In a significant judgment, the Karnataka High Court has clarified that income tax proceedings initiated against an assessee after their death cannot be continued against their legal representatives. The division bench, comprising Justice Krishna S. Dixit and Justice G. Basavaraja, emphasized that for such proceedings to be valid against legal heirs, they must have been initiated during the assessee's lifetime.
Case Background
The case revolved around the late Ramanatha Gurulakshmi, who had substantial cash deposits and engaged in significant immovable property transactions during the Assessment Year 2016-17. Notably, she had not filed returns declaring interest from these deposits or capital gains. The Income Tax Department, unaware of her demise on October 14, 2022, issued a notice under Section 148A(b) of the Income Tax Act, 1961, on January 31, 2023, asking her to explain why a notice under Section 148 should not be issued. A subsequent notice was sent on February 15, 2023. Due to the absence of a response, an order under Section 148A(d) was passed on March 11, 2023, followed by a notice under Section 148 directing the filing of returns.
Upon learning of these notices, the deceased's legal representative, Preethi V, informed the authorities on November 28, 2023, about Gurulakshmi's death. Despite this, the Assessing Authority, referencing Section 159(2)(d) of the Act, proceeded to make an assessment under Section 147 read with Section 144 on March 29, 2024, against the deceased for the Assessment Year 2016-17.
Legal Proceedings
Challenging this assessment, Preethi V filed a petition, leading to a single judge bench setting aside the demand and penalty notices, along with any consequential proceedings. The Income Tax Officer appealed this decision, arguing that under Sections 159(2)(a), (b), and (c) of the Income Tax Act, proceedings could be initiated against a deceased assessee and enforced against their legal representatives.
Court's Analysis and Judgment
The division bench dismissed the appeal, stating that the provisions cited by the revenue clearly indicate that proceedings initiated against an assessee during their lifetime can be continued against their legal representatives, with their liability being co-extensive with the value of the deceased's estate. The court emphasized that these provisions do not support the initiation of proceedings against a deceased individual, nor do they allow orders passed in such proceedings to bind or be enforced against legal representatives.
The bench further noted that if Parliament had intended for such proceedings to be initiated against deceased assessees and continued against their legal heirs, it would have explicitly provided for it in the legislation. The absence of such a provision indicates that the current legal framework does not support the revenue's interpretation.
Implications of the Judgment
This ruling underscores the importance of initiating tax proceedings during an assessee's lifetime to hold legal representatives accountable. It also highlights the necessity for the Income Tax Department to stay informed about an assessee's status to ensure the validity of their proceedings. The judgment serves as a reminder that legal heirs can only be held liable for tax obligations if proceedings were initiated before the assessee's death.
In conclusion, the Karnataka High Court's decision provides clarity on the applicability of income tax proceedings concerning deceased individuals, emphasizing the need for timely initiation of such proceedings to ensure their enforceability against legal representatives.
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