tax liablity after proprietor dies in sole proprietorshipfir
rahul k
(Querist) 27 February 2010
This query is : Resolved
Can tax liabilty of a deceased proprietor be recovered from the legal representatives of the deceased? Also is the death of the sole proprietor leads to the automatic dissolution of the firm?
A V Vishal
(Expert) 27 February 2010
Legal representative’ includes its plural form - Under section 13(2) of the General Clauses Act, words used in singular will include their plural also. Therefore, the expression ‘legal representative’ in section 159 takes in plurality of legal repreÂsentatives - First Addl. ITO v. Mrs. Suseela Sadanandan [1965] 57 ITR 168 (SC).
If all the executors or some of them administered the estate of a deceased without obtaining the probate, all of them or some of them who had administered the estate may be held to be the legal representatives of the deceased and be liable to the extent of property taken possession of by them - First Addl. ITO v. Mrs. Suseela Sadanandan (supra).
ITO must proceed against all legal representatives - If a person dies executing a will appointing more than one executor, or dies intestate leaving behind him more than one heir, the ITO shall proceed to assess the total income of the deceased against all the executors or the legal representatives, as the case may be - First Addl. ITO v. Mrs. Suseela Sadanandan (supra).
Executor is a legal representative - An executor is undoubtedly a legal representative - Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC).
Penalty can be imposed on legal representative - A legal representative who submits the return of income of the deceased person is liable for penalty in cases falling under section 271(1)(c) - Sukumar Mukherjee v. CIT [1958] 33 ITR 231 (Cal.) - Maddula Appa Rao v. ITO [1959] 36 ITR 140 (AP).
Liability of legal representative
Liability is restricted to previous year in which death occurred - The provisions of section 159 do not extend to tax liability of the estate of a deceased person beyond the previous or the acÂcount year in which that person dies - CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC); CIT v. James Anderson [1964] 51 ITR 345 (SC); Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC); CIT v. Hukumchand Mohanlal [1971] 82 ITR 624 (SC).
Liability will subsist even if inherited estate is converted into different form - If the legal representative, after he had inherÂited the assets of the deceased, had converted the asset into a different form, certainly the department would be entitled to proceed against the substituted asset in the same way as it could have proceeded against the original asset of the deceased - M. Abdul Khalick & Co. v. ITO [1975] 101 ITR 43 (Mad.).
Personal properties of legal representative cannot be proceeded against - The personal properties of the legal representative cannot be proceeded against for recovery of the tax due by the deceased by invoking section 159, except in a case where it is found that the assets of the deceased have come into his hands and he has not properly accounted for the same - Union of India v. Mrs. Sarojini Rajah [1974] 97 ITR 37 (Mad.).
Refund due to individual cannot be adjusted against tax dues of his father - Where a refund is payable to an assessee as a result of an appellate order in his individual assessment, the refund cannot be adjusted against the outstanding dues in his father’s case by relying on section 159(4) of the Act. The department can only recover the outstanding dues of the late father of the assessee out of the assets belonging to the late father which by virtue of law of inheritance or by testamentary succession have gone in the hands of the assessee, i.e., son - Hasmukhlal v. ITO [2001] 251 ITR 511 (MP).
Issue of notice
Where notice was served on assessee before his death fresh noÂtice to legal representative is not necessary - Where proceedÂings are validly initiated by serving notice on the assessee before his death, there is no requirement under law to issue another notice to the legal representative - K. Ashok Kumar v. CIT [1986] 162 ITR 543 (Kar.).
Order will not be null and void for lack of notice, if assessee died after conclusion of hearing - Where death of the assessee occurs between conclusion of hearÂing and making of the assessment, an assessment order made withÂout notice to the legal representative is not null and void - Md. Zafrulla, L/R of Md. Rafiulla v. CIT [1994] 72 Taxman 231 (GauÂ.).
Omission to serve notice on all legal representatives is not an irregularity if one of them filed returns and complied with notices - Where after death of one ‘B’ who had not filed returns, 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 assessment was duly completed, omission to serve notice on all legal representatives of ‘B’ was only an irregularity which will render the assessment a nullity - CIT v. Jai Prakash Singh [1996] 85 Taxman 407 (SC)/CIT v. Smt. Pushpa Devi [2001] 250 ITR 495 (Raj.)
Assessment order
Order is binding on all legal representatives - In the context of suits and appeals, the principle is well-settled that if a party bona fide impleaded one of the legal representatives as repreÂsenting the estate of a deceased party and the said representaÂtive represented the estate, the decree obtained therein is binding on the other legal representatives of the deceased. The same principle can be invoked in the case of assessment of income from the estate of a deceased person in the hands of his legal representative - First Addl. ITO v. Mrs. Suseela Sadanandan [1965] 57 ITR 168 (SC).
Legal representative must be specified by name - In an assessment made on the legal representative, the name of such legal repreÂsentative 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’ to the deceased without specifying his name - SahasÂrangshu Kanta Acharya v. Collector of Malda [1963] 47 ITR 754 (Cal.).
Procedural omissions will not nullify assessment, if legal repreÂsentatives voluntarily take part in proceedings - If the legal representative (which term includes plurality of persons) is present before the taxing authority in some capacity or volunÂtarily 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 (Guj.).
Non-impleading of all legal representatives will not always vitiate assessment - An assessment proceeding cannot be rendered invalid or void by merely pointing out to the fact that all the legal representatives in a case where there are many were not present before the assessing authority, because no notices were issued to all of them - V. Ramanathan v. CIT [1963] 49 ITR 881 (Mad.).
Kumar Thadhani
(Expert) 28 February 2010
MR VISHAL has fully expained the oblgation of the legal reprentatives of the tax payer and payment of the legal dues.
