TaxTMI 
TaxTMI 
TaxTMI 
Continuity of Tax Obligations After Death of the assessee : Clause 302 of the Income Tax Bill, 2025 Vs. Section 159 of the Income-tax Act, 1961
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....ive behind both Section 159 and Clause 302 is to ensure the continuity of tax proceedings and recovery despite the death of an assessee. The legislature's intent is to prevent the evasion of tax liabilities by reason of death and to secure the government's revenue interests. The provisions are designed to: * Impose liability on legal representatives to the extent of the estate inherited or managed by them. * Facilitate the continuation of pending assessments or proceedings against the deceased through their legal representatives. * Balance the interests of the revenue with the protection afforded to legal representatives against personal liability beyond the estate's assets. Historically, the absence of such provisions led to practical difficulties in tax recovery from estates, especially where assessments were incomplete or tax liabilities were discovered posthumously. The provisions are thus critical components of the tax administration framework. Detailed Analysis of Clause 302 of the Income Tax Bill, 2025 Clause 302 spans seven sub-clauses, each addressing a distinct aspect of the liability of legal representatives. Sub-clause (1): Liability of Legal Repre....
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....of the deceased is capable of meeting the liability. This is a crucial safeguard: the legal representative's liability is, in principle, limited to the value of the estate inherited or managed by them. This limitation is subject to exceptions contained in the following sub-clauses. Sub-clause (5): Personal Liability for Improper Dealings Every legal representative shall be personally liable for any sum payable by him in his capacity as legal representative if, while such liability remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession. This provision penalizes legal representatives who, while tax liabilities remain unpaid, alienate or encumber estate assets. The intention is to prevent the depletion of the estate to the prejudice of the revenue. Sub-clause (6): Limitation of Personal Liability The liability of a legal representative referred to in sub-section (5) shall be limited to the value of the asset so charged, disposed of or parted with. Even where personal liability is imposed for improper dealings, it is capped at the value of the asset dissipated, prevent....
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....61(2), 162, and 167 of the 1961 Act, which deal with liability of representatives, agents, and trustees. * Clause 302(7) refers to Clause 304(2) and (5) and 305 of the 2025 Bill, which likely correspond to similar provisions but reflect the new Bill's numbering and potentially revised content. * Express Limitation Clause: * Section 159(6) provides that the liability of a legal representative is limited to the extent to which the estate is capable of meeting the liability, subject to sub-sections (4) and (5). * Clause 302(4) provides a similar limitation but is made "subject to the provisions of sub-sections (5), (6), and (7)," indicating a broader cross-reference. 4. Drafting and Clarity The 2025 Bill's drafting is more segmented and arguably clearer, with each legal consequence placed in a separate sub-clause. This is consistent with modern legislative drafting practices, which favor clarity and ease of reference. 5. Substantive Changes No major substantive changes are apparent in the basic framework of liability. However, the more explicit sequencing and referencing may have interpretive consequences, particularly regarding the interplay between the limit....
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....must prioritize statutory dues, including taxes, over distributions to heirs or legatees. * Failure to do so can expose them to personal liability, even if acting in good faith. * For Heirs and Beneficiaries: * Distributions received may be subject to clawback if tax liabilities are subsequently discovered or assessed. * Awareness of potential tax claims is essential in estate planning and succession matters. Policy Considerations and Rationale The policy rationale underpinning these provisions is clear: to prevent the frustration of tax collection by reason of death and to ensure that the government's revenue interests are protected. At the same time, the law seeks to protect legal representatives from personal liability beyond the estate's value, thereby balancing the interests of the state and private parties. The provisions also serve an important deterrent function, discouraging legal representatives from dissipating estate assets before settling statutory dues. The graduated approach-limiting liability to the estate in the ordinary course, but imposing personal liability for improper alienations-reflects a nuanced understanding of estate administration. Pot....