Liability in Special Case
Liability in Special Case
Introduction
Chapter XV of the Income-tax Act, 1961, provides provisions regarding the computation and recovery of tax in special cases. It covers liability in cases of legal representatives, representative assessees, executors, succession to business, dissolution of entities, liquidation of companies, and certain exceptional situations.
Legal Representative [Section 159]
- Upon the death of an individual, two separate assessments are made—one on the legal representative for the deceased’s income until the date of death and another on heirs or executors for income from the estate.
- The liability varies based on whether the deceased left a will and whether an executor was appointed.
Representative Assessee [Sections 160-167]
- Includes agents of non-residents, guardians of minors or incapacitated individuals, and trustees.
- The representative assessee is liable for tax on behalf of the beneficiary and is entitled to exemptions and deductions available to the beneficiary.
Executors [Sections 168-169]
- The executor or administrator of an estate is assessed separately from their personal income.
- Tax is levied on the estate’s income until complete distribution to beneficiaries.
Succession to Business or Profession [Section 170]
- When a business is succeeded by another person, the predecessor is taxed for income up to the succession date, and the successor is taxed for income thereafter.
Modified Return by Successor Entity [Section 170A]
- In cases of business reorganisation, the successor entity must file a modified return within six months from the month in which the final order approving the reorganisation is issued.
Partition of Hindu Undivided Family (HUF) [Section 171]
- A complete partition of HUF is recognised for tax purposes, and post-partition income is taxed in the hands of individual members.
Income Taxable in the Previous Year Itself
The income of a previous year is chargeable in the following assessment year. However, this general principle is subject to the following exceptions in which income is charged to tax in the previous year itself:
- Shipping business of a non-resident [Section 172]
- Persons leaving India [Section 174]
- AOP/BOI formed for a short duration [Section 174A]
- Persons likely to transfer property to avoid tax [Section 175]
- Discontinued business [Section 176]
Dissolution of AOP or Firm
- Tax is assessed as if dissolution has not occurred, and all members or partners remain jointly and severally liable.
Tax Recovery from Non-Residents [Section 173]
- Tax on non-residents’ Indian income can be recovered by tax deduction at source (TDS) or from their assets within India.
Company in Liquidation [Section 178]
- The liquidator must inform the Assessing Officer about his appointment within 30 days of appointment.
- The Assessing Officer will determine the tax liability of the company within three months of notification about the liquidator’s appointment.
Liability of Directors [Section 179]
- If a private company cannot pay its tax dues, its directors are jointly and severally liable unless they prove that non-recovery was not due to their negligence, misfeasance, or breach of duty.