The Hindu Business Line : Death without will

Indian mythology has it that a special heaven as the exclusive abode of King Trishanku was created in midair by Brahmarishi Vishwamitra when he was thrown out of the original one where benign souls are normally supposed to find sanctuary post death.

Ever since, in the world of politics, hung assemblies — where no party gets an absolute majority — are picturesquely referred to as trishanku (hung) assemblies by the media and political commentators alike.

The income-tax law, on its part, has created a trishanku regime for taxing the posthumous income of a deceased dying intestate which could be music for legal heirs and frustrating for the tax administration.

Legal representative’s duty

Section 159 calls upon the legal representative(s) of the deceased to shoulder all the liabilities and responsibilities which the deceased himself/herself would have, had s/he been alive subject to the relief that they incur no personal liability and the taxes payable by them on behalf of the deceased would be confined to the extent of the value of the estate.

The Supreme Court had in a significant judgment in CIT vs Amarchand N. Shrof (1963 48 ITR 59) held that the duties cast on the legal representatives and the liability fastened on them do not extend for taxes falling due for periods beyond the previous year in which s/he dies.

The apex court has consistently and steadfastly been upholding this stand (CIT vs James Anderson (1964 51 ITR 345) and Estate of Ranglal Jajodia vs CIT (1971 79 ITR 505)). Naturally, one would infer that for taxes due from the deceased relating to the previous years following the year of his/her death, the executor would be responsible.

Let us see what the tax provisions relating to executors contained in Section 168 say.

Executor presupposes testate death

Section 168 says that the income of an estate shall be taxable in the hands of its executor(s).

The void created by the Supreme Court stand — legal representatives are not liable for taxes arising after the expiry of the previous in which the death took place — apparently gets filled by the dispensation contained in Section 168.

That is to say, the executor takes over from legal representatives for the income arising from the estate beyond the previous year.

But then the Madras High Court in CIT vs P. Manonmani (2000 245 ITR 48) held that Section 168 is applicable only when the death is testate.

In other words, in case of intestate deaths, there is simply no scope for invoking Section 168 to capture the income arising to the estate beyond the previous year of the death.

The Supreme Court in Estate of Ranglal Jajodia (supra) in addition held that an executor undoubtedly is a legal representative as well. True, but the reverse is not true, that is, legal representatives are not executors.

In the event, a legal representative of an intestate estate may very well wash his hands off once he pays the taxes up to the previous year in which the death took place.

It is only when the deceased has appointed an executor that the government can be confident of collecting all the taxes from the estate arising till the assets are distributed amongst the beneficiaries of the will.

Bring Clarity

A trishanku assembly is an anathema. So is any uncertainty. Parliament should step in so that the ambivalence in this regard perhaps engendered by an arguably erroneous interpretation of law by the apex court, if one may say so with due respect, is removed.

There seems to be nothing in Section 159 to warrant the interpretation that a legal representative’s liability does not extend for tax dues relating to the period beyond the previous year in which the deceased expired.

The ambivalence in this regard could well encourage legal representatives to postpone as long as possible the act of distributing the assets left behind by the deceased who has died intestate so as to frustrate the taxman.

(The author is a Delhi-based chartered accountant. blfeedback@thehindu.co.in)

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