filed by the wife of deceased in the estate duty proceedings. The case of the petitioners did not fall in any of the exceptions carved out to the general rule laid down in the case of First Addl. ITO v. Mrs. Suseela Sadanandan [1965] 57 ITR 168 (SC). The notice issued to P, the son of deceased, was not sufficient to provide complete representation of the interest of the deceased and the assessment made in such circumstances could not bind the estate of the deceased. The submission made on behalf of the respondents that there was complete representation of the estate of the deceased must fail. Accordingly, the petition was allowed and the impugned orders of attachment were set aside. (Related Assessment years : 1969-70 and 1970-71) – [Chaturbhuj v. Tax Recovery Officer (1993) 71 Taxman 146 (Bom.)]