1989 (4) TMI 109 - AT - Income Tax

Summary

Issues:
1. Assessment of income earned by deceased and tax liability on legal heir.
2. Interpretation of section 159 of the Income-tax Act.
3. Clubbing of income for deceased and estate of deceased.
4. Taxation of income accrued and arisen during deceased's lifetime.

Analysis:

1. The case involved the assessment of income earned by a deceased individual and the tax liability on the legal heir. The deceased's legal heir filed two returns for different periods, claiming that the income for each period should be taxed separately. The Income Tax Officer (ITO) did not accept this plea, citing section 159 of the Income-tax Act, which extends the legal personality of the deceased until the end of the accounting year in which the individual died.

2. The ITO's decision was upheld by the Commissioner of Income Tax (Appeals) based on judgments such as CIT v. Amarchand N. Shroff and CIT v. James Anderson. These judgments supported the view that income earned after the death of the deceased should be taxed in the hands of the legal representative.

3. However, the appellate tribunal disagreed with the lower authorities and held that only income accrued or arisen during the deceased's lifetime should be assessed in the deceased's hands through the legal heir. The tribunal emphasized the distinction between income received by the deceased before death and income received by the legal representative after death, especially in cases where the income accrued during the deceased's lifetime but was received posthumously.

4. The tribunal highlighted the importance of analyzing each item of income to determine the portion that accrued or arose to the deceased during their lifetime. It directed the ITO to differentiate between income earned by the deceased and income earned by the executor of the deceased's estate, taxing them separately under sections 159 and 168 of the Income-tax Act.

5. The tribunal's decision clarified that income received after the deceased's death, but accrued during their lifetime, should be taxed in the deceased's hands through the legal representative. The judgment emphasized the distinction between income earned by the deceased and income earned posthumously, ensuring proper assessment and taxation based on the timing of income accrual and receipt.

This comprehensive analysis of the judgment addresses the key issues related to the assessment of income earned by a deceased individual and the tax implications on the legal heir, providing a detailed explanation of the tribunal's decision and its interpretation of relevant legal provisions.