Who will file the income tax return in case of Death of Person

By | August 3, 2015
(Last Updated On: August 3, 2015)

Legal heirs need to file income tax return in case of Death of Person

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Question : Whether Income Tax Return has to be filed in case the person dies?

Its not only the living who have to pay their taxes. If one of your family members has died during the financial year and s/ he was liable to pay tax, you might need to file a return on his or her behalf.
Question : Who will file the Income tax Return of the Deceased ?
Section 159 of the Income- Tax Act lays down the liabilities of the legal representatives of a deceased person. In most cases, the individuals spouse or eldest son/ daughter assumes the status of legal heir or representative. This is unless the will mentions another person to be the executor or administrator of the estate.
Question : For what period Income Tax return of the Deceased has to be filed ?
As a legal heir, you have to file the return on behalf of the deceased for income earned till the date of death.The returns have to be filed as if the deceased had not died, in the same manner and extent as the deceased did.

Question : how will the residential status of a deceased  will be determined ?

 The following example will show the mode of determination of residential status of a deceased when the residential status is not determinable by resort to the general provisions of section 6 of the Act–

Example : Mr. I died on 1-5-2011. He had earned income of Rs. 4 lakh during April 2011 from a source outside India. Mr. I had never left India. Are the legal representatives of Mr. I liable to pay any tax in respect of Mr. I ?

Solution : If one goes by exact wordings of section 6, one would find that Mr. I has become non-resident for the previous year 2011-12, as his stay in India (in fact, his stay in the world) was less than 60 days as contemplated in second basic condition of section 6(1) of the Act.

But, one would argue, is such a determination logical? Going by logical reasoning and intent and purposes of the Act, Mr. I has to be held to be resident in India and, further so in view f section 159(1) of the Act, which provides that – “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.”

Had Mr. I not died, he would have been liable to tax in respect of his income of Rs. 4 lakh. Accordingly, the said income will be chargeable to tax in the hands of the legal representative

The Supreme Court in CIT v. Hukumchand Mohanlal [1971] 82 ITR 624, held that section 159(1) extends fictionally the legal personality of a deceased person only for the duration of the previous year in the course of which he died and, therefore, in case deceased followed cash system of accounting, the income received either by him before his death or by his heirs and representatives after his death in that previous year alone would be assessable to tax in the relevant assessment year, but not the income received in any year subsequent to that previous or accounting year. Since no assessment can be made on a deceased, except as provided in section 159, there can’t be any assessment of the deceased person for the years subsequent to year of his death.

[Opinion Note : In certain cases, determination of residential status of the deceased may become difficult when deceased used to reside in India as well as abroad. Though the number of such cases would be less, yet in those cases the guiding factor may be the ratio of number of days in which the deceased resided in India as well as abroad during the previous year in which his death took place. If deceased was a foreign resident, but died in India while his stay in India (which is less than 182 days), he would be held to be non-resident only. However, if, in case of Indian resident, he went outside India and died there and he didn’t remain in India even for a single day (for instance, an old man visits a place abroad in the month of March, 2011 for two months and dies in April, 2011 while he is outside India), then also, he would be held to be resident in India. In fact, the agreements for avoidance of double taxation with the various agreements also guide in the matter of determination of residential status, which may be referred to in those cases.]

Question What will happen to the Income earned after the date of Death of the deceased ?

Any income earned after the date of death is taxable in the hands of the legal heir or executor of the deceased’s estate
Question : Who Will pay the Taxes of Deceased person ?
By section 159, the legal heir or representative is deemed the assessee. As such, s/ he will have to pay taxes liable to be paid by the deceased, including advance tax and self assessment tax.
If s/ he chooses not to file the return, the tax authorities could levy the same penalty as on the deceased
Question : What will happen if tax liability of the deceased is more than the value of the Assets received  by the legal heirs ?
The money for paying the taxes does not go out of the legal heirs pocket. The amount for paying the tax has to go out from the deceaseds estate. Liability of the legal representative is limited to the extent the estate is capable of meeting the liability
The legal heir is not responsible for paying taxes from his own pocket with respect to inherited assets to which they don’t 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. 5 lakh as his share from his father’s estate and his father’s tax liability was Rs. 7.5 lakh, the former cannot be made liable to pay more than Rs. 5 lakh.
Question: What are the  challenges in filing Income tax return of deceased Person ?
It might be difficult to obtain details of the income earned by the deceased person during the year and tax deducted/ remitted on the same
Where the person has died intestate, all the surviving persons may be treated as legal representatives. A dispute might arise if there is no unanimity on the division of the estate among the legal heirs and this can pose a problem in doing the tax compliance on time, for and on behalf of the deceased
Organising funds to meet the liability can also be a problem. If the sum is significant and the legal representative does not have the bandwidth or access to the assets of the deceased, it might be difficult to remit the tax dues.
In case there is any pending tax litigation or tax arrears and if the deceased does not have sufficient liquidity to discharge these, the legal representative might be left with no other choice but to sell the asset.
Since the tax deduction certificate might be issued in the name of the deceased due to non- updation of record, the legal heir might find it difficult to claim the tax credit deducted in respect of the income of the deceased as clubbed in his hand.
Question: How to  Claim refund of Income tax  deducted / paid in the name of Deceased person ?
The legal representative can receive the refund while processing the return of income of the deceased. Usually, the refund is directly credited to the bank account provided at the time of filing the return. The account may be of the legal representative or the joint account held by the legal representative and the deceased person jointly or any such other arrangement agreed upon by the legal representatives.
Question: What will happen in case of  the deceased person has foreign assets ?
In case the deceased has foreign assets/ income, these would have to be included in the return of income for the relevant year. In such cases, mandatory e- filing of return shall be required. In case these relate to previous years but have not been disclosed or are from unexplained sources of investment, the legal representative would have to declare these under the new Black Money Act. For this purpose, the representative can use the compliance window notified recently and remit the taxes along with penalty.
Question: Can the Order of Assessment be passed in the name of the Deceased person ?
Since order was passed by Commissioner (Appeals) in name of dead person, order of Commissioner (Appeals) needed readjudication

HIGH COURT OF MADRAS Ramesh M. Mehta v. Assistant Commissioner of Income-tax, Business Circle -XV, Chennai TAX CASE (APPEAL) NO. 634 OF 2013 NOVEMBER  4, 2013

Question : The deceased had three legal heirs. However, an appeal against the assessment order was filed by one of the legal heirs only, namely, ‘S’. Can the The Commissioner (Appeals) refused to admit the appeal filed by ‘S’ mainly on the grounds that the appeal was not signed by all the three legal heirs and, moreover, the tax due had not been paid ?

In view of provisions of section 159, every legal representative is personally liable to extent of interest in estate inherited by him and he being deemed assessee under section 159(3), is to be treated as an aggrieved assessee as contemplated under section 246A and, therefore, entitled to file appeal subject to fulfilment of other conditions

Merely because other two legal representatives did not prefer appeal for reasons known to them, legal representative who filed appeal could not be deprived of her right to protect her interest in property by preferring appeal before Commissioner (Appeals)

Merely because appeal memo was not signed by all legal representatives, it could not be rejected and, hence, Commissioner (Appeals) was to be directed to entertain appeal filed by appellant for proper quantification of tax payable with respect to her interest in estate of deceased.

N THE ITAT MUMBAI BENCH ‘I’ Smt. Sudha A. Chowgule v. Deputy Commissioner of Income-tax*, Central Circle-42 IT APPEAL NOS. 642 TO 647 AND 674/(MUM.) OF 2010 [ASSESSMENT YEARS 2001-02 TO 2007-08] JANUARY 31, 2011

Question  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 assessees . Can the J contend that  since  all legal representatives of B were not given notice of assessment proceedings, assessments made

were illegal and void ?

No, non-service of notice under section 143(2) against nine out of ten legal representatives of deceased B  will no invalidated assessment orders . SUPREME COURT OF INDIA Commissioner of Income-tax v.  Jai Prakash Singh CIVIL APPEAL NOS. 2542-2544 OF 1977

Question Whether  legal representatives will be liable to pay penalty which  even though default was committed by deceased when he was alive ?

 By virtue of section 159(2) and section 159(1) legal representatives will be liable to pay penalty which can be validly imposed on them, even though default was committed by deceased when he was alive.



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