S Murlidharan

A cross inheritors must bear

S Murlidharan | Updated on August 25, 2020

Legal heirs should be bound to notify the taxman of their predecessor’s demise

A death in the family can be haunting, both emotionally as well as through the turmoils of dealing with the financial dealings or non-dealings of the deceased. It is human only to perk up at the prospects of inheriting a property once the mourning period ends, but the successors also inherit the legal responsibility for compliance that the deceased would, or should, have carried out himself.

It is against this backdrop that the Delhi High Court order of August 13, absolving the inheritors of their duty to inform the income tax officials of the fact of death of their predecessor comes as a surprise. If the deceased was drawing pension, his successors are supposed to inform the bank through which the pension was being drawn about the factum of death along with the death certificate so that the bank in turn can inform the pension-paying department concerned. In the absence of this rule, pension would continue to flow into the bank account of the deceased.

Ideally, this whole process should happen automatically without any human intervention. Aadhaar is now the lynchpin. Cemeteries and crematoriums cannot perform last rites without both the death certificate and the Aadhaar of the deceased. So, when the last rites are over, the computer entry to that effect should trigger a series of actions — all the bank accounts of the deceased should be frozen, as should all shares and bonds held in depositories, and all sub-registrars must be put on guard lest charlatans have a field day hot on the heels of a death.

But the Aadhaar ecosystem is not geared to trigger such simultaneous automatic freezing actions and so it is up to that successors to see these process through.

The Delhi High Court says the relationship between the deceased and his heirs might not have been cordial. That by itself, it is respectfully submitted, is no reason for absolving them of the need to inform the authorities. The facts of this particular case were that the deceased was issued a notice to explain investments for which apparently he had no source of income, but he passed away before any conclusion was made. The tax authorities passed an order on the deceased in November 2019 imposing penalty for non-compliance with the notice. It was against this penalty order that the legal heirs approached the Delhi High Court. Had they informed the Income Tax Department about the factum of the death of the assessee, they would have been spared the blushes and penalty.

The Delhi High Court order ignores the legal position that the heirs are responsible for the tax liabilities and penalties of the deceased to the extent which the estate inherited by them can absorb. Suppose a person dies in March after earning a lot of income during the course of the financial year. Does the Delhi High Court expect the Income Tax Department to just tut-tut in sympathy and forget and forego its tax claims? No; instead, the law expects the legal heir to apply for a fresh PAN in his capacity as a legal heir and not only file the income tax return for the financial year but also pay the resultant tax dues from out of the property inherited by him.

Of course, the income tax law has been remiss in expressly mandating that heirs notify the Income Tax Department forthwith soon after their benefactor dies. And strangely, the Delhi High Court has latched on to this clerical omission to absolve the heirs of their duty. The Delhi High Court should have instead asked the government to fill this void in the law so that all legal heirs take their responsibilities seriously.

The writer is a Chennai-based chartered accountant

Published on August 25, 2020

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