Introduction:
Under the Income Tax Act, the legal representatives of a deceased taxpayer may be held liable for the deceased’s tax obligations, including those arising from reassessment proceedings. Section 159 of the Act allows such proceedings to continue after the taxpayer’s death if a reassessment notice was issued during the taxpayer’s lifetime. However, if no reassessment notice was issued before death, the proceedings cannot be initiated posthumously. This provision ensures that tax matters are not delayed due to the taxpayer’s death and allows for the continuity of necessary actions.
The Delhi High Court recently addressed this issue in Late Sh. Lal Chand Verma Through His Legal Heir v. Union of India & Anr.,where the legal representative of a deceased taxpayer challenged a reassessment notice issued after the taxpayer’s death.
Facts:
In the present matter, the assessee passed away in July 2021. A reassessment notice under Section 148 of the Income Tax Act was issued in March 2023, over two years after the assessee’s death. Although the legal representative informed the Income Tax Department of the death, the Department continued with the reassessment notice, which sought to treat ₹14,55,000 in financial transactions as taxable income for the relevant assessment year.
Views of the High Court:
The Delhi High Court clarified that Section 159 of the Income Tax Act applies only when proceedings are initiated and pending during the taxpayer’s lifetime. After death, the legal representative assumes responsibility for continuing such proceedings. In this case, the reassessment notice was issued after the taxpayer’s death, so Section 159 could not be invoked.
The legal representative argued that the reassessment notice was invalid, as it was issued to a deceased person, failing to meet jurisdictional requirements. The legal representative contended that the notice should have been issued to them, not the deceased.
The Income Tax Department, on the other hand, argued that Section 159 could still be invoked, asserting that the defect in the notice was curable. They contended that the legal representative could respond to the notice and continue the reassessment process, even if issued after the taxpayer’s death.
The Court noted that Section 159(2)(b) had not been followed, as no notice had been issued to the legal representative despite the Department being informed of the death. The Court emphasized that the Income Tax Department should have issued the notice to the legal representative under the relevant provision.
As a result, the Court quashed the reassessment notice and proceedings, reinforcing that reassessment proceedings must be directed to the legal representative to be valid.
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