2015 (3) TMI 539 - HC - Income Tax

Income accrued after the death of the deceased - I.T.A.T. restoring the matter to the file of the AO with the direction that he will analysis each item of income with a view to ascertain as to which part of it accrued and arose to the deceased during his life time and as to what is the income which accrued or arose after the death of the deceased not to him but to the executor and to bring to tax separately the two total incomes (1) u/s 159 and (2) u/s 168 - Held that - From the record, it appears that the Tribunal has restored the matter back to the A.O. and, by now, the A.O. must have passed a fresh order as per the direction of the Tribunal. Further, the tax amount involved is a meager one in the instant case. On merit, we are of the view that the income which accrued after the death of the deceased belongs to the executor of the will of the deceased and in that capacity an assessment has to be made. The income which was earned by the deceased during his lifetime will have to be assessed separately, as deceased cannot earn any income after his death, nor such income could be assessed in his hands. In other words, the income which never belonged to the deceased and which never accrued to him could not be brought in his hands. It may be mentioned that Section-176 (IA) was inserted whereby the income earned by the deceased but received after his death, subsequent to the end of the previous year in which he died but also made assessable through his legal representative by the fiction created in Section-176(3A) of the Act. As soon as death takes place, the property/income in question is vested in the legal heirs. When it is so then we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained alongwith the reasons mentioned herein above. - Decided against revenue.

Summary

Issues involved:
1. Whether two separate returns can be filed for income earned by a deceased individual before and after their death?
2. Whether the income earned after the death of the deceased should be assessed separately under Sections 159 and 168 of the Income Tax Act?

Detailed Analysis:
1. The case involved a reference application filed by the department following the Tribunal's order regarding the filing of two separate returns by the legal heir of a deceased individual for the income earned before and after the death. The deceased followed the Diwali year for accounting, and the returns were filed for the periods before and after his death.

2. The Assessing Officer (A.O.) disallowed the filing of two separate returns and clubbed both incomes for assessment. The Tribunal set aside the lower authorities' orders, directing the A.O. to analyze each item of income to differentiate between what accrued during the deceased's lifetime and what arose after his death. The matter was referred back to the A.O. for separate assessment under Sections 159 and 168 of the Income Tax Act.

3. The department moved a reference application questioning the Tribunal's decision, arguing that a single return should have been filed for the entire accounting year in which the deceased died. The department relied on legal precedents to support its stance.

4. The counsel for the assessee supported the Tribunal's decision, emphasizing that no income had escaped taxation, and the A.O. likely implemented the Tribunal's directive by now.

5. The High Court analyzed the situation and upheld the Tribunal's decision, stating that income earned after the deceased's death should be assessed separately under the relevant sections of the Income Tax Act. The court clarified that income earned by the deceased during their lifetime should be assessed separately, as the deceased cannot earn income posthumously.

6. The court highlighted the legal provisions, including Section 176(IA), which addresses income earned by the deceased but received after their death. It affirmed that property and income become vested in legal heirs upon death, justifying the separate assessment of post-death income. The court found no reason to interfere with the Tribunal's decision and sustained it.

7. Consequently, the court answered the referred questions in favor of separate assessment for pre and post-death income. The reference application was disposed of based on the court's analysis and decision.