Liability in Special Cases – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.
Liability in Special Cases – CA Final DT Question Bank
Question 1.
Mr. Raja, a resident individual died on 15.1.2021. Some reassessment proceedings in respect of his income chargeable to tax were pending on that date. Mr. Nitin is the legal heir of Late Raja. The A.O. continued the reassessment proceedings without bringing the legal heir Mr. Nitin on record though Mr. Nitin informed the demise of Raja and also participated in the assessment. After the completion of assessment, Mr. Nitin contends that the order of assessment is bad in law. Decide the validity of the contentions of Mr. Nitin. [CA Final May 2019 (Old Syllabus)] [4 Marks]
Answer:
As per section 159(2), for making a reassessment of the income of the deceased person, any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from that stage.
In a case where an assessee dies pending any assessment proceedings, the A.O. is required to pass appropriate orders of assessment after due notice to legal representative of deceased assessee.
However, in this case, the A.O. continued the assessment proceedings without bringing Mr. Nitin, the legal heir, on record by issuing any notice for such proceedings after the death of his father on 15.01.2021.
Therefore, the contention of the Mr. Nitin that the order of assessment is bad in law, is correct.
Question 2.
Mr. Srinivasan was a Central Government pensioner, who expired on 10.5.2021. An amount of ₹ 10 lakhs in cash was deposited into his savings bank account maintained in a nationalized bank on 28.2.2021, which was reported by the banker u/s 285BA. A notice was issued by the Assessing Officer to Mrs. Srinivasan who is his legal representative to file his Return of Income. Mrs. Srinivasan has approached you as a Tax Consultant as to the course of action to be undertaken by her, since she is unaware of her deceased husband’s financial dealings.
What will be your advice to Mrs. Srinivasan? [CA Final May 2019 {New Syllabus)] [4 Marks]
Answer:
As per Sec. 159, where a person dies, his legal representatives (LR) shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.
For the purpose of making an assessment (including reassessment u/s 147) and for the purpose of levying any sum on the legal representatives any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representatives and shall be continued.
Further, any proceeding which could have been taken against the deceased, if he had survived, can be initiated and taken against the legal representatives. Even penalty proceedings can be initiated after the death of the deceased. However, the liability of a legal representative shall be limited to the extent to which the estate of the deceased assessee is capable of meeting the liability.
The A.O. should first issue notice u/s 142 /143 /148 to the legal representative and then proceed to assess the income of the deceased in the hands of the LR. Failure to issue such notice would make the order irregular but not void or illegal. [CITv Jai Prakash Singh (1996)(SC)]
Section 159 applies in respect of income of the deceased only upto the date of his death and not upto the end of the accounting year in which the death occurred. Therefore, in the year of death there will be 2 separate assessments:
- Upto date of death u/s 159 and
- From that date till the end of the year as personal income of the legal representatives.
In this case, Mr. Srinivasan was expired on 10.5.2021. Cash of ₹ 10 lakhs was deposited in the savings bank account of Mr. Srinivasan on 28.02.2021. A notice was issued by the A.O. to Mrs. Srinivasan who is his legal representative to file his return of income.
As per Sec. 159, the action of the A.O. to issue notice is valid and Mrs. Srinivasan has to file ROI in respect of income of Mr. Srinivasan.
Question 3.
M/s SB & Co. is a partnership firm carrying on trading activity. It has filed all its returns promptly up to the A.Y. 2020-21. The firm suffered losses year after year due to market conditions and some of its major debtors defaulted in payment of their dues. It was decided by the partners on 28.6.2020, when the scrutiny assessment for the Assessment Year 2018-19 was in progress, that the business of the firm should be discontinued and a notice of discontinuance of business was given to the A.O. on 10.7.2020. In these circumstances, you are required to advise on the tax implications for the firm. [CA Final Nov. 2019 (Old Syllabus)] [4 Marks]
Answer:
As per section 176, where any business or profession is discontinued in any assessment year, the income of that assessment year upto the date of discontinuance may, at discretion of A.O., be charged to tax in that assessment year.
The assessee discontinuing the business or profession should give notice of the discontinuance to the A.O. within 15 days thereof. Any sum received after such discontinuance shall be taxable in the hands of the recipient in the year of receipt.
Thus, M/s. SB & Co. is required to give notice u/s 176 within 15 days of discontinuance of business.
Where any discontinuation or dissolution takes place after any proceedings for such A.Y. has commenced, the proceedings may be continued against the person from the stage at which the proceedings stood at the time of such discontinuation.
Question 4.
There is a tax arrear of ₹ 52 lakhs payable by Super Six Traders (P) Ltd. relating to various assessment years. The court appointed a liquidator on 30.06.2020. The liquidator failed to notify his appointment to the A.O. and also omitted to take note of the tax arrears. He sold some of the assets of the company and settled the suppliers’ dues. What would be the legal consequence of the actions of the liquidator? [CA Final Nov. 2019 (New Syllabus)] [4 Marks]
Answer:
As per section 178, every person who is appointed as a liquidator receiver of the company which is being wound up, shall give a notice of his her appointment to the A.O. entitled to assess the income of the company within 30 days of his appointment.
The liquidator shall not, without the leave of Principal CCIT/CCIT or Principal CIT/CIT, part with any of the assets of the company until:
- the amount of tax to be set aside has been notified by A.O. and
- on being so notified, the amount has been set aside.
However, the liquidator may part with the assets for the purpose of tax payment, payment to secured creditors or meeting cost of winding up.
If the liquidator fails to give notice or parts with assets in contravention of above provision, he shall be personally liable for payment of tax which the company would be liable to pay and also as per section 276A, the liquidator shall be liable for imprisonment which shall not be less than 6 months but which may extend to 2 years and fine.
In this case, the liquidator of Super Six traders, (R) Ltd. has failed to notify his appointment to A.O. and also has parted with assets of the company without taking note of tax arrears and thus, liquidator shall be liable for above mentioned legal consequences.